Should we still be as excited about Build-to-Rent?

There are many challenges facing the residential market in 2023, as buyers find it more challenging to secure a mortgage due to increased living costs, rising mortgage rates, and the end of the help-to-buy scheme.

Despite not being an ideal situation for residential sales, the forecast does look good for the rental market, particularly Build-to-Rent (BTR), which has already proven resilient during turbulent economic times. The unemployment rate remains low, the population is growing, wages are on the rise, and higher mortgage rates are reducing affordability. Meanwhile, many landlords are selling up amid much less friendly tax policies.

So despite a challenging 2022 and a slight slowdown in Q4, the build-to-rent sector is in excellent shape, with over £30 billion invested, over 75,000 homes completed and a further 163,400 in the planning and delivery stages. And it doesn’t look as though that will slow down anytime soon as a recent BTR report produced by British Property Federation (BPF), Savills and data specialists Molior, revealed that completed Build to Rent (BTR) homes could rise five-fold to 380,000 homes by 2032. The forecast reveals that by 2032, 8% of UK homes for rent will be purpose-built. That’s up from only 1.5% today. (source)

This is excellent news for the sector – but the question we should be asking is, where will that growth occur? And what will the evolution of BTR look like through 2023 and beyond?

Regional Cities

Although developers and investors initially focused on London, since 2017 they have turned their attention to other major UK cities, including Manchester, Birmingham, and Leeds. While Co-Living is still lagging behind, local authorities are increasingly adopting BTR to diversify their housing supply. Some 47% of local authorities now have BTR in their housing pipeline. In order to continue to drive economic growth within inner city regeneration, the government must continue to explore how planning reform and land release can facilitate the sector’s continued growth.

Single Family Homes

Built-to-rent has traditionally been dominated by multifamily properties but there has recently been a rise in single-family homes (SFH). Therefore, the prediction of SFHs growing to 18% of all Build-to-Rent stock is not surprising. More and more people throughout the UK – not just in cities – are interested in renting a family home. Within the past 12 months, this segment of the market has seen a 44% increase in planning pipelines, reaching 21,000 homes.

Later Living

In a recent analysis by Paragon Bank, tenants 65 years and over and those 55-64 years of age have been shown to be the fastest-growing segments of the private rental sector.

Almost a quarter of the population will be over 65 years old, and investors are increasingly interested in retirement living. A recent Knight Frank survey found that 67% of leading investors across residential investment sectors anticipate investing in senior housing rental within the next five years.

To summarise, the future looks bright for the Living Assets sector and although this sector still accounts for only a small amount of new housing production, completed BTR homes are up by 14% year-on-year, and the sector could be worth £170 billion by 2032.

There will undoubtedly be an increase in the number of Build-to-Rent specialists entering the market. This will provide further career opportunities for those working in or looking to move into the sector. For the foreseeable future, Living Assets should continue to play a significant role in the housing market.

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