Lavish Build to rent gold rush raises fears for social housing | Commercial property
Ja Keel, a converted former HMRC office building overlooking Liverpool’s waterfront, is touted as the solution to boring, impersonal rental accommodation. Tenants in the 240 new apartment block can simulate a sunny glow during video calls by logging in from its new “Zoom Room”. According to its interior designer, Jasper Sanders, the effect created by the tinted windows is a friendly nod to many Liverpudlians’ love of a year-round tan.
In the Wembley Park development in northwest London, tenants can work from retro campervans or bespoke work-from-home sheds.
Welcome to the booming world of “build to rent”, an asset class that is shaking up the housing market, attracting renters with the promise of more professional management than individual private landlords, and sucking in a flood of money, banks, pension funds and even retailer John Lewis. Tempted by the prospect of stable returns, these blocks are developed, owned and operated by large companies with deep pockets.
Yet there is growing unease about the rise of this new class of rental property, with fears that the poorest in society are being overvalued.
Rob Wall, a 34-year-old communications coach, has moved to Wembley Park, the UK’s largest let-to-build complex, lured by the benefits.
In exchange for pet-friendly but small apartments with common perks, such as access to the gym and a movie theater, tenants part with a monthly rent starting at 1,770 £ (plus utilities of around £200 per month).
Developer Quintain’s all-inclusive package meant Wall no longer had to pay for its own utilities or arrange for repairs. “We don’t need to get too involved,” he says. “As a batsman and football fan, it’s a real bonus to be next to the SSE Arena and the stadium.”
Institutional land ownership is relatively new in Britain, but the sector has exploded as property prices have soared, making the prospect of buying a home even more out of reach for many. Building for rent now accounts for 20% of all new housing in England, a figure that rises to 40% for London, according to consultancy Molior. Research from estate agency Ascend Properties shows that applications for planning permission for building units to let across the UK have increased by 52% during the pandemic.
“For a long time, residential real estate was not considered a viable asset class; it’s really complicated to manage, with huge operational costs,” said Frances Brill, a geographer at the University of Cambridge who specializes in building for rent.
But with interest rates so low, commercial properties with fragile returns and Britain facing a chronic housing shortage, it had become an attractive bet. “Investors feel there is money to be made if you are able to provide quality housing,” she said.
Well-established players such as US developer Greystar – which last month partnered with Abu Dhabi in a £2.2billion deal to build rental homes in London – have led the charge . Macquarie, the Australian bank that reaped huge dividends when it owned Thames Water, has set up a rental business, Goodstone Living. US private equity giant KKR is financing 4,000 luxury homes. Big names such as John Lewis, Lloyds Bank and Legal & General (L&G) are also joining the gold rush. Lloyds plans to own 50,000 homes within a decade, under a strategy developed by new boss Charlie Nunn, the FinancialTimes reports.
Investors poured a record £4.1bn into the sector last year, according to property adviser CBRE. The boom is expected to continue as demand for rentals exceeds supply. In Leeds, L&G is transforming Tower Works, the former Grade II listed factory in the city centre, into 245 rental apartments. Developers are also eyeing suburban areas, rolling out larger, pet-friendly homes designed to encourage longer-term contracts. L&G has announced a 117-unit scheme in Peterborough for families looking for out-of-town properties with offices and gardens.
Experts say that while the interest of private equity firms comes from experience, the biggest appeal for pension funds is that they can raise rent roughly in line with inflation. Dan Batterton, head of build-to-let at L&G, said investors had taken around 4% of inflation-linked annual rental income. “The need for housing makes the rental market less volatile,” Batterton said.
For renters, there’s the promise of well-managed homes for people who can’t afford to buy and are tired of rogue landlords. In the UK, there are almost twice as many people looking for rentals as there are places available – a ratio that rises to 10 to one in Salford, according to research by insurer Admiral.
“Especially in such a new market, a big pension fund can’t afford to be known as a terrible owner,” Brill said. “Nobody wants to throw a grandma out on the street.”
She sees Switzerland – where 60% of households are tenants – as a success story: housing belonging to pension funds is well maintained there, with stable rents. “There is a silver lining for what the UK market could be like, if the actions of build-to-let owners are sufficiently regulated.”
But not all communities can afford to adhere to this way of life. “While property developers are obligated to provide theoretically ‘affordable’ housing, that doesn’t mean they’re building more social housing,” Brill said. “It doesn’t solve the affordability crisis, because it’s so expensive.”
Homeless charity Shelter has warned that build-to-let is likely to target the high end of the market, making it unaffordable for low-income households. And while it has soared during the pandemic, affordable housing starts have fallen by 16% in England in 2020-21, according to government data.
In Elephant and Castle, London’s ‘Latin Quarter’, a £3billion regeneration project including much of the construction for rent is driving out the current population of social housing tenants. About 4,000 social housing units have already been demolished in the region, and many residents have been forced to move to suburbs more than 10 km away.
Delancey, the developer best known for partnering with the Qatari royal family to buy and develop the former Olympic Village in London, will replace the mall with rental housing. It has permits for 979 housing units to be built, including 116 social housing units. His initial proposal, for just 33 affordable units, was rejected by council. Corporate branded and a few blocks from the demolished estate of Heygate council, the block, due for completion in 2030, is a metaphor for the socio-economic tensions in the borough of Southwark.
With 16,000 households on the waiting list for accommodation in Southwark, families are often pushed into overcrowded properties. Down the road from the Delancey development, Milton, 53, his wife Cecilia, 50, and their two children live in a private rented studio. They have been waiting on the municipal register for a three-bedroom apartment for three years. “It was a very difficult time, not only for me, but also for my children because they translate for me and help me with the documents that I present to the board,” said Milton, who declined to give his full name. Her children eat, sleep and do their homework in the same room.
“Housing should not be an asset,” said Elizabeth Wyatt, of campaign group Housing Action Southwark and Lambeth. “Good quality social housing, where communities can thrive and take root, should be a right.
Southwark Council said: ‘The 35% affordable housing supply, which included 116 council housing units, was the most we could reasonably guarantee for the Elephant and Castle development. We are committed to providing 2,500 new social housing units in the borough by May 2022.”
Others believe that these expensive developments will require more refinement. “There’s smoke and mirrors with these developers,” said John, marketing director and resident of Hurlock Heights, a new tower at Elephant and Castle (he declined to give his full name). The building houses a mix of properties; construction for rent, condominiums and houses for sale. He feels his apartment doesn’t match the leafy, upscale resort in the brochure, and residents have complained about high service charges.
“Our roof garden is in such poor condition. Because residents walk their pets there, the grass is dead,” John said. He said not owning a pet was even more frustrating because when he originally bought the apartment, there was nothing in the listing or the contract that said pets were allowed.
There are lessons to be learned for rental property developers elsewhere in Europe. In Germany last year, Berliners voted on a controversial property expropriation bill aimed at taking 240,000 properties, or 11% of all apartments in Berlin, away from business owners.