The built to rent sector in England is still in its infancy, having only really taken off in the last ten years. Latest estimates put the total number of build to rent units either under construction, complete or in the planning pipeline at 251,000, with just 82,500 of these completed and occupied (British Property Federation). This accounts for just 2% of the total number of households in the private rented sector, which is currently estimated to be 4.6 million (English Housing Survey, 2021/22).
The private rented sector is dominated by a piecemeal and fragmented system of private landlords. What’s more, many private landlords continue to leave the sector, with rising mortgage rates just the latest obstruction following many years of cumbersome and unfavourable regulations and legislation in the sector.
This falling supply comes at a time when demand has surged. Following the pandemic there has been a period of rising migration (2022 saw the largest ever rise of net migration to the UK according to the ONS) coupled with rising numbers of international students, who very often look to the private rental market as their favoured tenure type.
The resulting squeeze on available supply while tenant numbers and overall demand has risen, has put huge upward pressure on newly let rents, averaging between 8-12% per annum each month for the last 19 months (HomeLet).
Given these underlying structural issues, the sector should perform well. What’s more, current (albeit likely temporary) falling sales levels across the country will likely encourage larger development schemes to diversify their risk and move some parts of their scheme away from build to sell and towards build to rent.
Of the top 10 locations, four in the South East, two are in the South West, and four are in the East of England:
Many of these areas are highly suited to the single-family housing model of BTR, not simply the ‘traditional’ urban block or multi-family style scheme which is so often considered the standard BTR model.
With the latest rise in the number of households in England in the private rented sector last year, strong house price growth (particularly during the pandemic and post-pandemic period when house prices grew by an average of 27% between February 2020 and September 2022), and rising average mortgage rates, the key fundamentals on the demand side of the sector remain robust. On the supply side, private landlords continue to exit the sector and sell their assets. Tax rises, changes to legislation, tighter regulations and rising interest rates have made it a less appealing, onerous and often expensive sector for the average private landlord.
This supply demand mismatch has placed strong upward pressure on rents and resulted in a sustained rise over the last two years with a UK average rental rise of 21% since July 2021 (HomeLet). The combined impact of these fundamentals should provide further encouragement and optimism for developers, funds and institutional investors looking to enter the sector.
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