Market Insight - April 2016
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The Push For Home Ownership

  "In 2001 average rent for a new build was 13% higher compared to a second hand home" 

Lettings: New Build Premium
What value do tenants place on a new build home?

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Just as new build homes sell for higher prices than comparable ‘second hand’ homes, the same is true in the rental market. In 2015, landlords renting out a new build home could achieve rents up to 20 per cent higher than a comparable second hand home in the same location built more than five years ago.

With increasingly more households, including affluent ones, renting for longer as home ownership remains difficult, there is a market for a higher quality product. Being brand new and more desirable in terms of low maintenance and decorative order, new build homes tend to attract higher rents.

This has not always been the case. In 2001 the average rent for a new build home was 13 per cent higher than what could be achieved for a comparable second hand home but the rents achieved steadily dropped from then until the downturn. So much so that from 2005-2007, new build homes were the cheaper lets in the market.

Between 2000 and 2007, the UK saw an increase in housebuilding and many of these new homes were bought by landlords. With large numbers of identical homes coming onto the market, often at the same time, tenants were able to compare homes and negotiate down rents successfully.

The financial crash served to restore the premium new build homes could achieve. As the economy took a turn for the worse, the number of new homes being built fell dramatically. With fewer new homes delivered than at any time since the Second World War, landlords faced much less competition. At the same time, the credit crunch meant more would be first-time buyers were pushed into the rental market. Higher demand and lower new supply meant landlords found themselves in a strong position and those with new homes were able to command a premium once again. By 2010, the premium attached to a new build rental home has risen to 25 per cent. While this premium has narrowed in the last six years, it still remains well above pre-recession highs.

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