The Forecast Issue
The Rise of Build to Rent
Is this the future of the private rented sector.
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The UK’s Private Rented Sector (PRS) is going through a period of rapid growth. Demographic changes, the growing trend for urbanisation and rising cost of home ownership have resulted in more households now living in the PRS.
The Build to Rent scheme was launched in 2012, offering £1bn to support the construction of between 8,000 - 10,000 new homes specifically for private rental. Despite the low initial uptake, 15 schemes worth around £480m and delivering over 4000 homes are under contract to date, more institutional investors are attracted to the sector now that the government’s implied endorsement has helped raise private finance.
Institutional investors, like large pension funds, are common in the build to rent sector in other European countries and the US and now some are looking to mirror those successes in the UK market. The British Property Federation estimates that around £30bn worth of new private housing investment, over the next 5 years, could be available if government continues to support the sector.
The number of people living in rented accommodation in the UK will continue to grow, it already accounts for 19% of households, as home ownership becomes more difficult; in London, the PRS became as large as the mortgaged sector in 2014. Tax changes announced in the 2015 budget restricting landlord mortgage interest relief to 20% and other legislation, which has increased the amount of regulation landlords have to comply with, could dampen the interest for small buy to let investors who currently dominate the UK private rental market. But growth of the build to rent sector should pick up the shortfall of rental homes and help garner more interest in the sector as an investment asset.
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