A new approach to increasing the supply of privately rented housing through institutional investment is proposed in Building New Homes for Rent. Drawing on experts from a range of sectors, the report discusses the current barriers to the build-to-let market in the UK and presents a model that can address these by bringing together housing associations and institutional investors to develop and manage market rented homes.
Building for owner occupation in the UK has consistently failed to deliver sufficient homes even in times of strong economic growth; and housing demand now far outstrips the rate of supply with a 36 per cent drop in new dwellings built since the 2007 credit crunch. Against this backdrop of constricted supply and more recently, the difficulty of obtaining mortgages, increasing numbers of people are making their home in the private rented sector (PRS). However, the vast majority of this growth has been from existing stock rather than newly built dwellings.
Building New Homes for Rent identifies the private rented sector as ideal for institutional investment because it offers an attractive long term rate of return, low volatility and low correlation with other asset classes, providing diversity to portfolios and reducing risk.
Despite this, investment has been low due to a number of real and perceived barriers. The barriers centre on:
- historically low net rental yields compared with commercial property;
- limited opportunities to invest at scale;
unwillingness to take on development risk; and
- difficulties and cost of property management.
The report goes on to consider ways of lessening or overcoming these barriers through a new model of development.
Building New Homes for Rent identifies housing associations as being well-placed to build market rental stock as they already have the strong balance sheets and the housing experience required to build and manage portfolios of sufficient scale. This would address many of the perceived risks and make build-to-let schemes more attractive to institutional investors.
Several further ideas are identified to support this model, and aid the development of a successful build-to-let sector.
This publication draws on the findings of BSHF’s 2012 Consultation at St George’s House, Windsor Castle, which brought together experts from a wide range of sectors, including investors and housing associations.