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Why build-to-rent may be the answer to London's housing crisis

New Housing Development

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The demand for housing in the UK is set to grow in the coming years and this will only put more strain on the existing housing, especially in the capital. According to a report by the British Property Federation, 200,000 net additions were needed in 2016 and this is set to rise to 300,000 per year. The increase in London is even more dramatic. Build-to-rent may be the best way to satisfy this ever-increasing demand for new residential property.

Build-to-rent is, very simply, when new properties are developed with the intention of renting them out rather than selling them. While commonplace in countries like the USA and Germany, it is a relatively new phenomenon in the UK. Traditionally, properties have either been built to sell or bought to rent. Build-to-rent sees a deviation from this model and provides developers with a new opportunity. The figures speak for themselves: The build-to-rent market totalled £2.4bn in investment in 2017. The market is forecasted to grow over the next six years by 180%.

Build-to-rent provides a solution to the large demand for new homes in the UK that build-to-sell cannot account for as it would be financially unviable. Normally with build-to-sell properties, they are built to accommodate the demand for new houses. If more are built than are needed, they will have weaker sales values and will be a poorer investment for developers.

The projected need for new homes in the UK cannot be accounted for by new build-to-sell properties as, if the market is misjudged and too many homes are built, it will prove to be a poor investment and fewer developers will be willing to take such projects on. Build-to-let may provide the solution to this problem while making the property market better for both developers and occupants. Build-to-rent housing can be built at a greater rate than build-to-sell housing as it gives developers more certainty of an end buyer or uses to their development. Having an increased certainty allows them to develop without the same level of risk associated with build-to-sell developments.

In addition to this, build-to-rent housing developments often require a smaller capital investment as there is a greater certainty of end buyers. Many build-to-rent schemes are large-scale developments, involving many buildings over a large area. When one is built, it can be rented out to help to fund the rest of the development without having to raise all the capital before starting the project.

The build-to-rent scheme is thought to not just benefit developers but renters too. It gives them a certainty which they may never have with a private landlord. A landlord may decide to use their property for a different purpose, evicting the tenants at short notice. With a professional landlord, however, there is greater certainty that renting is the primary, long-term purpose of the property.

Further to this, new developments will have to provide more affordable housing than ever before. Sadiq Kahn, the Mayor of London, has set a target that 35% of new homes built in London will have to be affordable – to buy or rent. It is likely that any proposed development that fails to meet this figure will not be granted planning permission, resulting – in theory – in more affordable homes for renters.

Build-to-rent could change the housing landscape in London (and Britain as a whole). Such schemes look set to play a pivotal role in fixing London’s housing crisis, and as such build-to-rent is tipped to be a hot topic at the MIPIM UK conference in mid-October.

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