Build to Rent: Will it change the way we rent in the future?

John Lewis last month announced plans to build 10,000 new properties on land that it owns across the UK, all of which are to be built to rent to individuals and families. John Lewis announcement follows other big players like Goldman Sachs, Lloyds and Aviva, who have already made a significant investment into the residential property sector. 

What is build to rent (BTR)? 

It is essentially what it says, building homes to rent. Unlike most traditional rental properties owned by private landlords, these are owned and managed by professional firms. The properties are mostly furnished and are available on a flexible basis, and residents can leave by giving a month’s notice. There are generally no letting fees or deposits. They will come with access to several services and amenities, such as broadband, gyms or rooftop cinemas. These are generally flats, and not family houses as these are designed to be particularly attractive to students and young professionals. 

According to the Office for National Statistics (ONS), younger households are more likely to rent privately than older households. Those aged between 25- and 34-years age group represent the largest group of renters (35%). So, it will make sense to target this age group if you want to take a stronghold in the market.

How many BTR homes are out there?

According to Savills, currently, in the UK, only 1% of all rental homes are BTR. However, industry experts believe that this is likely to grow significantly over the coming years. Research conducted by estate agency Ascend properties shows that planning permission applications for BTR across the UK have risen by 52% during the pandemic. And according to the British Property Federation, there are now 170,000 BTR homes completed or under construction. The most significant difference is that institutional investors, such as pension funds Aviva and Legal & General, or investment banks like Goldman Sachs have started to invest heavily into this sector. 

This indicates that the sector will get some heavy investment as pension funds and investment banks look to expand their portfolio and take a slice of the property market.  

Will it be more expensive to rent compared with traditional buy to let (BTL)?  

YES, most definitely, if you are not going to pay initial agent fees and deposits. The property you are renting is fully furnished, and you can leave by giving a month’s notice, then that all indicates that you will have to pay a higher premium than traditional BTL properties. However, this premium will include certain other services like a gym membership, broadband, weekly cinema nights etc. 

According to property consultancy JJL, BTR property can cost around 11% more to rent than traditional rental properties. This could make it unaffordable for many people, who in many places like London spend more than half their income on rent. 

Will this disrupt the traditional BTL market?

This very much feels like the disruptor in the traditional rental market. It will ensure a good standard of living accommodation, give people the flexibility to move around, it will be easier to rent and move on should you no longer wish to stay in one place. There will be no deposits to pay, no estate agent fees, comes with the flexibility to leave by giving a month’s notice. What’s not to like? 

And most importantly, with house prices reaching a record high and out of reach for first-time buyers who require larger deposits year on year. And with most services moving towards a subscription and flexibility model, this can disrupt the traditional buy to let market and something that traditional landlords need to take note of.