Build-to-rent rush by big funds won't solve the housing crisis

The city centre market in Leeds has been starved of supply since 2007 and while we had been used to seeing 500 new apartments completing each year, in some years since the downturn, there have been none.

Jonathan Morgan. Picture by Barnaby Aldrick
Jonathan Morgan. Picture by Barnaby Aldrick

The Government has launched an assault on individual buy-to-let investors through stamp duty changes and a revised and detrimental tax regime, while simultaneously throwing their weight behind an institutional approach to the delivery of properties for rent which they have dubbed ‘PRS’, Private Rented sector, or build-to-rent.

It’s an interesting, and slightly confusing approach in the context of a market in which more people are likely to rent for longer and where demand is growing as a consequence of a rising population. Weeshould surely be incentivising investors to enter the market at all levels.

Sign up to our daily newsletter

Institutional PRS is an American model, which is yet to be delivered in any volume in the UK, and there is no evidence to support assumptions around market demand for what is a premium product.

The huge increase in the number of PRS schemes currently being proposed in the Northern cities should not be seen as an organic market response. It is an opportunistic trend driven not by the availability of cheap money but by the weight of money currently languishing in funds that are unable to generate the necessary returns unless they invest.

There is genuine demand in most Northern cities for some amenity-rich apartment schemes that offer their residents features such as a concierge, gym, cinema room, lounge and inclusive broadband in return for rents which will need to be around 25 per cent above current market averages in order to deliver a return. However, this model should not be seen as the solution to the housing crisis.

Most PRS schemes will look and feel broadly the same and many will be designed with close reference to the government sponsored PRS Handbook and there will be little family friendly product.

We are likely to see a number of PRS schemes come forward in Leeds in the current cycle and there are some real prospects in locations such as the former Yorkshire Post site, City Reach on Kirkstall Road, Quarry Hill, where Caddick Developments are currently considering an element of PRS with sister company MODA Living, and Sweet Street, where it is rumoured that Dandara are gearing up to start construction. Other schemes such as Green Bank have struggled to secure a fund-backed PRS solution, due mainly to the challenges in delivering a viable build cost and by having to justify premium rents in a location which perhaps doesn’t support this.

Diversity of product type and price is the key to a sustainable city centre market and, alongside a modest PRS offer, we are also going to see some privately funded build-to-rent schemes such as X1 and East Point, some high quality private schemes such as Iron Works and Tower Works and some innovative schemes such as Low Fold and Left Bank.

Rental affordability varies enormously across the UK and whilst in London, some tenants are paying away 50 per cent of their salary on their rent, a figure of 30 per cent would be more common in Leeds. A house purchase in Leeds is much more attainable here than it is in the south-east and many renters will limit their rental expenditure to save for a deposit. The long term single landlord model upon which PRS is built will certainly help lift the quality of product on offer, but it should not be seen as a fundamental solution to the housing supply crisis.

*Jonathan Morgan, Morgans,