Building to rent will bring us back to the future

A Yorkshire property expert is part of the government’s new Build to Rent taskforce. Sharon Dale asks if it will revolutionise rentals.

There is nothing new under the sun, according to Ecclesiastes, and the quote could easily be applied to the latest bid to solve the housing crisis.

The government’s build to rent fund aims to lure institutional investors into the private rental sector with equity loans and loan guarantees. But while the government’s offer of financial help is a fresh incentive to construct thousands of purpose-built homes to let, large institutions have form in the market.

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“It’s not a new concept. In the 1950s half of the property assets held by large institutions were residential. Those businesses got out when the Rent Act came into force in the 1960s because it made rental growth and getting vacant possession difficult,” says Julian D’Arcy .

A Yorkshire-based property expert and former regional chairman at Knight Frank, Julian has been keen to revive the investment tradition in the light of rental reforms. Indeed, he’s been suggesting it for years and actively encourages it through his company Kirkby Capital.

So it’s no surprise that he has been chosen to be part of the government’s five-strong housing taskforce, that will work with institutions and developers to get build to rent schemes off the ground.

“It’s a great idea and there is considerable interest. The Prudential, which was one of the traditional investors years ago, is welcoming the chance to get back into it,” says Julian, who adds that American and European institutions are also eyeing up opportunities.

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“In the the United States, it’s common for institutions to build residential property to let.

“They see British rental property as a safe haven and an untapped market.”

The reasoning behind build to rent is that it will help ease the housing crisis. Population is rising, people are living longer and there are more single person households. Meanwhile, house-building has slumped to its lowest level in 100 years

The government also believes that the trend towards renting is strong and is likely to remain so. Private rented housing comprises 16.5 per cent of all households compared to nine per cent in 2001.

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This has been fuelled by the propery boom putting prices out of reach of first time buyers and then by the credit crunch, where mortgages dried up.

Housing Minister Mark Prisk says: “Mobile patterns of work and reduced mortgage availability have made renting a more realistic choice for many more people and the effect has been a strong rise in demand over the last decade.”

Julian D’Arcy believes that build to rent will also boost quality. “It will be a whole new sector. We will see institutions owning and managing whole apartment blocks and there is no doubt it will be very professionally done. They will see tenants as customers and they’ll approach it from a leisure and hospitality perspective, which is how it works in the US. So we’ll see better designed apartments with wider doorways and service lifts so you can get furniture in and out, laundry rooms and gyms. It will drive up standards because people will vote with their feet and move to blocks that are well-managed.”

Most built to rent property will be apartments in city centres and to win funding, schemes have to have a minimum of 100 homes, though these can be spread over different sites. A quarter of the new stock will be in London and the rest spread throughout the regions, including Yorkshire.

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“In London you are likely to get higher capital growth and a lower rental yield and in the regions it is the other way round. So investors will be looking at a balanced portfolio of some property in the capital and some outside,” says Julian.

Successful bidders for the first tranche of funding, which should create 10,000 homes by 2015,  include large institutions like the Prudential along with house builders, including Yorkshire-based Keepmoat and Persimmon.

A second round of bids for the remainder of the fund, which was boosted from £200m to £1b in the recent Budget, will open later this year and a number of Yorkshire schemes look set for consideration.

For those concerned about the scale of the fund, it is a recoverable investment as recipients will repay the loan once schemes are fully let,

While taxpayers can rest easy, the plan has its critics.

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Jonathan Morgan, of Morgans City Living, Leeds, argues that when the economy recovers, many renters will be looking to buy.

“Evidence points to the fact that renters still ultimately want to buy and so comparisons with Europe are facile. Swiss and Germans grow up expecting to rent as their parents did before them. Most lenders in those countries require a 40 per cent deposit so the option to buy has always been a distant dream for most. British people on the other hand have owned property for generations and it will take a lot more than institutional investment in build to rent to turn Britain into a nation of renters.”

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