“Build to Let” Hype or Fact?

The government is keen to get big institutional investors into the private rented sector – funding new developments. But is Build to Rent going to work – and is it just a load of hype? At LettingFocus we look at the facts.

Build to Let – Hype or Fact?

Tomorrow I am chairing an event on the private rented sector – an event where there will be a lot of cheerleaders for the “build to let” carnival in attendance. (Well, there will be government bods and consultants to institutional investors who will be doing the speaking, plus in the paying seats, some interested and curious folks from the town halls).

Should be fun and quite interesting. And as a Chairman, and one who is a bit of a cynic of marketing hype, the speakers can expect me to put them on the spot quite a bit.

Now it is true there is a lot of potential in large scale building with the intention of letting it. And some people are doing it rather well, though many will, I forecast, make quite a mess of it.

But one thing I often find curious is where the cheerleaders for build to let are getting their inspiration from.

Design in Build to Let

If you ask them, you will hear that when they look for design models (e.g. what should a private rented building look like) they look to other markets where it has been tried successfully. The USA, Sweden and Germany are often mentioned (all have successful institutional classes of investment in the private rented sector).

They also look overseas for their predictions of what the average yield should be, what the void period ought to be and for a whole load of other metrics too.

There is nothing wrong with that. Anyone looking to do something well in one country needs to look at what works well elsewhere in the world – and then pick out the best ideas that will work.

But do any of them look at what the small scale landlord is doing in the UK? After all, by any account, this has been a phenomenal growth story, in which small scale private landlords have blazed the way and grown the sector, while the big players have simply looked on and mostly just sat on their hands.

I asked one architect pal of mine, who is close to the “big boys” why that was.

He put it down to the fact that the big institutional investors, their consultant advisors and the designers thought there was nothing that they could learn from the small scale “Mom and Pop” private landlords.

Well, one thing that they could learn is that 35 to 40% of rents going to operating costs / voids is between 25 to 30% higher than most small private landlords work to.

And I do think they ought to stop and think that perhaps what tenants want in the UK is a world away from what they do in the USA and other countries.

Institutional Investors and the Private Rented Common Rooms

For example, I see so many build to let designs which incorporate what to me looks like some ghastly posh common rooms – awful meeting places for the yuppies that they think will inhabit their buildings.

But I’m not sure that British tenants want to be dragooned into some sort of post-college-playpen with shiny glass, shiny bars and a load of interactive games on shiny tables – all delivered at premium rental prices which seem way above what the local landlords will charge.

And lots of what is designed does not seem to have much in it for families either – surely a big issue when demographics shift.

I could be wrong. But I don’t think the private landlords have to worry too much – at least not yet.

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