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Unlocking Build to Rent: eleven points to remember

  • United Kingdom
  • Real estate sector

17-12-2015

In memory-friendly format, are eleven key points when considering Build to Rent.

  • BTR  can house the “squeezed middle”. Those of us saving up for (or not wanting) “build to sell” (BTS).  The squeezed middle is a large group and needs help. So the government and local authorities should get behind BTR.
  • Unless the government and local authorities act now; they will miss the opportunity.  There is an estimated £30 billion of institutional money poised to invest in the sector. The right incentives will mobilise it.
  • Implementing decisive planning guidance is key.  Following the GLA’s lead, clear annual targets should be set for building BTR units in numbers.
  • Land covenants for BTR use can give the certainty BTR needs to grow.  These covenants should be long term. Otherwise short term BTR will simply morph into medium-term BTS.  We should consider a BTR use classes order, but beware of its inflexibility if the market changes.
  • Do be more adventurous on “best value”, is the message to valuers.  BTS gives a big upfront bang. However, BTR offers a subtler value solution: a capital sum, long-term income stream and no family silver sell off (modifying Harold Macmillan).
  • Tax incentives would be helpful. Under existing treaties, VAT on long-term repair can be cut by up to 5%. Section 106 agreements, developer contributions and affordable housing provision could all make more beneficial use of BTR. There is also a clear opportunity to offset affordable housing provision with BTR.
  • 0pen accurate brownfield site registers and exploit them using BTR. Given the opportunity BTR can make a huge housing difference, primarily in major regional cities and less core London.
  • Rethink construction technology. Computers would confound a Roman builder, but he could start work on a building site tomorrow. It is now time for factorized off-site construction, 3D printing and a robotized workforce. Let’s break the build and site inflation viability trap.
  • Everyone agreed that rent control would be a catastrophe. The institutions would exit the market before they had even entered it.
  • Nimbyism is a problem. We want everyone housed, just not next to us. House prices are the UK’s quasi-religion. However, BTR is no threat to BTS, but rather the perfect supplement to it - providing additional housing for the squeezed middle.
  • Talk about BTR, not PRS. BTR is a professional, institutional solution. It provides “customers” with a high-quality residential retail experience. PRS? Not so much.  BTR can’t be built in a day. Student housing took five years to mature as a sector. So we need to be patient and talk BTR up.  But the case (and equity hunger) for BTR must surely persuade our politicians of its merits. This baby sector is about to grow up.

Eversheds’ BTR Team. We have brought together lawyers from our residential, development planning, tax and construction teams to create a dedicated Build to Rent group to meet the specific requirements of a deal in this sector. We were one of the first to move on this market, and are delivering more deals in the sector than any other UK firm.

To find out more about our BTR team click here.

Bruce Dear, Partner - Head of London Real Estate, Eversheds LLP.
To view Bruce’s recent video examining the Northern powerhouse as a global investment destination click here.

 

For more information contact

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