The build-to-rent sector has gained significant attention in recent years, raising questions about its impact on smaller landlords in the buy-to-let market. As larger companies enter the build-to-rent space, some experts believe that smaller and accidental landlords are being pushed out. In this article, Mortgage Introducer explores the reasons behind this shift, the tenant profile of build-to-rent properties, and the trends in this sector.
Pushing Smaller Landlords Out
According to Terry Woodley, managing director of development finance at Shawbrook, the government has been encouraging a shift away from accidental landlords for several years. One approach has been the change in how tax can be applied to the income of buy-to-let landlords, pushing them to run their portfolios as a business entity. Those who didn’t make this transition were expected to sell their properties to landlords who could operate as investment companies.
On the other hand, the government has also facilitated the rise of build-to-rent by encouraging large-scale development projects. These projects, similar in structure to student accommodations, are made possible through shared risk or government-provided finance. However, Woodley believes that the impact on accidental landlords will not be significant. Large-scale build-to-rent properties are often unable to be constructed in city centers and may not appeal to everyone’s tastes. Thus, there will still be a market for smaller landlords who own properties scattered throughout city centers.
Moreover, Woodley points out that there is a housing shortage, and until the government builds enough homes, there will always be demand for attractive properties. This suggests that the accidental landlords will continue to have a space in the market, despite the government’s efforts to promote the build-to-rent sector.
Build-to-Rent Tenant Profile
Woodley highlights that the build-to-rent sector has been gaining momentum over the last few years. Developers and investors recognize the economies of scale that build-to-rent schemes offer, leading to further expansion in this space. The natural tenant profile for build-to-rent properties consists of individuals from the student sector who are accustomed to living in similar types of accommodation.
As a result, build-to-rent properties often include features such as laundromats and communal spaces to facilitate socializing with other residents. The sustained popularity of this tenant profile suggests that the build-to-rent sector will continue to prosper and grow.
Build-to-Rent Trends
In recent years, developers have been shifting their focus from the build-to-sell format to build-to-rent. This change in strategy is driven by the profitability of the build-to-rent market. Woodley states that build-to-rent projects are usually large-scale schemes with investments exceeding £30 million, but they still prove to be profitable.
Thus, it is expected that the build-to-rent market will continue to expand, with investors increasingly pouring money into projects of this nature. This trend indicates a favorable outlook for the build-to-rent sector in the foreseeable future.
Conclusion
While the rise of build-to-rent may raise concerns about the impact on smaller landlords, the market dynamics suggest that there will still be a place for accidental landlords owning properties in city centers. The build-to-rent sector, fueled by a sustainable and profitable tenant profile, is expected to continue its growth trajectory. Additionally, developers are recognizing the potential for significant profits in the build-to-rent space, leading to increased investment in this sector. As the trends indicate, build-to-rent has positioned itself as a favorable option for both tenants and investors in the UK property market.