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Build to Rent Unlocking the potential of an emerging property sector

Build to Rent - barclayscorporate.com · BTR – the UK term for multi-unit blocks of purpose-built private rented housing in single ownership – has the potential to make a significant

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Page 1: Build to Rent - barclayscorporate.com · BTR – the UK term for multi-unit blocks of purpose-built private rented housing in single ownership – has the potential to make a significant

Build to Rent Unlocking the potential of an emerging property sector

Page 2: Build to Rent - barclayscorporate.com · BTR – the UK term for multi-unit blocks of purpose-built private rented housing in single ownership – has the potential to make a significant

Contents3 Foreword

4 Executivesummary

5 TheevolvingBuildtoRentsector

11 ThebenefitsofBuildtoRent

15 ThechallengesofBuildtoRent

18 What’snext?

About the British Property Federation

TheBritishPropertyFederation(BPF)representsthecommercialrealestatesector.ItpromotestheinterestsofthosewithastakeintheUKbuiltenvironment,anditsmembershipcomprisesabroadrangeofowners,managersanddevelopersofrealestate,includingallmajorinvestorsinthenew-build-to-rentsector.TheirinvestmentshelpdrivetheUK’seconomicsuccess,provideessentialinfrastructure,andcreategreatplaceswherepeoplecanlive,workandrelax.

About this report

ThereportwasproducedfortheBritishPropertyFederation(BPF),withresearchandanalysisledbySavills’ResearchandEconomicsteams,inconjunctionwiththeLondonSchoolofEconomics.BarclaysisproudtosponsorthestudyandpresentthisabbreviatedversionoftheBPF’sUnlockingtheBenefitsandPotentialofBTRreport.Theresearchincludedround-tablediscussionsandinterviewswitharangeofBTRoperators,housebuilders,developers,investors,lenders,policymakersandrelevanttradebodies.

Thefullreport,includingdatatablesandpolicyrecommendations,isavailableonlineatwww.bpf.org.uk/what-we-do

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Page 3: Build to Rent - barclayscorporate.com · BTR – the UK term for multi-unit blocks of purpose-built private rented housing in single ownership – has the potential to make a significant

ForewordBarclaysisdelightedtosupportthisresearch,whichassessesthefurtherpotentialoftheBuildtoRent(BTR)market,givenitsrapidemergenceasanassetclassoverthepastfewyears.

TheresearchaffirmsthevalueofBTRtotheUKpropertyindustryasitseekstoacceleratenewdevelopmentstohelpaddressthehousingcrisis,whilealsodeliveringbroadersocialandeconomicbenefitstolocalcommunities.

Buildinghomesandcommunities

Decadesofbuytoletlandlordactivityhavedrivenanincreasinglyfragmentedprivaterentalsector(PRS),withover98%ofstockcurrentlyinthehandsofindividuallandlordsandsmallcorporateentities.Whilemuchofthisstockisofgoodqualityandwellmanaged,thereisanelementofsub-standardaccommodationwithtenantsreceivingapoorservice.Thelinkbetweenqualityofaccommodationandqualityofhealthandeducation,atalocallevel,pointstothesignificantsocialbenefitsthatcanbederivedfromwell-thought-throughhousingschemes.However,theseprojectsrequireascaleofinvestmentthatisunlikelytobedeliveredbyafragmentedmarket.

Bydeliveringhigh-quality,well-managedhomesandcreatingnew,sustainablecommunities,BTRwillenhancetheoverallstandardofhousingintheUKandbecomewovenintotheresidentiallandscape.Inordertoachievethis,itisimportantthatBTRdeliversacrosstheresidentialspectrum,withhigh-riseschemescomplementedbylow-risehousingandlocatedinregenerationzonesasmuchasestablishedareas.

Deliverywillneedtocaterforalldemographics,withmoreaffordablefamilyunitshavingasmucharoleinthesectorasthehigh-endschemesprovidingextensiveamenitiesandservices.Thiswillhelpensurethat,overtime,thesecommunitieswilleffectivelybecomeblindtotenure.

Thereisnoescapingtheoldadageoftheneedtosupplytherightproduct,intherightplace,attherightprice.

Predictedpopulationgrowthof9.7millionbetween2014and2039indicatesthatdemandforhousingintheUKwillonlyincrease.Ifthedivergencebetweenmedianwagesandmedianhousepricespersists,demandforPRSoverthemidtolongtermwouldappearrobust.Recenthistoryhasseenrentsenjoyaboveinflationgrowthandscaleoperatorsshouldbeabletotapeconomiesthroughouttheirsupplychain–efficientup-frontprocurement,coordinatedmarketing,programmedmaintenanceandcost-effectivedailymanagement.InadditiontothefinancialbenefitsoftheBTRmodel,thereisalsoanargumentthatnewdevelopmentinthissectormaybecomelessvulnerabletotheeconomiccyclethanthetraditionalbuild-to-sellmodel,butthereisnoescapingtheoldadageoftheneedtosupplytherightproduct,intherightplace,attherightprice.

Intuitively,BTRshouldbeanattractiveassetclassforinvestorsandlendersseekingsustainablereturns;however,itisstillarelativelyyoungsector.Establishinggoodquality,transparentinformationonabsorptionrates,grosstonetcosts,occupancylevels,marketrentsandvalueswillbefundamentaltoBTRcementingitselfasamainstreamassetclass.Asthesectorgrowsandevolves,increasedtransactionalvolumeswillnotonlyhelpsetmarketnormsbutalsoencouragemoreparticipants,moreinnovationandmoreoptionsfortenants.

Ihopeyoufindthisstudythought-provokingandinsightful.AtBarclays,wearealwayskeentosupportthegrowthofindustryandIwouldliketothanktheBritishPropertyFederation,SavillsandtheLondonSchoolofEconomicsforcompilingavaluableanalysisofthesector.

DennisWatsonHeadofRealEstateBarclays

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Executive summaryDespitethesignificantneedforhousingintheUK,thesupplyofnewhomesisconstrainedbythebuild-to-selldeliverymodel.Ourreportlooksatthepotentialforlargerinvestors,especiallythosebackedby‘institutional’capital,toexpandresidentialsupplythroughBuildtoRent(BTR).

ThisresearchidentifiesthebenefitsofBTRandthepotentialincreaseinhousingsupplyitcandeliver.ItisthefirststudytoquantifythescaleofBTRdeliveryacrossthecountryandtoidentifythenatureofschemesintermsoftheirplanningstatus,scaleanddeliveryapproach.

EvidenceoftheimpactofBTRonhousingsupplyhasbeendrawnfromconsultationwitharangeofstakeholders.Thebenefitstheyidentifiedinclude:

• Asanoutcomeofaccelerateddelivery,mostnotablyonlargerurbansites,fastermarketabsorptionthatbenefitsregenerationandplacemaking

• Viabilityinmarketswherebuild-to-sellismarginal

• Improvedmanagementandservicetotenants

• Additionalon-sitejobsandthepotentialtoenhancelabourmobility.

Theresearchsuggeststhatthemosteffectivepoliciesinovercomingmarketfailures,deliveringadditionalnewhomesandrealisingthebenefitsofBTRarelikelytoinclude:

• ClarifyingtheroleofDiscountedMarketRent(DMR)asmeetingaffordablehousingrequirementsforBTRdevelopments

• Changing planningregulationsandstandardsforBTRdevelopments

• Continuation ofpublicsectordevelopmentloansforBTR

• ExtensionbytimeandscopeofthePRSDebtGuaranteescheme

• PlanningpreferenceforBTRonlargesites

• Exemptlarge-scalelandlordsfrom3%SDLTsurcharge

• Zero-rateVATonrepairsandmanagementtomakeBTRmorecompetitive.

“TheBTRsectorisavitalpartofthesolutionintacklingthehousingcrisis.InLondon,theimportanceofthesectorshouldnotbeunderestimated,asitcurrentlyrepresentsoneinfivehousingstartsinthecapital,andincitiessuchasManchesterandLiverpoolBTRisgainingmomentum.TheBPFBTRmapshowsasignificantandincreasinglydiversedevelopmentpipelineacrosstheUK.But,asthisreporthighlights,therearechallengestoovercomeifthisgrowthistocontinue.”

Duncan SalvesenChair,BritishPropertyFederationResidentialBoardDirector–Residential,Dorrington

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2012 2013 2014 2016

London Housing SPG,March 2016

HCA Build toRent Fund 2

£1bn2013 Budget

ULI Build to Rent Guide Edition 2, March 2016

PRS Taskforce,April 2013

ULI/DCLG Build to Rent Guide

Edition1–2014Industry Report

£3.5bn Debt

Guarantee Scheme

& appointment ofVenn, December 2014

HCA Build to

RentFund, 1 Sept

2012, £200m – purpose was to create

a step change in supply of rented homes

MontagueReview

Sept2012

NPPF – Changes to Viability

and Decision Taking, March 2016

The evolving Build to Rent sectorTheUKneedstoincreasehousingsupplyfrom200,000to300,000homesperyearinordertomeetabacklogofhousingneed.However,thesupplyofnewhomesisconstrainedbythebuild-to-selldeliverymodel.

Typically,thismodelwilldeliverhomesatthespeedatwhichthemarketwillabsorbthenewsupply,usuallywithnoincentivetoacceleratedelivery.

BTR–theUKtermformulti-unitblocksofpurpose-builtprivaterentedhousinginsingleownership–hasthepotentialtomakeasignificantcontributiontowardsreachinghousingtargets.

ThebenefitsofBuildtoRent

BTRoffersanadditionalsalesoutlettothebuild-to-sellmodel.Itprovidesanalternativeendbuyerforhousingdevelopments,whichhelpstode-riskschemes.

Itisespeciallyhelpfulonlargersites,wheretherearemultiplephasesofdevelopment.Inthesecircumstancesitcanoftenacceleratedeliverybecauseadeveloperorhousebuildercandeliverstockforbothopenmarketsaleandmarketrentatthesametime.

BTRalsoprovidesbenefitssuchascreatingfootfallanddiversityofoccupiersfornon-residentialusesonmixed-usesites,underpinningplacemakingandregeneration.

BuildtoRent:wherehavewegotto?

ThePRSintheUKisworthovera£1tn,withthevastmajority(98%)tiedupinthehandsofsmallindividualandsmallcorporatelandlords(IPF,2015).Thereisasignificantlackofaggregatedinvestmentstockavailableforinstitutionalinvestorstoacquire,withmanynewinvestorsfocusingonthedevelopmentofnewBTRassets.

Policy

Newstockgivesinvestorstheopportunitytoinfluencethedesign,mixandspecificationinanefforttoultimatelyenhanceinvestmentreturnsfromcompletedandoperationalstock.

timeline

Source:LSE,Savills.

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Initsbroadestsense,thePrivateRentedSector(PRS)incorporatesallthingsprivatelyrentedandBTRisasmallbutimportantsubsetofthewidermarket.Lookingatwhatinvestorsinresidentialinvestin,thereisawiderangeofdifferenttypesofmarketrentedhousing,suchas:

• Buytolet–mortgagedassets

• R entalunitsinhousesofmultipleoccupation(HMOs)

• Singlefamilydwellings

• Studenthousing(purposebuilt,institutionalgrade)

• BuildtoRent,i.e.bespokedesigned,developeddirectlybyinvestors

• BuildtoRentdeliveredbyhousebuilders/investors,forwardfundedbyinvestors

• BuildtoRentacquiredasagoingconcern(stabilisedassets)byinvestors

• Traditionalhousingstock,i.e.turnthesignroundfrom‘forsale’to‘tolet’forwardpurchasedbyinvestors

• T raditionalhousingstockforwardfundedbyinvestors

• T raditionalhousingstockacquiredasagoingconcern(stabilisedassets)byinvestors.

BTRisanewproductfortheUK,particularlyinthemainstreammarkets.Onschemesofover50unitstherearecurrentlyc.55,500newPRSunitscompleted,underconstruction,orwithplanningpermissionintheUK.Thereare32,785unitsinLondonand22,686elsewhere.Notallofthisis‘pure’BTR,butBTRhasbecomesynonymouswiththedeliveryofnew-buildrentedhousing.

ThetypesofPrivateRentedSector

PlanningportalssuchasMolior(London)andGlenigan(UK)includedescriptionsofthetypeofresidentialstockdelivered.

IntermsofPRS,thefourmostcommonlyusedtypesincludestockthatis:

• retainedbythedelivererforthePRS

• purchasedforthePRS

• builtusingtheHomesandCommunitiesAgency(HCA)BTRFunding

• designedandpurposebuiltfortherentedsector,oftenusingaforwardfundingapproach.

BTRandtraditionalformsofPRS

Atthispointinthemarket,moretraditionalapproachestoPRSarestillthemostprevalentformsofdelivery.Ofthec.7,800unitscompleted,about40%havebeenretainedforPRSbythedeliverer(notBTR)and40%havebeenpurchasedforPRSorforwardpurchasedbytheinvestor.SchemespurchasedforPRSareconsideredBTRbecauseofthefundingstructureorsourceoffundingused.

Manyoftheseschemeshavenotbeendesignedspecificallyfortherentalmarketandinmostcaseswereoriginallyintendedforthebuildforsalemarket.Therehavebeenc.1,300units(20%)deliveredusingaBTRapproach(i.e.purposebuiltandintendedforPRSuse)includingthosefundedbytheHCABTRFunds.

20,000

Constructi

on

Detailed

Permiss

ionComplet

e

Num

ber o

f uni

ts

Outline

Permiss

ionOutlin

e

Applicatio

n

Pre-plan

ning

Detailed

Applicatio

n

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Retained for PRS

Purchased for PRS

Built to Rent

PRSunitsbydevelopmentstatusandPRStype,EnglandandWales

Private Rented SectorCommercial property

Institutional investors

Retail investors (buy to let)

Mar

ket v

alue

, £bi

llion

s

200

0

400

600

800

1000

Sizeofmarketrentsector

Source:IPF(2015),TheSizeandStructureoftheUKPropertyMarket.

Source:Molior,Glenigan,BPF,Savills.

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Forwardpurchasedstockincludesschemesthatwerenotspecificallydesignedfortherentalmarketandschemeswherethedesignhasbeenalteredfortherentalmarket.StockpurchasedforPRShascontributedover3,000unitstotherentalmarket.Intotal,whenconsideringBTRasbothpurchasedstockandpurposebuiltstock,deliveryisinexcessofc.4,500units.

NewBuildtoRent

ManycommentatorsonthemarketrefertonewPRSstockasBTR.Thisismainlybecausethestockisownedbyasingleentity,operatedasasingleinvestmentandprofessionallymanaged.BTRisnotjustrelatedtothephysicalformorthetypeofstock,italsoreferstoanoperationalmodel.

BTR,asanoperationalmodel,isbecomingmoreofanacceptedformofdeliveryintheUKhousingmarket.ManymoreschemeshavebeenidentifiedaspursuingaBTRapproach,assumingthedeliverystrategydoesnotchange.Intermsofstockunderconstruction,BTRunitsmakeupc.9,900ofthec.15,100unitscomingforward.Longerterm,BTRmakesupc.27,500ofc.32,500unitsbeingdelivered.

Newandqualitypurposebuilt

Largescale

Longtermandattractivetoinstitutions

Clearexitstrategy

Singleormultiplesites

100unitminimumsize

Privaterentatmarketrentsonly

ASTcontractswithpotentialtoofferlongertenancyoptions

Newmultipleunits

Nominimumsize

Large-scaleinvestor

Notalwayspurposebuilt

Generallyblocksandunbrokeninvestments

Singlephaseofdevelopment

Risksitswithdeliverer

Littlecontroloverdesignandproduct

Purchasedbeforeorduringconstruction

ASTcontractswithpotentialtoofferlongertenancyoptions

Newmultipleunits

Nominimumsize

Large-scaleinvestor

PurposebuiltforPRS

Blocks/groupsofhousesandunbrokeninvestments

Singlephaseofdevelopment

Risksharedbetweendelivererandfunder

Morecontrolforfunderoverdesignandproduct

ASTcontractswithpotentialtoofferlongertenancyoptions

ApproachestodeliveringPRS

Source:Savills,Molior,Glenigan,BPF.

Newmultipleunits

Nominimumsize

Large-scaleinvestor

Notnecessarilypurposebuilt

Couldbemultipleunitsindifferentblocks/phasesofdevelopment

ASTcontractswithpotentialtoofferlongertenancyoptions

BuildtoRent

PrivateRentedSector

RetainedforPRS BTR(HCAFunding) PurchasedforPRS(inc.forwardpurchase)

BTR(inc.forwardfunding)

Approachestodeliveringpurpose-builtBTR

Asmoreandmorepurpose-builtPRSstockemerges,wecanexpecttoseeashiftinthekeydeliverersandfundersinthemarket.Analysisoftheplanningandsupplydatashowsthatinvestorsareusingavarietyofapproachestobuildupscaleintherentedsector.

Thetableabovesetsoutthedeliveryapproachesthathavebeenused.Thecommonfactoracrossthedifferenttypesofstockisthattherentalsupplyisallnewmultipleunits,insingleownershipandprofessionallymanaged.

BuildtoRentcanmakeupc.27,500ofc.32,500unitsbeingdeliveredinthelongerterm.

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Page 8: Build to Rent - barclayscorporate.com · BTR – the UK term for multi-unit blocks of purpose-built private rented housing in single ownership – has the potential to make a significant

PRSdeliveryschemesunderway

SomeexamplesofPRSschemesaresetoutinthetableoppositethathavebeenincludedintheplanninganddevelopmentdatabasesagainstthedescriptionsgiven.

ManyoftheseschemesareconsideredBTRbuttheyhavenotbeendescribedasBTRinthesedatabases.Forexample,awell-knownschemewaspurchasedbyDelancey&QatariDiarforPRS.WhenthevillagewasdevelopedbyLendLeasefortheOlympics,itwasnotdesignedforthePRSmarketpost-Olympics,butfollowingtheacquisitionitwasretrofittedforthePRSmarket.

CompletedBTRschemes

Thereareatotalof12completedpurpose-builtBTRschemesacrosstheUK,comprisingc.1,300units.InLondontheseschemescompriseatotalof555completedpurpose-builtBTRunitslargelyinEastLondonandBarking.OutsideLondon,deliveryofPRSunitsaspurpose-builtBTRamountsto775units.

Private Rented Sector

Built to Rent

Stratford Halo, Genesis

CQ London, A2D

Dolphin Square, Westbrook

Saffron Square, Notting Hill

Centenary Quays,A2D

3 Towers Manchester,Tribe

Archway Tower, Essential Living

Portfolio in Birmingham, Leeds and Manchester, Dandara

Newfoundland, Canary Wharf Group

180 Stratford, Aberdeen

Wick Lane Wharf

Abbeville Apartments, Grainger

East Village, Delancey, Qatari Diar & APG

Royal Wharf, L&Q

Rathbone Market Phase 1 – Vermilion, Fizzy Living

West Plaza, A2D

Epsom, Fizzy Living

Rehearsal Rooms, M&G

Redclyffe Road, M&G

Aberfeldy New Village, Be:here

Clipper's Quay, Grainger

Build to Rent (HCA Funding)

Purchased for PRS (inc. Forward Purchase)

Build to Rent (inc. Forward Funding)

Retained for PRS

Examplesofschemesbytypology Therehavebeenafurther30schemesintheUKpurchasedforPRS,deliveringc.3,200unitsunderwhatisconsideredtheBTRoperationalmodel.

EastLondonhasemergedasastrongrentalmarketoverthecourseofthelast10to15years.TheincreaseinthenumberofPRShouseholdsbetweenthe2001and2011censuswasaresultofnewhousingdevelopmentbeingskewedtotheeastduringthisperiod,withmanyofthesenewunitsacquiredbybuy-to-letlandlords.Morerecently,large-scalelandlordshavedeliveredrentalstockintotheEastLondonmarketbecausegoodtransportconnectionsandrenterappealhavegeneratedhighrentsinproportiontocapitalvalues.ThismakesPRSschemesmoreviablethaninotherpartsofthecapital.Inaddition,Delancey,backedbyQatariDiar,purchasedtheOlympicAthletesVillageforPRSanditisnowbeingrunandmanagedusinganintegratedmanagementmodel.

TheremainderofcompletedPRSschemeshavebeendeliveredfordifferentusesandretainedforPRS.Therehavebeenc.3,300unitscompletedaspartof26developmentsitesacrosstheUK,whichhavebeenretainedforPRSbythedeliverer.

47%1 9%

Developer

Contractor

21%

RegisteredProvider

13%Housebuilder

CompletedPRSschemesbytypeofdeliverer,EnglandandWales

Source:Savills,Molior,Glenigan,BPF.

Source:Molior,Glenigan,BPF,Savills.

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Abbeville Apartments,Barking and DagenhamGrainger100 PRS units

Enid Wood HouseBracknellCriterion Capital97 PRS units

Bath WesternRiverside, BathCrest Nicholson97 PRS units

IpsusWandsworthRealstar52 PRS units

Aberfeldy New VillageTower HamletsBe:here138 PRS units

Lincoln PlazaTower HamletsGalliard Homes32 PRS units

Bradstowe HouseHarrowComer homes177 PRS units

The KeelLiverpoolGlenbrook Property240 PRS units

Norris GreenLiverpoolDiffrent132 PRS units

New BroughtonSalfordDiffrent120 PRS units

Broadway PlaceSt HelensDiffrent89 PRS units

BuildtoRentschemesinthepipeline

Intermsofscaleofdelivery,fewcompletedPRSschemeshavehadmorethan250units.Developmentsunderconstructionandintheplanningpipelinearebeginningtogetlarger,withdevelopersandregenerationspecialistsstartingtoallocateblocksandphasestoPRS.Alldevelopmentslookingtobringforwardover1,000PRSunitsarelocatedinLondon,althoughManchesterisalsosettoseesomesignificantPRSdevelopments.

Therearecurrentlyover44BTRschemesunderconstruction,deliveringover9,900PRSunitswithinthenextthreeyears.Ofthese,21arebelievedtobeinstitution-backed,withcompanieslikeWestrockandCriterionCapitalfundingschemesinLondonandtheSouthEast.ThelargestvolumeofBTRiscomingthroughinurbancitycentreswithc.2,700unitscurrentlyunderconstructioninManchesteralone.DevelopersarethekeydeliverersofPRSunitsinschemescurrentlyunderconstruction.

Thereareatotalofc.27,500unitscurrentlyintheplanningpipelinebeingbroughtforwardaspartof71BTRschemesacrosstheUK.

ThelargestproposedvolumesofBTRunitssitwithinwiderstrategicsiteslikeBarkingRiverside,BrentCross,CricklewoodandEastVillage.Whilemanyoftheseunitsaredeliveredasnewbuildproperties,alargenumberoftheunitswillbecompletedaspartofachangeofusetoexistingcommercialproperty.Intotal,12%ofallPRSunitscompleted,underconstructionorintheplanningprocessaredeliveredthroughPermittedDevelopmentRights(PDR).InLondon,thisfigurerisesto14%.

CompletedBTRschemes,EnglandandWales

Source:Molior,Glenigan,BPF,Savills.

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Source:Molior,Glenigan,BPF,Savills.

Keylandlords

ThekeylandlordsofcompletedschemesincluderegisteredproviderssuchasFizzyLiving,L&Q,PlacesforPeople,A2DandNottingHillHousingAssociationandpropertycompaniessuchasCriterionCapital,GraingerorDelancey.RegisteredproviderssuchasL&Qhavepurchasedseveralhundredunitsacrossmanyoftheirownschemesandotherdevelopers’schemesinSouthwark,WandsworthandTowerHamlets.TheseunitshavebeenpurchasedtoexpandtheL&QportfolioofPRS.

Developersleadingtheway

DevelopersaretheleadingplayersinthedeliveryofPRS,havingsuppliedalmosthalfofallcompletedschemes.Themajorityoftheseschemescompriseunitsoriginallyplannedformarketsale,whichwerethenpurchasedfortherentedsector.MoretraditionalapproachestoPRShavealloweddeveloperstoplayakeyroleinthesector.

Lookingahead,thereareamuchhighernumberofunitsplannedasBTR,withregisteredprovidersandcontractorsdeliveringonbehalfofinvestors.

120

100

CompleteConstructionPlanning

80

60

40

20

Up to 50 50–100 100–250 250–500 500–1,000 Over 1,000

0

Number ofschemes

PRS units

Totalnumberofschemesandunitsbyschemesize,EnglandandWales

DevelopersaretheleadingplayersinthedeliveryofPRS,havingsuppliedalmosthalfofallcompletedschemes.

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The benefits of Build to RentOurresearchersconsultedarangeofstakeholders,includinginterviewsandround-tablediscussionswiththoseinvolvedinthedeliveryofBTRfromboththeprivateandpublicsectors.

TheresearchhelpedtodrawoutevidenceoftheimpactofBTRonhousingsupplyanddemonstratesits‘additionality’characteristics.TheresearchfoundthatBTRhasadditionalbenefits:

• Accelerateddelivery

• Theabilitytounlocksites

• Intensification ofsites

• Acceler atedmarketabsorptiononlargesites

• Placemaking andregenerationbenefits

• Improvedmanagementandservicetotenants

• Provisionofon-sitejobsandenhancedlabourmobility.

ThekeyaimoftheresearchwastounderstandthefuturegrowthpotentialofBTRsupply.WehavetakenprecedentsfromthegrowthtrajectoryofinstitutionalinvestmentintheUSmulti-familyREITmarketandtheUKPurposeBuiltStudentAccommodation(PBSA)market.TheUSmulti-familymarketgrewfromamarketworthUS$1bnin1992tooverUS$80bnin2016.Overthe25-yearperiod,asimplerplanningsystem,lesscompetitionfromotherresidentialuses,zoningofregenerationareasinurbanmarketsandhigherdemandforcity-centrelivinghaveenabledthemulti-familymarkettogrowtooneofthelargestinvestmentsectorsintheUS.Atanationallevel,however,themulti-familymarketrepresentsjust20%ofallprivaterentedhousing,whilethebuy-to-letsector(commonlyknownasthemomandpopmarketintheUS)isstillthelargestsectorwith80%ofthestock.

Duringthesame25-yearperiod,theUKstudenthousingmarkethasgrowntoasectorworthover£15bn,or240,000units,basedonanaveragebedspacevalueof£60,000.Expansionofthestudentsectorhasbeensignificantlyhelpedbyuniversitiesloweringoccupierriskthroughnominationagreementswhenthemarketwasimmature.Furthermore,ithasdevelopedoutsidetheC3residentialuseplanningcategory,whichhasmeantthatitdoesnothavetocompeteforlandwithhighervalueresidentialuses.

IftheBTRmarketisabletomatureandreachasimilarscaleofinvestmentastheUSmulti-familymarketortheUKPBSAmarket,itwouldcreatearound15,000newhomesperyearintheperiodto2030.Ifthesearebuiltintherightlocationsontherightsites,therewillberelativelylittledisplacementofhomesbuiltforsale.

Theevidencegatheredinthisprojectshowsthatonlargeurbansites,wellconnectedtoemploymentmarkets,BTRcanacceleratebuildoutratesthree-fold.Ifthiscanbeachievedonsay20%ofthelargesitesthatarecurrentlydelivering,thatequatestoadditionaldeliveryof6%.Relativetothe164,000newhomescompletionsinEnglandin2015/16,thisisaroundanadditional10,000homesperannum.Ifthisdeliveryiscombinedwiththelevelofsupplyexpectedtobecompletedoverthenextthreeyears,thiswouldtakedeliverytoc.15,000unitsperannum.Innumberterms,thiswouldresultin240,000unitsdeliveredby2030andprovideasectorcomparableinvaluetotheUSmulti-familymarket(£60bn).

240,000unitscouldbedeliveredby2030andprovideasectorinvalueof£60bn.

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Acceleratingdelivery

Itisimportanttorecognisethattherelationshipbetweenacceleratinghousingdevelopmentandgeneratingadditionalhousingisnotstraightforward.Speedingupdevelopmentcanbringagivennumberofunitsintousemorequicklybutdoesnotnecessarilyincreasethetotalnumberbuilt.ForBTRtogenerateincreasedoutput,theaccelerationindevelopmentmustleadtoasustainablestepchangeincompletions.

AccelerationandPDR

MoststakeholdersinvolvedintheresearchconsideredresidentialsupplydeliveredthroughPDRas‘whollyadditional’.Whetherthismeansthatthereisnoneedtooffsetreductionselsewhereinthedevelopmentchainisnotclear,butitiscertainthatPDRincreasesopportunities.

AnalysisoftheBTRsupplypipelineshowsthat12%ofunits(8,000)arelinkedtoPDR.Clearlythere’salsoadditionalrentalsupplyenteringtherentedsectorthroughbuytoletsalesonPDRschemesthathavesoldintotheopenmarket,soPDRisanimportantcontributortorentalsupply.

StakeholdersconsideredthatthedeliveryspeedofPDRunitsisduetoasimplerandfasterplanningprocess.PDRisnotconstrainedbydesignstandardssuchasminimumunitsizesortheprovisionofaffordablehousing.Thismeansthat,asschemesdon’tgothroughlengthynegotiationsandviabilityassessmentsforaffordablehousing,theycanbedeliveredmorequickly.

ExamplesofPDRinaction

Westrock Westrockhasplannedinvestmentof£300min1,000BTRunitsunderitsbrandedoperator,PLATFORM_.Currently,ithasc.600BTRhomesunderconstructionacrossfivePDRschemesinBedford,Crawley,Bracknell,Stevenage,andExeter.AllWestrock’sschemesareofficetoresidentialconversionsdevelopedunderPDR.“PDRallowsWestrocktobringforwardmorehomesfaster,asitdoesnothavetoengageinlengthySection106negotiations.”Thecompanyconsidersthatallthehomesthatitisdevelopingareadditionalasitisnotdeliveringmarketsaleproduct–itisaggregatingresidentialunitsforlong-terminvestment.

Miflats MiflatsisCriterionCapital’sPRSbrand.Itcurrentlyhas11schemesinitsportfoliolocatedaroundtheLondoncommuterbelt,witharound700unitscompletedandadevelopmentpipelineof1,700.AllMiflatsschemesareformerofficesbeingconvertedtorentalunitsunderPDR.Thisallowsthecompanytodesignunitssuitablefortherentalmarketwithoutconstraintfromdesignguides,planningrestrictionsorspacestandards.

Accelerationonhousebuilders’sites

Sigma Sigma,thePRSspecialist,developedapartnershipwithGatehouseBankplcforthedeliveryoflarge-scalePRSportfolios.SinceconstructionbeganinDecember2014,Sigmahascompletedits1,000thunit.ByNovember2016,Sigmaisdeliveringinexcessof2,500newrentedhomes.

BecauseSigmaisnotreliantonsalesrates,itcandeliverunitsmuchfasterastheabsorptionofrentalunitsishigher.ThisapproachtodeliveryhasallowedSigmatobuildupsignificantnumbersofassetsatafasterpacethanseenpreviously.

ThedeliveryspeedofPDRunitsisduetoasimplerandfasterplanningprocess.

ThePerfumeFactory,EssentialLiving

ZinniaMansions,EastVillage

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SigmaisdeliveringrentalhomesonsitesbeingdevelopedoutbyCountryside,whichisbuildinghomesformarketsaleandaffordableuse,whilealsoactingonadesignandbuildbasisforSigmaonthesesites.AsitdoesnotcompeteforsaleswithCountryside,therateofdeliveryismuchfaster.Actingasanenduser,thecompanyisalsode-riskinganelementofdeliveryforCountryside.

Countrysidehasdelivered543marketsaleunitsonthesesites.ThismeansthattotaldeliveryhasbeenthreetimesfasterasaresultofBTR.SigmahasusedanalternativesourceoffundingfromCountrysidethroughitspartnershipwithGatehouse,whichhaspermittedhigherratesofdelivery.

L&QAnotherexampleofaccelerateddeliveryonlargeregenerationsitesunderhousebuildercontrolistheBarkingRiversideredevelopmentintheLondonBoroughofBarkingandDagenham.Theschemeasawholeisamixeduse,multi-tenure,multi-sizednewcommunityexpectedtodeliverc.10,800newhomes.Thescheme’scurrentbuildoutrateis500unitsperyear.DuetoL&Q’smixedtenureapproach,itexpectstoincreasedeliverytoc.1,000peryear,whichwillhalvethedevelopmentperiodto10years.L&QattributesthefasterbuildoutratetotheinclusionofPRSanditsstrategyislargelytoretainunitswithindevelopmentsforPRS.

L&QsecuresfundingupfrontforPRSbecausethecompanypre-sellsachunktoitsPRSsubsidiary.Inthiswayoutputcanbeincreasedanddoesnotdisplacethedeliveryofothertenuresonsite.

Fromanassetmanagementperspective,L&QviewsblocksofPRSasbetterinvestmentsbecausetheyprovidemorepotentialexitroutes,suchassellingwholeblocksto

investorsorindeedbreakingthemupandsellingtheunitsindividually,shouldtheprofileofrentaldemandchange.L&Qenvisagesholdingtheseinvestmentsindefinitelyastheyproduceincomethatcanbeusedtocross-subsidiseotheractivitiesandbecausetheytendtoappreciateinvalue.

Accelerationandfastermarketabsorption

Marketabsorptionofrentedhomesissignificantlyfasterthanforopenmarketsale.Typically,housebuildersdeliverstocktomeetaprojectedmonthlysalesrate,whichisadjusteddependingonmarketconditions.Thestrongdemandforrentedhousingandscarcityofnewsupplymeanthatunitscanbedeliveredfaster.

Quintain QuintainmanagestheredevelopmentofWembleyParkinnorthLondon.EmeraldGardenswasthefirstofmanyresidentialphases,comprising473homes,ofwhich141werebuiltforprivaterent.

Quintainsold332homesintwoyears,butleased141insixmonths,soroughlytwiceasfast.Itsexperiencesuggestsleasing415unitsin18monthsandsellingthesamenumberwithinthreeyears.

Thecompany’sviewisthatrentaldemandismuchmoreconstantthanbuy-to-letinvestordemand,andmuchlessaffectedbymarketconditions.Buildingfortherentalmarketisconsideredlessriskythandeliveringintothesalesmarket.

East Village AnotherexampleofhighlevelsofmarketabsorptionthroughthedeliveryofrentedhomesisatEastVillageinStratford,EastLondon.ThisisthelargestBTRschemeinLondonandemergedfollowingthe2012OlympicGames.Thevillagecomprises2,818homes,ofwhich1,439aremarketrenthomesownedbyclientsofDelaney,QatariDiarandAPG,operatedbyGetLivingLondon(GLL).

GLLreportsthatEastVillageisfullyletandthat,onaverage,duringtheletupphase(oneyearand10months)itsawc.15unitsabsorbedeachweek.Deliveringthesamenumberofhomesasopenmarketsalewouldhavetakenabouteightyears.

AcceleratedmarketabsorptionatEastVillage

Accelerationandunlockingdevelopment

Stakeholderssuggestedthattheprovisionoflargevolumesofrentedhomescanhelptounlocksitesthathavepreviouslyremainedundeveloped.AnexampleistheformerGlaxoSmithKlineandSunblestBakerysiteinGreenford,whichwasacquiredearlierthisyearbyGreystar,whoisthelargestUSmulti-familyoperator.

ThesiteinGreenfordwasacquiredbyGreystarwithanoutlineplanningconsentfor593homes.Bydeliveringamixed-useschemethatlargelycomprisesrentedhomes,ratherthanopenmarketsale,Greystarhasmadeanupdatedplanningsubmissionforamuchlargerschemeof1,965units.Adeliverystrategythatisfocusedonrentalhousinghasleddirectlytoaplanningapplicationforanadditional1,372homesthatwouldotherwisenothavebeenbuilt.

BTR Buildtosell

Numberofunits 1,439 1,439

Letuprate 15perweek 15permonth

Deliveryperiod 95weeks 95months

Thestrongdemandforrentedhousingandscarcityofnewsupplymeansthatunitscanbedeliveredfaster.

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Thenewrentalneighbourhoodisalsoexpectedtobedeliveredsignificantlymorequicklythanacorrespondingfor-saledevelopment.Therecentplanningapplicationalsoincludesprovisionforaproportionofrentedunitstobedeliveredatadiscounttothemarketrentlevel.

Acceleratingbuildoutrates

Buildoutratesareconstrainedbytherateatwhichdeveloperscanselltheirunitstoindividualbuyers,particularlyonlargerschemes.BTRcanhelpacceleratehousingdeliverybecauselettingupratesarefasterthansalesrates.CommentssuggestthatbuildoutratesonBTRschemescouldbebetweenthreeandfivetimesfasterthanonfor-saleschemes.

Buildoutratesarerelativelysimilaracrossalltypesofmarketonsmallersitesoflessthan50units.However,onlargersitesbuildoutratesaremuchhigherinstrongermarkets,inwhichmorelargesitesarebroughtforward.

Onlargeurbansites,wellconnectedtoemploymentmarkets,BTRcanacceleratebuildoutratesthreefold.Ifthiscanbeachievedon,forexample,20%ofthelargesitesthatarecurrentlybeingdelivered,thiswouldequatetoadditionaldeliveryof6%.Thisisaroundanadditional10,000homesperannum.

Jobcreation

ThejobcreationbenefitsofBTRareillustratedbytheFerryLaneschemeinWalthamstow.Plansforthedevelopmentincludenewcafes,afoodstore,communalworkingspaces,openlandscapedareasandcommunalleisurespacesforresidents.Thisisexpectedtocreateupto100long-termlocaljobsaswellas3,000temporaryrolesoverthelifetimeofthedevelopment.Withinthescheme,aproportionofaffordableunitswillbeletonadiscountedmarketrentbasis.

ThePerfumeFactory,EssentialLivingMirabelleGardens,EastVillage

EastVillage,GetLivingLondonVestaHouse,EastVillage

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The challenges of Build to RentOurresearchalsoidentifiedthechallengesholdingbackthesector.AkeyconclusionfromthestakeholderengagementisthatpolicyrequiresaclearplanningdefinitionofBTRtohelpprovidecertaintyforplanningnegotiationsandforinvestors(usedinitsbroadestsense)tocompeteforopportunities.

DefinitionofBuildtoRent

AkeyfindingfromthestakeholderworkshopswasthatpolicyrequiresacleardefinitionofBTRtohelpprovidecertaintyforplanningnegotiationsandtoensurecertaintyforinvestorsbiddingforopportunities.

StakeholderswereclearthatiftherewerecertaintythattheaffordablerequirementforaBTRschemewouldbediscountedmarketrent(DMR),asopposedtootherformsofSection106(S106),thiswouldgreatlyimprovetheviabilityoftheschemeandtheirabilitytobemorecompetitiveonbiddingforpotentialopportunities.

SincethepublicationoftheGreaterLondonAuthority’sSupplementaryPlanningGuidance,thereareanumberofprecedentsofBTRbeingdeliveredwithDMRinsteadoftraditionalformsofS106affordablehousing,whichallowsinvestorstomanageschemesholistically.Publicauthoritieshaveusedcovenantstoensurethattheschemesbuiltintheirboroughsandthediscountedrentalunitsremainintherentalmarketforadefinedperiod.

Thisapproachhelpsrentalschemescompetewiththevaluesderivedfrommarketsale.Italsomeansinvestorscanvaluetheinvestmentoveritslifetime,programmerepairandmaintenanceofabuildingwithouthavingtonegotiatewithathirdpartyand,mostimportantly,quantifythecostofrepayinganypreferentialtreatmentthattheschemehasreceived.

Thecovenantperiodisonlyrelevanttotherepaymentoftheaffordableunitsshouldtherebeacaseforrecovery.ThemechanismworksintheUS,wheretherestrictionorcovenantislinkedtothefinance,soinvestorscanquantifythecostofanyconcessions.

Planningandaffordablehousing

ManyintervieweeshighlightedtheconstraintsoftheplanningsystemforBTRandtherelativelackofexperienceandknowledgeacrosslocalauthoritiesofBTR,comparedtobuildforsale.

AlthoughthereissomeguidancefortheBTRsectorsetoutinNationalPlanningPolicyGuidance(NPPG),itwasfeltbyrespondentstotheresearchthattherearealackofclearpolicies.Thecurrentplanningpolicyframeworkisseenasfavouringthedeliveryofowneroccupationandaffordablehousing.ManybelievethatBTRneedsadifferentapproachfromaplanningperspective.

ProblemswithtraditionalformsofS106affordablehousingwerealsohighlightedbystakeholders.ThereisgeneralconsensusthatdiscountedmarketrentworkswellforBTRandinvestorsarekeentoprovideitalongsidemarketrentunits.Inparticular,DMRunitscouldbetenureblindwithinschemes,‘pepperpotted’amongopenmarketrentalunits.

AcleardefinitionofBTRcanhelpprovidecertaintyforplanningnegotiationsandtoensurecertaintyforinvestors.

ManystakeholdersbelievethatBTRneedsadifferentapproachfromaplanningperspective.

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DMRisconsideredthebestaffordableproducttositalongsideBTRbecauseitdeliversatenure-blindproductforoccupiersandadevelopmentthatcanbemanagedseamlesslybytheinvestor.Incaseswhereacovenantisgiven,keepingadevelopmentasrentalforasignificantnumberofyears,DMRisregardedastheaffordablehousingprovision.TheunitsinthedevelopmentremainatDMRforadefinedperiodandmayreverttobeingaPRSatfullmarketrent.

DMRismoreflexiblethanotheroptionsasitenablestenantsto‘staircase’betweenrents.Forexample,thismightinvolveatenant’ssalarybeingreviewedeveryfiveyears.Ifthetenanthasmovedincomebands,heorshewouldalsomovebetweentherentaldiscountbrackets.Insomecircumstances,atenantmightalsoaskfortheirrenttobereviewediftheircircumstanceschange.

Thismethodalsobenefitsthelocalauthority–ifatenantonDMRmovesuptomarketrent,aseparateunitbecomestheDMRunitandsothepercentageofunitsatDMRremainsat25%forthewholeoftheagreedcovenant.

TheneedforcovenantstoensurehomesremaininthePRSforaminimumamountoftimeiswidelyrecognised.Withoutcovenants,itisdifficulttogetthesupportoflocalpoliticians,whowouldfearthepotentialriskofpeopletakingadvantageofthesystem.

Planningandregulations

AlackofflexibilityinplanningregulationscanbethebarriertoBTRhousingdevelopment,inparticularcarparkingstandards,designandspacestandards,andunitmix.Forexample,unitmixBTRoperatorsreportthatdemandforPRSunitsdiffersfromthatforunitstobedeliveredforopenmarketsale.Inparticular,policyrequirementstodeliverthree-andfour-bedroomunitsarenotalwaysappropriateforBTRschemes.

Engagingwithlocalresidents,particularlyonparkingandtraffic,isalsohighlightedbystakeholders.BTRschemestendtobesituatednearpublictransportandrequirelesscarparkingandthisspacecouldbeputtomoreeffectiveuseforadditionalrentalincome,whetherthroughmoreresidentialunitsoramenityspacefortenantstouse.

Pricingandvaluation

ManyintervieweescommentedthatBTRschemestendtoputalowervalueondevelopmentsitesthanforsaleappraisals.Residentialdevelopmentisdifferenttocommercialinthatithastwopotentialendusers–ownersandrenters.Wheredeveloperscansellonaretailbasistoowners(orinvestorspayingretailprices,i.e.buy-to-letinvestors),thishasbeenthepreferredroutetomarket.Valuestendtoexceedinstitutionalinvestmentpricing,whichisbasedonamultipleoftherentalincome.

BTRisverymuchayield-basedpricingmodel.Investorsstatedthattheirbiddingpricereflectsthetargetyieldtheyrequire.A20%discountistypicallyrequiredfromthevaluesthatcouldbeachievedfromsalestoretailinvestors.

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However,housebuildersstatethatthe20%discountwhichinvestorsarelookingforistoohigh.Oneofthehousebuildersinterviewedsuggested:“Inthecurrentmarketitdoesn’tmakeanysense,butinaweakermarketwecanpotentiallysupportadiscountfrom7%to10%ofmarketvalue.Giventhathousebuildersoftenofferincentivestobuyers,wipingoffthislevelfromtheretailsalespricesbringsthetwoinline.”

Otherstakeholdersstatedthatdiscountsreflectthedifferenceinmanagementcosts–thebuy-to-letmodelinvolveslowermanagementcostsandthereforegrosstonetleakageisaround12%,whileBTRisusuallybackedbyabankandrequiresprofessionalmanagement.Leakageismuchhigherataround25–27%.Managersalsorequireasinkingfundforreactiverepairs,whichmeansthatBTRinvestorsareunabletocompetewiththepricesthatbuy-to-letinvestorsarewillingtopay.

FinancingBuildtoRent

PRSinvestmentandBTRdevelopmentisfundedinavarietyofways.Passivecapitalinvestorssuchasinstitutionalinvestorsarelessreliantondebtmarketsandfundinvestmentwithequityfromtheirinvestors.

However,activecapitalinvestors,operatorsanddevelopersaremuchmorereliantondevelopmentdebttodeliverschemes,manyofwhichareverycashintensiveandlarge.

Fourkeyproblemsrelatingtofinanceareidentifiedintheresearch:

• Capacityofthedebtmarketstolend

• Immaturemarket

• Trackrecordofborrowers

• Scaleoftheassets.

GiventhenascentnatureofBTRandthefactthatschemesareoftenverylarge,requiringverylargeloanswithlimitedinformationtounderwritethedeals,lendersattachahigherriskweightingtotheseloans.ThismeanstheyneedtoholdmorecashontheirbalancesheetandrestrictsaccesstodevelopmentfinanceforBTRdevelopers.

ThegovernmenthassoughttoovercomesomeofthesebarrierswiththeintroductionoftwofundingschemesforBTR–theHCABuildtoRentFundsandthe£3.5bnPRSDebtGuaranteeScheme.TheBuildtoRentfundingschemeisnowpartofthelarger‘HomeBuildingFund’whichcomprises£2bnofinfrastructurefundingand£1bnofdevelopmentfinanceforhousing.

AnumberofstakeholdersnotedthattheHCAandtheDebtGuaranteeSchemeareamassingvastamountsofinformation,whichcouldbeaggregatedandusedbylendersandothersseekingtoworkwiththenewBTRsector,helpingtoreducetheirrisks.

Taxissues

Stakeholdersalsonotedthat“adefinitionwouldbebeneficialfortaxpurposes”.ThereareanumberoftaxissuesthatdisadvantageBTR,includingVATonrepairsandmaintenanceandhigherratesofSDLT.VATonrepairsandmaintenanceactsasadisincentiveforlandlordsandinvestorstoundertakemaintenanceandrepairsbecause,unlikecommercialmarkets,theycannotrecovertheVAT.

TheresearchhighlightsthatthehigherratesofSDLTcomparedtoowneroccupierbuyerseffectivelymeansthatanowneroccupiercanpaymoreforaproperty.Thisinturnisonereasonwhybuild-to-sellschemescanbidmorefortheland.Forexample:“Thestampdutysurchargeeffectstheeconomicsoftheschemeastheyarenotonalevelplayingfieldwithowneroccupiers,”and:“DefiningBTRwillhelpcreatealevelplayingfieldoncompetitionforland.”

StakeholdersdiscussedwhetherthedefinitionofBTRshouldrelatetoscale.VariousstakeholderswerekeentosetaminimumsizeforschemestoqualifyasBTRforplanningandtaxpurposes.Commentsrangedfrom:“Scaleisfundamentalwithinthedefinitionbecausetherearedifferentlevelsofrisksassociatedwithdifferentsizedschemes”tootherssaying:“ScalecomesintothedefinitionofBTRwhenyoustartthinkingaboutAffordableHousing,”and:“Aschemeshouldhaveatleast50unitstoqualifyasBTR.”

OthersstatedthatthedefinitionofBTRshouldbebasedonmanagementandoperationalstructuresandownership,notphysicalattributessuchassize,scaleorpropertytypes.“BTRisprofessionallymanagedstockinsingleownership,whichcouldbecovenantedandcouldincludediscountedmarketrentaspartoftheinvestment.”

ThestakeholdersdiscussedtheideaofimposingcovenantsonBTRdevelopmentstoensuretheyremainedinthePRSmarket.Therewasageneralconsensusthatcovenantsareagoodidea.MakingBTRmorecompetitiveincircumstanceswherethecovenant(arestrictiononuse)bringswithitotherplanningconcessionswouldenhanceviability.

Onepointthathasemergedfromtheinterviewsisthataunitthatiscovenanted,suchthatitcannotbesoldseparately,mayceasetobetreatedasadwellingforVATpurposesandwillincurirrecoverableVATonconstruction.Thisisapotentialstumblingblockforrollingoutcovenants.HousebuildersrecoveranyVATpaidonconstructionbecausetheyselltheassets.

AcleardefinitionofBuildtoRentwouldbebeneficialfortaxpurposes.

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What’s next?Althoughitisstillinitsearlystages,theBTRmarketisrapidlydevelopingasasignificantassetclass.

ThisresearchdemonstratesitsincreasingimportancetotheUKpropertyindustry,bothasawaytoaddressthelackofhousingsupplywhiledeliveringsocialandeconomicbenefitstolocalcommunities.

Theseincluderegenerationbenefits,withresidentscreatinggreaterlocalspendingpower,aswellasplacemakingbenefitsbroughtaboutbyhighabsorptionrates,especiallyonlargemulti-phaseregenerationschemes.

Itisestimatedthatforevery500BTRunits,approximately15long-termjobsarecreated,inadditiontoconstructionjobs.ThesejobswillgeneratewidereconomicbenefitswhicharenotpricedintothenarrowercommercialincentivesrelatingtoBTRschemesandalternativecompetingpotentialusesofpossibleBTRdevelopmentsites.

ConsultationwithindustrystakeholdershasidentifiedanumberoffactorsthatneedtobeaddressedtohelptheBTRmarketfulfillitstruepotential.

BTRdefinitionAstatutoryplanningdefinitionisverydesirableto

accelerateandmaximisedeliveryofhomes.Suchadefinitionislikelytobeaprerequisiteforimplementing

otherplanningpoliciesandtoensureconsistencyofinterpretationacrosslocalauthorities.

CovenantsandclawbacksTherecouldbenationalguidanceontheuseof

covenantsandclawbacks.Thiswouldhelpwheretherehasbeenaconcessiontoenhanceviabilityofaffordablehousingprovision,localauthoritiesareusingconsistent

clawbackmechanisms.

DiscountedMarketRentNationalpolicycouldmakeitclearthatdiscounted

marketrentisanacceptableformofaffordablehousingforBTRwherethereisarequirementtoprovideaffordablehousinginthesameblockas

privaterentedunits.

PlanningpreferenceforBTRonlargesitesNationalandlocalguidancecouldencouragelocalplanningauthoritiestorecognisethesignificantadditionalitybenefits

ofBTRwhenworkingwithdeveloperstobringforwardphasesoflargesites.Thismeanstheycanbebuiltoutearlierthanotherwiseplanned,alongsidetheearlybuild-to-sellphases.

Itisestimatedthatforevery500BTRunits,approximately15long-termjobsarecreated.

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DesignandspacestandardsNationalpolicyandguidancepromotegreaterflexibility

ondesignandspacestandardsinhigh-densitytowncentrelocationswithgoodaccesstotransport.Localauthoritiesneed

guidanceonkeyfactors(carparking,unitmix/size,singleaspectandunitspercore)thatcanimpactonBTRviability.

HomeBuildersFundTheHomes&CommunitiesAgency(HCA)coulduse

anexplicittrancheoftheHomeBuildersFundforPRStodemonstratethegovernment’scontinuedcommitmenttodeliveringgoodqualityrentedhousingthatisowned

andmanagedbyprofessionalinvestors.

SDLTamendmentsExemptlarge-scaleinvestorsfromthe3%SDLT

surcharge.ThereappearstobeprecedentssetbytheScottishgovernment’sdecisiontoexemptinstitutionswhenthesurchargewasintroducedandthiscanbe

investigatedfurther.

GovernmentDebtGuaranteeforPRSThegovernmentshouldconsiderextendingthe

£3.5bnDebtguaranteeforPRSintermsoftimeandscopetogiveconfidencetolendersinthespacethat

therewillbeinvestmentorend-buyerfinanceavailabletohelpthemarketscaleupandmature.

MarketinformationandtransparencyBoththeHCAandVennhaveaccesstoauseful

rangeofinformationanddataonthenewBTRsector,whichwouldbehelpfultolenders

underwritingtransactionsifthedataweremadeavailableinaggregateform.

VATamendmentsChangestotheVATregimeintermsofzero-rating

thecostofrepairsandmaintenancewouldimprovetheviabilityofalargenumberofBTRsites.

VAT

£

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