LISTEN With more than 150,000 build-to-rent homes now occupied, under construction or in planning, activity in the sector is fast catching up with the attention it has long drawn from developers, advisers, investors and lenders. But one voice too often missing from debate and discussion is that of the renter. What are their concerns and aspirations? And are they happy with the product they are paying for?
A survey of more than 2,000 renters by Sigma Capital paints a revealing picture. It confirms some suspicions – from more than half having Netflix to the main driver for renting being financial. And some findings will be of great comfort to landlords; around seven in 10 renters happy with their property would gladly sign a contract of more than 12 months. But elsewhere the findings reveal there is a lot of hard work to do to persuade many renters that this form of tenure is for anything other than the short term.
For renters, experiences of expensive, restrictive accommodation, often of poor quality, are real. And, yes, many see rental payments as dead money.
But the results of the survey have also shown that changes are under way in what is still a nascent sector in the UK.
Renters do appear to be gravitating towards build-to-rent homes provided by institutions rather than those supplied by individuals and some are also beginning to form relationships with certain brands. It also appears that the uncertainty unleashed by Covid-19 is accelerating that shift. Flexibility and amenity matter but at times like these security matters most of all.
“What we have experienced over the past three months has brought the benefits of renting from an institutional landlord into, very sharp relief,” says Rob Sumner, Sigma’s residential investment director. “We’ve had a lot of positive feedback from those people who have been unfortunate enough to be affected by Covid-19. The systems that we brought in to give them some relief, probably wouldn’t be available to somebody renting from an individual landlord.”
But this was a shift that began before Covid-19. Sigma, which unusually in this sector, focuses on suburban housing, now has early 4,000 homes across all platforms under management.
“We are now seeing people move from small houses to some of our larger properties. We’re seeing people move from development to development as their circumstances change.” That behaviour is usual in the US; it is becoming more common here.
Ged McPartlin, managing director of letting agent Ascend, also sees renters beginning to seek institutional rental products – or even homes supplied by certain providers.
“I think people now are seeing the value of that institutional brand; of that institutional landlord – what that gives them; the security that gives them. It’s been a long time getting that message out there. But I do see people buying into that now. And I think it’s important for the long-term progress of the build-to-rent market that people do feel secure in their own homes and buy into the brand as much as the properties.”
These behaviours also point to increasing satisfaction with renting, a part of the market often seen as a poor relation to the owner-occupier sector.
Vicky Hurcomb, Sigma’s head of marketing, says the survey’s findings suggest the market is maturing.
“When we asked people whether they were happy renting at the moment, a very, very high proportion said ‘Yes, we’re happy’ or ‘We’re very happy’.
“It makes you think that there’s some big changes potentially to come within the rental market and hopefully people could start to view renting as more of an aspirational choice.”
However, there is clearly room for improvement for landlords.
Trinity McQueen undertook the research and associate director Lauren Elliott says: “There are some negative perceptions, so how can we reframe renting? Can we actually reframe it in a more positive light, and provide a service that helps with those things? A lot of the feedback we got was actually around trust and transparency.
“People want a relationship with their landlord. Some people think that the landlord has all the power and that can make the renter feel quite down on themselves, particularly if they’re not getting the service that they think they deserve. So if you rebalance that scale and actually make it feel like a relationship, it can work really well.”
Savills director Craig Langley says it is build-to-rent landlords, rather than the wider PRS market, that can address those concerns.
“We’re seeing corporate landlords really thinking about social responsibilities and the brand and building up that position. And the quality of the product is helping. Generally speaking, people are staying longer. And if people are staying longer, a key part of that has to be satisfaction.”
Sumner says that as the market grows, landlords will increasingly have to compete for tenants.
“The experience that people who have rented from us has got to be first-class,” he says. That competition will drive up quality and satisfaction.
And more data in the market is needed for that to happen, says Jennifer Murray, head of institutional investment at Homes England.
“That is key to getting institutional, professional money into the sector. It’s still a very nascent investment class in the UK. In the States, it took off in the 1990s, but from very early on, operators were sharing information and a body of evidence was created which gave investors confidence in terms of what part of the market they wanted to come into.
“In the commercial real estate sector, IPD and now MSCI have been collecting data on performance and rents for more than 40 years. If you’re somebody who is making an investment decision on whether or not you want to forward-fund a shed in Daventry, it’s really easy to evidence tenant demand, rental growth or where you think the prices are at.
“If you were that same investor saying: ‘Shall I forward-fund or forward-purchase homes for rent?’ that data just isn’t there. And I think that’s a big issue that the sector needs to start to overcome to start getting in investment at greater scale.”
Langley believes Covid-19-related uncertainty will accelerate the growth of the UK’s build-to-rent sector as investors and customers alike seek stability.
“This period we’ve been through will probably only exacerbate that,” he says. “What it’s highlighted is that people want to be with landlords and in a sector that is socially responsible and also that performs. It’s also a stable income stream which investors are able to get hold of. The problem we’ve had in the UK is a lack of supply. It’s only now that we are getting to a position where we are getting this supply is coming forward.”