Are smaller landlords being pushed out?
While build-to-rent certainly has a place in the market, the question of whether it reduces the number of private landlords has grown ever more prevalent.
With many large companies stepping into the space, some believe smaller and accidental landlords are being forced out.
One expert has discussed the reasoning behind this shift in the buy-to-let market, the tenant profile of build-to-rent and trends in the space.
Pushing smaller landlords out
Terry Woodley (pictured), managing director of development finance at Shawbrook, said the government has been trying to generate a shift away from the accidental landlord for quite a few years now.
“They changed how tax could be applied in regards to the income buy-to-let landlords receive, and I feel that was a way to shift people into a corporate entity and to run their investment portfolios more like a business,” he said.
For those who did not alter their portfolios to a business format, Woodley said, the expectation was for them to sell their properties to those who were able to shift to operating as an investment company.
The uptick in developers looking toward build-to-rent, meanwhile, Woodley said, has been enabled by the government.
“The government has encouraged developers to construct large scale projects, similar in structure to buildings in the student sector, through shared risk or by providing finance,” he said.
However, Woodley believes the impact on the accidental landlord will not be significant.
“With these large scale buildings, often there is not enough space to construct them in locations near to a city centre; the style and structure of these larger properties are also not to everyone’s tastes,” he said. Therefore, Woodley said there is still a market for the accidental landlord, who perhaps has a single building here and there throughout a city centre.
In addition, Woodley highlighted a shortfall of homes to rent, so until the government builds enough homes for everyone, he believes there will always be demand for attractive properties.
“This is not to say the build-to-rent sector will not be incredibly popular in its own right, more simply that accidental landlords will still have a space in the market, despite the government’s best efforts,” he added.
Build-to-rent tenant profile
The build-to-rent side of the rental market, Woodley said, has been generating some good momentum over the last few years. Developers and investors have seen the economies of scale a scheme like that can offer, and so are continuing to expand into this space, he explained.
“You get a natural kind of tenant profile for build-to-rent, this is often people from the student sector, who have lived in student accommodation which is a similar type of property,” Woodley said.
As such, properties are often being built in the same vein, such as with a laundromat and a communal space to socialise with others living in the building.
“The momentum in the build-to-rent space is gathering, I do not believe we will see it stopping, or even really slowing down, as it has a sustainable and profitable tenant profile,” he said.
Build-to-rent trends
A developing trend in the build-to-rent market, Woodley stated, is developers shifting away from the build-to-sell format and toward build-to-rent.
“Developers have seen how profitable this can be, and so are shifting their focus to this side of the market instead; the build-to-rent sector presents the opportunity for significant profits, and so developers are continuing to put their eggs in this basket,” he said.
Woodley added that build-to-rent projects are usually quite sizeable schemes, in excess of £30 million, so they are a significant investment but still continue to prove profitable.
“So, I believe a continued trend will be the build-to-rent market further expanding and investors pumping more money into projects of this nature for the foreseeable future,” he said.
Do you believe build-to-rent is a positive or a negative for the wider rental market? Let us know in the comment section below.
