As the UK government addresses the housing crisis, there have been calls for the current state of the rental sector to be addressed.
According to ResPublica, in 2015, the private rental sector (PRS) accounted for 22% of all UK households.
This number is expected to grow, with the experts at PwC predicting that around 59% of 24 to 30 year olds in England will rent private accommodation by 2025.
The cutting shortage of housing in the UK is very clear.
Since 2004, house building targets have been missed by 1,199,180 (Yorkshire Building Society). It is clear that the demand for all types of property is needed, including rental homes.
Given that it is highly unlikely that the government will meet its housebuilding targets, investment from private developers has helped propel the Build-to-Rent sector into the spotlight.
Private investment in the Build-to-Rent sector could help ease the strain on the property market and pave the way for better quality housing, suitable for Generation Rent.
Continued high levels of investment in the sector will help meet the demand for good quality, purpose-built property which has been designed with tenants in mind.
Investment in the sector could help bridge the gap between supply and demand but what’s in it for investors?
Stronger Capital Appreciation Prospects
Private investors often enter the Build-to-Rent sector at the earliest stage of the project – typically at planning. This provides buyers with a greater scope for capital appreciation prospects.
The off plan property sector tends to provide investors with savings up front, as some properties are available at a discounted price.
This allows investors to buy a property at a reduced price – when compared to the price of completed housing.
This cheaper option, in theory, means that investors will benefit from any price rises in the housing market.
The lower entry level is also good news for renters, as it should increase the volume of private investment which should, in turn, improve the level of high-quality rental stock in the areas which need it most.
Catering for Demand
It is important to consider demand before investing. Investors should look for locations where the demand is at its highest. This will help to ensure higher levels of occupancy rates.
In recent years, investors have looked towards the North for the best buy-to-let hotspots.
The Northern Powerhouse movement has pushed cities such as Manchester, Liverpool and Leeds on the map. Birmingham, Bristol and Luton have also experienced a demand for high quality rental properties.
Investors have been attracted to Build-to-Rent opportunities as they tend to offer assured rental returns.
Depending on the location, developers generally offer returns between 5% and 7% for an assured period of time.
The fully managed nature of the Build-to-Rent sector enables investors to generate a passive income.
The UK’s Build-to-Rent sector fulfils the needs of Generation Rent while providing property investors with stable returns from the market.
It also has the ability to help ease the current shortage of housing across the country and provide renters with high quality homes.