Build to Rent – purpose-built development for the rental market – is picking up speed and attracting investment in London. While it has the potential to provide a much-needed boost to supply, local authorities and their housing association partners need to ensure that new housing developments meet local need.
On 27 July, Future of London brought together a cross-sector group of housing experts to discuss how local authorities can incorporate Build to Rent into their wider strategies and boost the supply of high-quality rental accommodation. The roundtable was kindly hosted by London Communications Agency. This post includes key points; watch for a full report in November.
1. Can Build to Rent accelerate estate renewal schemes and cross-subsidise other tenures?
There is evidence that absorption rates of rental properties – i.e. the speed with which they can enter the market – is higher than properties for sale. Cases such as Aberfeldy Village in LB Tower Hamlets show that incorporating Build to Rent into large-scale estate renewal creates a consistent level of cash flow to fund the construction, infrastructure and purchasing of leaseholds of subsequent phases, thus accelerating the programme. If a local authority or housing association enters into a development partnership with a third party for the Build to Rent element, this will maximise cash generation by sharing the development risk.
It was argued that market sale is more capable of speeding up major schemes, as it generates a higher, one-off injection of cash at the front end. Local authorities need to be clear on their strategic objectives: is it more important to maximise cash generation through building and selling, or to retain an asset and secure a long-term revenue stream?
The group debated the above, but was unanimous that the speed at which Build to Rent developments can be let is particularly valuable for place-making. Populating part of an estate with renters (preferably on long tenancies) quickly creates a community. This can enhance the reputation of an area, benefit the local economy and make it feel safer and more vibrant.
There was a range of opinions on the extent to which market rent homes can cross-subsidise affordable homes in estate renewal. Certain factors determine whether cross-subsidy is possible, such as the delivery and partnership model, rental yield and cost of production, construction and land. Cross subsidy should be possible if a local authority/public body owns the land, as land values are often lower.
2. What effect could a successful Build to Rent industry have on the wider Private Rented Sector?
From the GLA’s perspective, all new housing should strive to meet Sadiq Khan’s manifesto priorities, including affordability, security of tenure and quality. Evidence from completed schemes suggests that, while secure and longer tenancy options, strong management and high-quality accommodation are all possible, ensuring affordability can be more challenging.
The highest-quality segments levels of the sector are being driven by brand competition and the desire to advance a fledgling industry. Most in the room felt that greater regulation would help to sustain this performance in the long term. Although local selective licensing – whereby private-rented properties in a designated area need to meet criteria to be legally let – was developed by government to improve the management of existing PRS, it could help to regulate new-build PRS as well. However, it was pointed out that East Village is exempt from LB Newham’s selective licensing scheme. If this becomes the norm, Build to Rent developments will be less regulated and monitored than the rest of the PRS, at least in the seven boroughs that currently have selective licensing schemes. The British Property Federation has stated that including Build to Rent properties in selective licensing schemes affects their development viability, as the licence fee per property needs to be factored in.
In general, Build to Rent has the potential to raise standards in the wider PRS by increasing tenant expectations. However, as long as demand for rented housing across London remains higher than supply, only regulation (of the entire sector) will drive this improvement.
3. How can boroughs factor Build to Rent into their housing strategies?
Instead of a bespoke deal per development and in each local authority, the GLA is keen for a consistent position across London boroughs. A new supplementary planning guidance document is in development at City Hall, and options around covenants and use classes are under consideration.
Some schemes, such as Creekside Wharf in Greenwich, are adhering to the GLA’s GLA’s supplementary planning guidance that Build to Rent schemes should fulfil S106 through discount market rents rather than lower social rents. Although this should strengthen the viability of a development, allowing a more expensive tier of affordable housing could call into question the scheme’s ability to meet local need when it gets to planning appraisal.
This is a conundrum: on the one hand, if Build to Rent schemes need to bypass social housing to be viable, they are not supporting those on the lowest incomes. However, schemes that offer an intermediate range of rents should help to bridge the gap between social and market rents. Even those that are majority market rents should benefit those who cannot afford to buy, by offering a significantly higher quality product than a typical Build to Let property. And if other developers can develop Build to Rent specifically for families as is being done on part of Creekside Wharf, this would be another important community better served.
Local authorities that want to help Build to Rent schemes be built faster need to develop local planning policies that recognise the value of a rental scheme providing alternatives to the status quo. Although few boroughs have developed these sorts of enabling policies, a planning expert in the room believed that more boroughs will follow as the industry grows. Dialogue and experience-sharing will make this process swifter, by increasing the evidence base of the value of Build to Rent for boroughs and their communities.
Roundtable participants were:
- Alan Benson, Greater London Authority
- Paul Belson, Prosperity Capital Partners
- Rhona Brown, Greater London Authority
- Karen Cooksley, Winckworth Sherwood
- Jeff Endean, LB Lewisham
- Richard Green, Venn Partners
- John Hughes, Notting Hill Housing
- Peter Jeffreys, Shelter
- Danny Kaye, Sheridan Development Management Ltd
- Félicie Krikler, Assael
- Marc Lancaster, LB Tower Hamlets
- Will Lingard, Turley
- James Pargeter, Greystar
- Kath Scanlon, LSE London
- Alison Thomas, LB Tower Hamlets
- Simon Vevers, Hyde Housing
- Jo Wilson, Future of London