Blog: 8 August 2017The future of the Build to Rent market – more support and flexibility?

Joshua Mellor

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Joshua Mellor

Senior Planner

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The build to rent sector continues to see considerable growth across the country, with the BPF estimating in excess of 80,000 units being completed or planned across the UK in Q2 of 2017, of which more than half are located in London. An increased number of developers continue to seek to build accommodation for rental, reflecting the underlying demographic and economic conditions which have led to high demand for rental housing in highly accessible locations.

The Housing White Paper (and concurrent Build to Rent consultation paper) recognises the potential of build to rent schemes to quickly boost supply, provide improved quality and wider choice in the housing and rental markets, and allow ‘tricky’ sites to be developed. Furthermore, unlike traditional housing products, build to rent is attracting institutional investors, such as pension funds, due to the offer of attractive, low-risk returns.

DCLG has recently published a summary of consultation responses received from its Build to Rent consultation. This highlights that 97% of developers and 55% of local authorities consider there are market and regulatory failures which are impeding growth within this sector and merit national policy intervention.

The results of the consultation will feed into the upcoming NPPF revisions including potentially a new affordable housing definition (affordable private rent) and planning policy specifically relating to build to rent. Furthermore, planning authorities may be given the ability to specify minimum tenancy lengths for build to rent schemes, providing a more ‘family friendly’ product.

Build to Rent and Space Standards

Absent from the consultation are any discussions on minimum space standards for build to rent (and PRS in general). The Housing White Paper commits to a review of these, however until then, the lack of flexibility in minimum standards is resulting in different types of development being proposed across authorities.

The clients I work with continually seek new PRS opportunities whether it’s conversions/extensions of existing buildings or new builds on brownfield sites, in order to provide high-quality rental accommodation, mainly targeted towards young professionals.

These high-density developments offer predominantly studio or small 1-bed units, usually set at or below the market rent for the locality. These proposals seek to meet an identified and specific need as rental accommodation affordable to those below median income levels.

 

In authorities where the Nationally Described Space Standards are not adopted, the size of the proposed units, along with appropriateness of the mix, will be assessed against the relevant planning policy. This therefore offers the opportunity to propose small self-contained units which we have found authorities are willing to accept in highly accessible locations and where there is a specific identified need.

Self-contained units will be subject to the usual contributions, including affordable housing. As detailed in the recent consultation, a new ‘affordable private rent’ is proposed which will ensure an appropriate mechanism is in place for securing affordable housing in Build to Rent schemes. These will be made available at least 20% below local market rent. Until this definition is in place, the mechanism for securing affordable units (whether as social or intermediate housing) will need to be agreed with the authority.

In authorities where space standards are enforced, such as London, the minimum sizes required are often beyond what’s viable to offer at market or reduced rents for new build flats.

An alternative, where self-contained units are unviable, are proposing large Houses in Multiple Occupation (HMO). HMOs are not subject to the same space standards as self-contained units, instead requiring an element of shared facilities (i.e. shared kitchens). Furthermore, as a Sui Generis use class, HMOs are not subject to the same requirements as traditional C3 units, including affordable housing contributions.

Planning policy regarding HMOs varies by authority, however it is repeatedly acknowledged that HMOs provide a strategically important role in meeting the needs of different groups. New build HMOs are usually of higher quality to alternative traditional bed-sits or shared housing, which usually will not be required to go through the planning system and are not subject to licencing (which large HMOs are).

The future – more flexible PRS standards?

As noted, the Housing White Paper committed to a review how Space Standards works in practice and how it fits with new ways of meeting housing demand, including through Build to Rent. This therefore has the potential to resolve the current disparity between authorities and potentially provide the option for developers to come forward with either HMO proposals or self-contained units.

The Government acknowledges this sector has huge potential to meet a growing demand for rental accommodation and provide assistance in ‘fixing’ the housing market. The recent consultation acknowledges support from developers and authorities to amend policy to help further stimulate the growth of the sector. Alongside continued government support, any changes which assist the Build to Rent sector will provide a welcomed boost which will increase confidence, allow new investors to enter the market and continue to secure high-quality rental supply for the long-term.

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Build to Rent, PRS