Policy Spotlight on the UK
By Ian Fletcher, Director of Real Estate Policy, British Property Federation
What were the drivers which enabled Build to Rent to grow as an asset class in the UK?
I would love to claim it was all the result of excellent policy work. Certainly successive governments have been supportive and that has been reflected in policy change. A significant factor in the growth of UK Build to Rent (BtR), however, has also been market conditions. In a low inflation environment, investors have been keen to source new investments that offer long-term income growth. The UK has a housing supply crisis, with many young people unable to get their foot onto the housing ladder. Demand for renting is therefore high, and mainly serviced by individuals acting as landlords, leading to variable quality. The sector has therefore caught the crest of various waves: governments that need to increase housing supply; the desire from consumers for a better quality rental offer; and, investors that are seeking long-term income with the prospect of rental growth.
Policy support has been delivered through a variety of means at national, regional and local level. Fiscal reform from national government, followed by the Montague Review in 2012, not only delivered tangible support, but also was important psychologically in showing that national politicians were prepared to back the sector. Successive Mayors in London have also been supportive. They have changed planning policy, and been willing to invest their own land in projects. Perhaps the most important facet in the UK though has been the willingness of some local authorities to embrace the sector. They have recognized a need for the sector and been willing to think outside usual planning conventions. National policy has now codified some of the approaches that local authorities have led. In the UK this is quite unusual, to have planning policy being driven by local authorities, rather than national policy.
What experiences from the UK policy journey can Australia learn from?
The UK BtR sector learnt from other countries. The Urban Land Institute arranged several study tours over successive years and that was helpful in providing a deeper understanding of the Multi-Family sector in the USA and how it might translate to the UK. One such tour was joined by the UK housing minister, and that was invaluable in showing that this was not just a concept dreamt up by policy people, but was a reality, delivering good quality homes in the USA. In a similar way we have been delighted to host many Australian visitors over the past two years.
A political challenge we have faced, is that politicians often face postbags full of complaints from renters about the existing private rented sector. It is therefore important to be transparent about the BtR sector, what it is, and how it is growing. We took the decision a couple of years ago to start publishing statistics on the sector with Savills and mapping all BtR developments. We will have good quarters and bad quarters, but the transparency is really appreciated and worth accepting the rough with the smooth.
There is a perception sometimes that BtR is top-end, when in fact like the hotel market it delivers a variety of offers, from budget through to luxury. There is therefore a constant need here to articulate stories and data about who lives in BTR.
We were starting a sector from scratch and it has evolved significantly over a period of five years. You cannot suddenly conjure up thousands of units and so inevitably some of the earliest BtR units were in buildings intended for owner-occupation, or conversions from other uses. As the sector has grown it has resembled a more ‘pure’ form of BtR, with units purposely designed and built for renting. The average size of BtR developments has also grown from less than 100 units to approaching 300 units. The lesson is that scale does come eventually, but initial investment may be cautious.
What have been the benefits/outcomes of build to rent the UK have seen?
We are still relatively early in our journey with about 135,000 units at various stages of development, of which only about 30,000 are operational. There are still many unknowns therefore, in terms of how the sector will perform in the long-term, and how the trading of assets will unfold.
Focusing on the development phase, however, the benefits have been broader than perhaps was anticipated. BtR has been seen as far more than just a new way of delivering housing supply. For some localities, it has been seen as a support for wider economic development – a quality rental offer helping cities to retain talent. In a country where land is scarce and greenfield land is often protected, BtR is going with the flow of urbanisation and regeneration. Renters tend to use public transport more than homeowners and therefore it is also seen as a good product to build around public transport nodes, and Transport for London (TfL) has its own BtR programme. TfL is also motivated by a need to generate more income to suppress transport fares and more generally public authorities are in need of income and sometimes willing to invest public land in BtR joint ventures.
BtR is also seen as accelerating delivery on large sites, and a review commissioned by the UK Government (The Letwin Review) has just recommended that sites of more 1,500 units should be forced to deliver a diverse tenure mix, so they can be built out more quickly, which should provide some new opportunities for BtR.
Ian Fletcher is Director of Policy (Real Estate) at the British Property Federation (BPF), the trade association for the property investment sector. Mr Fletcher speaks for the sector and his team covers a wide range of housing, commercial property, planning and sustainability issues. He was a member of the Government’s Montague Review Group, which examined how to encourage greater institutional investment in rented housing.
Away from the BPF, he chairs the committee of management which regulates the quality of private student accommodation in the UK. He is also a Board Member of a for-profit registered provider and on the London Mayor’s Housing Forum.
Mr Fletcher was formerly Head of Policy and Chief Economist at the British Chambers of Commerce. He has also worked in banking and teaching, and holds professional qualifications in finance and market research, and is a honorary Fellow of the Institute of Residential Property Management.
Learn how the UK implemented Policy and Planning around Build to Rent from Ian Fletcher an expert in his field at the Driving Growth & Investment in Build to Rent Conference, 19th & 20th February 2019, Sydney.