The term ‘generation rent’ has been bandied about for a while now – but what does it actually mean and will our children be serial renters?
Generation rent refers to the difficulties people have with getting their feet on the property ladder and becoming homeowners.
Research from PwC recently revealed that London will become a city if renters by 2025, with only 40 per cent of people owning their own home and usually where London leads other cities and towns follow.
It is predicted that first time buyers in the UK will need to be earing £64,000 to afford homeownership by 2020 – this is a fifth more than the £52,000 salary that is currently required.
Former Prime Minister David Cameron wanted to turn generation rent into ‘generation buy’ but Theresa May’s government is heading in a different direction with Build to Rent being supported by the government as a way to provide new, decent quality, private rented housing for generation rent.
Build to Rent has revolutionised the lettings sector in London and is a model where flats and houses are built purely for private rent, with the building owned by a large investor. Instead of a large development being built, then sold off individually to owner-occupiers or to various people for buy-to-let, the developer may keep hold of all the properties or sell the entire scheme to one party who will rent out all properties.
The idea is to provide a genuine sense of service to tenants by identifying and removing elements that traditionally make renting a hassle.
As a tenant, living in a Build to Rent property means you are in a development that has been specifically designed for renters. This means high quality, aspirational developments with a great choice of amenities e.g. cinema rooms, entertaining spaces. In some developments, that means an on-site maintenance team, a concierge who’ll take in the mail and communal areas where you can hang out with your neighbours — or have a large group of friends over rather than the four or five who’ll fit into your kitchen.
It also means tenancies of up to three years, allowing you to put down roots in a community instead of expecting to be moved on every 12 months. Often there are no agency fees because you rent direct from the landlord, no extra service charges and annual rent increases agreed in advance — say, pegged to inflation.
The schemes will not only cater for young professionals but for families as well with a focus on larger apartments and a higher quality product. In addition, developments are providing services such as creches or dog walking.
Build to Rent is a popular proposition with institutional investors like pension funds, insurers and charities — organisations more interested in a regular return than a one-off cash bonanza. The initiative is defined by the government as ‘a fully recoverable investment where the government shares risk or bridges finance to help schemes to build, managed and let’. This now allows developers to shift some of their risk onto the government, which enable them to take on additional projects.
To help finance building, the government has a £1bn fund to invest in Build to Rent schemes (the money should be recovered by developers later selling or refinancing) though it’s been slow coming to fruition.
Across the UK there is a strong demand for quality rental products with M&G Real Estate recently announcing their first investment into the North West with a £27.6m Build to Rent scheme providing 135 homes.
As always, Redbrik are ahead of the game and we are heavily involved in the advisory stages of various schemes across South Yorkshire and North East Derbyshire with a mix of local, national and international partners to deliver Build to Rent schemes to the market. Watch this space!