Our Thoughts
Fri, 14/01/2022 - 12:00
· 4 min read

BTR Has a Key Role to Play in the Process of Levelling Up

Earlier this month, Rebecca Shafran, Associate Director, Alternative Markets Research, shared her thoughts in CoStar on the role of BTR in the levelling up agenda.

Whether it be Cameron and Osborne’s ‘Northern Powerhouse’ or Johnson and Sunak’s ‘Levelling-up’, successive governments have recognised the political and societal benefits of investing in the regions and helping towns and cities outside London expand and seize their potential. The scale of ambition is only matched by the cost – the respected think-tank, the Centre for Cities, has estimated the total cost of ‘levelling up’ could be near £2 trillion, which is roughly the same cost as the reunification of Germany. At face value, few areas of real estate seem better placed to support this than the BTR sector.

At the forefront of the current government’s pledge to ‘level up’ is the need to address regional inequality in the UK and narrow the divergence in productivity. But it is undeniable that a key element of the levelling up agenda must be to improve standards of living across the UK. The role of housing in this is explicit and is underlined by the fact that the Ministry of Housing, Communities and Local Government has been renamed and will be now known as the Department of Levelling Up, Housing and Communities (DLUHC).

The real estate sector does have a real opportunity to improve the quality of homes available to wider society across the breadth of the UK and change the way we live. Within that, the BTR sector can play a pioneering role. As people reassess and re-evaluate their work/life balance, so too are they looking at their housing requirements. A desire for greater lifestyle flexibility, combined with an increasingly challenging ownership market, means that the rental sector has never been more relevant.

Crucially, while housebuilders focused on the ownership market typically have eyes only for the short-term, those backers of build-to-rent properties take a different approach. Because of the flexible nature of occupiers, they have a vested interest in building attractive and sustainable communities. By successfully blending new developments into existing neighbourhoods and delivering excellent building service and management levels, churn can be minimised, loyalty created, and crucially, a reliable yield secured.

In order to do that, the government needs to tackle head on those barriers that are acting as investment deterrents. BTR sector continued its upward trajectory in 2021 with new schemes in planning, backing from lenders and fresh investment activity taking year to date volumes to c.£2.2 billion. But there is more that can be done.

Planning reform continues to be a bone of contention and it remains to be seen what new communities minister Michael Gove sets out as the priorities under his leadership. But it is expected that cultivating an environment that promotes private investment will be a key focus. The dive toward greater digitisation of processes must also be seen through, but crucially the real estate sector, central government, and local authorities must be fully aligned on the levelling up agenda.

ESG and the climate battle are huge areas of interest for the real estate sector. Around one in five (20%) PRS homes are more than 100 years old and almost three-quarters (72%) of the housing stock is more than 40 years old. These numbers underline the fact that ESG targets have significant implications for the existing and historic PRS sector. But the financial demands of ambitious yet necessary targets pose a conundrum. The financial pressures placed upon the sector may well see private landlords choose to exit. Should that be the case, it will create further need for quality, climate conscious, homes. This is a need that the BTR sector is well placed and enthusiastic to meet.

In the future, schemes must be developed to suit all income profiles and better serve families. A recent study by the BPF revealed BTR residents’ incomes are not too dissimilar to the private rented sector, with around a third earning between £19-32k per year. The same study shows that the most common age band for residents is 25 to 34 years old, with couples and sharers dominating the market.  However, there is a significant undersupply of rental options in the UK, and the growth in single family housing in more suburban neighbourhoods will offer more choice for people from all situations, including families.

Finally, unlocking the investing potential of institutional investors is key. The government proposal that the performance fee limit be loosened further could enable pension schemes to invest in longer-term projects focussed on tackling climate change and growth. Should this be approved in consultation, it could be transformative for the levelling up agenda, and in turn support BTR schemes and communities.  

As investors continue to hunt for yield, the next few years pose a huge opportunity for the BTR sector. Not only is there unparalleled opportunity for growth but perhaps even more importantly, it is poised to play a crucial part in delivering an agenda that could be truly transformative for people and communities across the UK. But if the project is going to succeed, whole-hearted commitment at the heart of government must be backed up with a determination to pull down the barriers to real estate investment. Once done, the sky is the limit.


BTR Has a Key Role to Play in the Process of Levelling Up