The PRS sector continues to whet the appetite of developers and investors

Over the last decade, the UK Private Rented Sector (PRS), also known as the Build-To-Rent (BTR) market, has shown rapid growth, and prospects remain strong for the immediate future. In fact, according to Knight Frank, nearly one in four households in the UK will be living in private rented accommodation by 2021.

With a growing population ensuring steady demand for accommodation, the PRS industry has trebled in size since the 1988 Housing Act, and is set to continue its growth due to significant funding from institutionalised funds, corporate investors as well as offshore investors taking advantage of the weak pound. This was one of the key talking points at MIPIM this year, where PRS schemes were a hot topic of conversation.

The impact of first time buyers

Despite the rosy outlook, we cannot predict how the market will behave long-term. We do know that over the past ten years the fastest growing demographic living in private rental accommodation has been 25-36 year-olds. In 2005-6, 24% of this group lived in the private rented sector. By 2015-16 this had increased to 46%. Soaring prices and tough mortgage rules may be directly to blame, as according to recent analysis conducted for The Times, first-time buyers need a salary of almost £100,000 to afford to get onto the property ladder in London.

The recent changes to stamp duty have, in part, been aimed at helping young people get onto the property ladder and out of rented accommodation, by reducing some of the costs.

Onwards and upwards

However, uncertainty has not overly dampened the appetite of investors and developers of purpose built rental accommodation. Recent ONS research reported that there are over 20,000 units currently under construction in the UK, and a further 50,000 with planning permission granted. In addition, the increased trend in long-term renting has also attracted a number of property developers and institutional city firms into the market.

According to the BPF, the total number of build-to-rent homes completed, under construction and in planning has increased by 30% in the last year. This is not set to slow down and there have been a number of developers undertaking new projects, such as Telford Homes which has announced a construction development agreement with US-based developer Greystar to build 894 build-to-rent homes in London’s Nine Elms. More recently, Greystar has begun talks with Inhabit to buy or co-invest in a 3,300-home portfolio of rental sites across several UK cities.

Increased Regulation

Meanwhile, the government has recognised the increase in the number of PRS Schemes across the UK and in an effort to maintain the standard of living provided by landlords, it is introducing new HMO regulations that are set to be implemented in October 2018. These new rules seek to provide tighter guidelines for landlords regarding the number of occupants in a property.

Beyond London

The steady increase in investment in the UK property market from overseas, especially Asia, has seen large developments across London and the South East. However, as land prices increase, investors and developers are now looking further afield.

Over the last few years, there has been significant investments made in other cities such as Bristol, Manchester, Liverpool and Birmingham. Leeds has also benefitted, with Get Living recently revealing plans to invest up to £180m in 756 ‘build-to-rent’ homes in the city.

A promising future

In the short term, the PRS sector remains buoyant with further opportunities for both developers and investors, especially as they look beyond London and the home counties. However, it will continue to be scrutinised and subject to regulatory changes. In the long term, no one is sure what impact the new stamp duty regulations will have on the PRS market, but as long as the UK property market continues to be affected by affordability issues, the demand for rented accommodation is not likely to diminish.