In the UK, getting on the property ladder is often seen as a rite of passage. It hasn’t always been that way, says Dan Batterton, Head of Build to Rent at Legal & General Investment Management (LGIM). “When I started in this sector, I was surprised to find that a hundred years ago, most people didn’t own their home.”
Midway through the 20th century, the housing market in the UK changed. Encouraged by government policies and more freely available mortgages, people began to see their homes as an investment that could fund their retirement. As a result, today’s UK rental sector is dominated by private landlords who own one or two properties. Conversely, in many other countries, institutions often own residential property, and renting is the norm. In Germany, for example, “rather than saving for years and tying up all their capital in a housing deposit, people put that money back into the economy, which has a huge multiplier effect”, says Dan.
As the build to rent sector – defined by the government as developments of 50 or more homes under single ownership and management – grows in the UK, attitudes towards renting are changing.
Scaling up
It’s a model that has significant benefits, says Dan. “Take our scheme in Walthamstow – Blackhorse Mills. It has c.500 apartments, and the residents have access to a swimming pool, gym, bar and café, dedicated work from home space and hireable dining rooms. Economies of scale mean we can provide these things that private landlords cannot.”
Another important benefit is what Dan calls occupational security, “Something that makes renting look like a second-class option is that your landlord can give you a month’s notice to move out at any moment – that’s a lot of uncertainty if you’ve got children at a local school, for example. At L&G we are offering much longer leases, generally around five years. The occupier can choose to leave at any point during that period, but we are committed to making sure their home is available to them for the next five years.” Unlike many UK renters, residents at Legal & General build to rent schemes are free to decorate their homes as they wish, and to keep pets.
Freedom and flexibility
Around three quarters of our build to rent residents are under 35, and this age group values the flexibility of being able to move around without being tied down by home ownership, says Dan. Recently, we have also seen an increase in older renters. “We spoke to one couple who sold their home and moved into a scheme of ours in Manchester. They were able to pass down some money to their grandchildren and see them enjoy it while they’re still around, but they also wanted to live somewhere within walking distance of the theatre, cinema and restaurants. It’s a lifestyle choice for them too.”
We aim to create an “aspirational rental market” through sustainable and responsible investing. Dan says: “The rental market has never really had this concept of high quality and aspiration before… what we want to do is make it a positive choice.” The decision to directly associate Legal & General’s name with its build to rent developments helps to uphold that quality of service, he adds. “Through things like life and health insurance, Legal & General has always worked with people at sensitive and emotional moments in their lives. Homes are no different.”
Levelling up
In line with the government’s ‘levelling up’ ambitions, we are investing in 11 cities across the country, targeting “places with the biggest supply and demand imbalance for rental homes.” Funded by long-term investments, Dan’s team are able to deliver schemes on brownfield sites that wouldn’t make sense to shorter-term investors. The team is also working towards a target of achieving net zero carbon emissions in operation by 2030, which means “enabling residents to live zero carbon lives in our buildings.”
The policy landscape in the UK is gradually changing to encourage the sector’s growth, says Dan. “At the end of last year, the government confirmed that build to rent development will be excluded from its proposed residential property developer tax, and that was really the first time the sector has been treated differently to the wider housing sector – it’s a big step.” There’s still more to be done, however, especially in terms of planning and affordable housing contributions. “Build to sell development has a higher market value than build to rent development, so it can provide a bigger contribution towards affordable housing. Our argument is that our approach is more accessible as a whole, because you don’t need a huge deposit to rent somewhere.”
A sound investment
As well as all the societal benefits it brings, build to rent housing is also a good investment, says Dan. “I think of us as having two customers: our residents and our investors. If we keep our residents happy, they’ll keep paying rent, and that keeps our investors happy.”
The pandemic has also proven that the sector benefits from low downside volatility. “In moments of economic and societal uncertainty, people still need somewhere to live. Even in a recession, rental income is stable, and you see consistent growth on the upside.”
The fact that residents can move on at short notice might seem risky, he says, but it’s important to factor in the supply and demand imbalance in the sector. “The build to rent sector is delivering around 15,000 new homes per year, but in that same period, 45,000 rental properties are sold off and leave the market. It’s an enormous opportunity, and we’re still right at the start of our journey as a sector, but the level of demand means we can accept that risk and take a longer-term view.”