LRG says that changes in tax and legislation will mean big portfolio landlords and build-to-rent are the future of PRS.
The PRS of the future will be dominated by large-scale landlords and Build-To-Rent in the coming years, says BTR chief at LRG, Andy Jones. Labour’s rumoured CGT and Inheritance Tax plans coupled with tougher regulation will be driving the trend.
Boosted by permitted development rights (PDR) which allow change of use from commercial to residential, LRG says returns on managed residential property portfolios have increased exponentially over the last five years.
And profits will keep on rising if the new government continues its support for the professionally-managed rental market and BTR.
Tax-efficient
In response LRG has set up a new department specifically designed to service the sector and is advising that Small Self-Administered Schemes (SSASs) or Self Invested Personal Pensions (SIPPs) are a highly tax-efficient way of investing in it.
With more lettings legislation in the pipeline, the growth of the professional residential lettings sector is set to continue.”
Jones, who is Group Director of Corporate and BTR, says “the circumstances could not be better aligned. With more lettings legislation in the pipeline, the growth of the professional residential lettings sector is set to continue. Demand for larger property portfolios will increase and in a frenzied market, it’s vital that sellers and investors benefit from quality, timely advice and an understanding of the intricacies of the market conditions.
Making the right investment choices requires expertise on planning, surveying, management and lettings advice. At LRG we’re pleased to offer the full package, all under one roof, supported by enhanced technology: an online platform which showcases property portfolios to the investment market and provides data to enable customers to reach information quickly and efficiently.”
Zoopla’s boss predicts a shift to corporate landlords for the PRS
The boss of property listings website Zoopla, Charlie Bryant, says that being a private landlord is no longer financially viable – and corporate landlords will move into the market.
Speaking to the Telegraph, Mr Bryant, who leads Zoopla’s parent company Houseful, highlighted that individual buy to let investors are retreating from the private rented sector (PRS).
He points to rising taxes, high mortgage rates and increased regulation for the exodus.
However, in their place he is predicting that pension funds and private equity firms will replace private landlords, capitalising on the profitable build-to-rent (BTR) sector.
He notes that the removal of tax relief on BTL mortgages and the 3% stamp duty surcharge on second homes, introduced in 2016, have significantly impacted the attractiveness of being a landlord.
‘More corporate institutional landlords’
Mr Bryant told the Telegraph: “Undoubtedly the next iteration [of the rental market] is, particularly with potential planning changes, will be larger, more corporate institutional landlords, under the build-to-rent guise.”
Data from UK Finance supports his view, showing a contraction in the buy to let mortgage sector for the first time since 1996.
This trend coincides with Labour’s plans under Sir Keir Starmer to overhaul planning rules and build 1.5 million homes, potentially favouring corporate BTR investors.
The build-to-rent model, which is already prevalent in the US and Germany, is rapidly expanding in the UK.
According to JLL property consultants, the number of BTR flats in Britain has surged from 7,200 in 2015 to more than 90,000 today, with another 90,000 in development.
Despite this growth, these figures are still small compared to the 4.6 million households in the private rental sector.
Build-to-rent will be integral
Various property experts believe that build-to-rent will be integral to Labour’s housing strategy of building 1.5 million homes in the next five years, especially as high immigration levels drive rental demand.
Mr Bryant said “net migration remains high. The UK remains a very, very popular destination for overseas students and migrant labour. We are still a very strong financial centre and therefore we get a lot of expats coming in.”
To address the increasing demand, Mr Bryant is urging the government to construct a variety of homes, including social and affordable rent.
John Lewis wants tax breaks for ‘quick’ Build To Rent schemes
John Lewis wants tax breaks for developers such as itself, in a position to start building immediately.
Writing in The Daily Telegraph, Katherine Russell – director of build-to-rent at the John Lewis Partnership – says Chancellor Rachel Reeves “should look at tax incentives… where a developer commits to building right away.”
She says this would help the industry meet the government’s own targets of 1.5m new build homes over five years.
The partnership claims “most people accept the drastic need for new housing” but “many good schemes… still continue to be refused.”
Russell says “cutting red tape” would speed up investment in new housing, as would spending the billions of pounds worth of unused development levies.
Last week the partnership received the green light to transform its Waitrose site in Bromley into a new Build To Rent scheme of 353 homes. It was a milestone for the company, which has been trying to get permission to develop housing for years as it seeks to diversify.
Generation Rent scorns increasing the proportion of the PRS to solve the housing crisis
Encouraging more landlords into the sector isn’t the way to deal with rental affordability, according to tenant campaign group Generation Rent.
Instead, the group said the answer is simply building more homes in relation to the population.
The conclusion was made after analysing ONS data which found that, across 90 urban areas in England, an increase of 20 homes per 1000 people reduced rent as a proportion of average income by 2.8%.
Dan Wilson Craw, deputy chief executive of Generation Rent, said: “The evidence of the last eight years shows a clear relationship between housebuilding and affordability. Areas where building failed to outpace the local population saw rents rising faster than incomes.
“Importantly, the evidence shows that it’s the building that matters, not tenure. Simply encouraging landlords to buy up existing homes will do nothing to make homes more affordable.
“But policymakers must also recognise that it still takes a lot of building to make a difference to affordability.
“Those of us who are worst hit by the housing crisis are not earning enough to pay in rent what average earners can afford, so the government must do much more to build social homes, and make sure Local Housing Allowance keeps up with market rents.”
Generation Rent looked at rental affordability as a proportion of income – spending 30% or more is considered unaffordable.
Between 2015 and 2023, 70 of 91 urban areas in England saw houses get built at a faster rate than the local population grew. Of these areas, 42 saw affordability improve, with 26 seeing them worsen.
Among 16 areas which saw the housing stock fall as a proportion of the population in the same period, just one area saw rent affordability improve, with the remaining 15 experiencing a deterioration in affordability.
Between 2015 and 2021 85 of 93 urban areas saw the PRS shrink as a proportion of the total housing stock. Of these, 45 areas saw rent affordability improve, while it worsened in 37 areas.
In the seven areas where the PRS grew in that period, rent affordability improved in four and deteriorated in three.
A Generation Rent spokesperson concluded “there is therefore little relationship between the size of the PRS as a proportion of all homes and rent affordability. This is because changes in tenure don’t make a difference to the fundamental factors that determine rents. A landlord buying an existing home reduces the number of homes available to owner occupiers, so another would-be first-time buyer household continues to rent. While the number of rented homes increases, so does the number of households who have no option but to rent.”