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Why councils need to rethink their approach to Build-to-Rent

Nick Brindley, explains how local authorities need to evolve to benefit from Build to Rent.

Build-to-Rent housing (BTR) is increasingly significant at both national and local government levels as a way of quickly and responsibly delivering high-quality, accessible homes, whilst catering to a clear market requirement. Recent myth-busting research from the likes of London First and the British Property Federation (BPF) has demonstrated that BTR operators do not produce an exclusively premium product, and the sector is now widely acknowledged as being an important tool in tackling the housing shortage.

Whilst good value properties for private sale are much needed, flexible models and tenures such as BTR provide for those who cannot afford or do not want to buy, addressing a real gap in housing provision. The growing popularity of the sector is reflected in the fact that, according to Property Week, almost 7,000 BTR planning applications were approved in the first three months of 2021 – the highest figure for any quarter on record.

Indeed, BTR has recently received strong endorsement. Following the release of the 2021 London Plan, which approached BTR as an important tool for delivering affordable housing, Transport for London (TfL) announced plans to deliver over 3,000 BTR homes – with a minimum of 40% affordable housing – in partnership with BTR specialist, Grainger plc. Work is well underway and Grainger recently agreed a forward funding deal for a 400-home BTR scheme in Southall, west London.

And yet, as the sector matures, attracting long-term institutional investment, opportunities for BTR to support local authorities in the delivery of much-needed housing and amenities are being missed. Local authorities understandably have Section 106 and affordable housing requirements that proposed developments must demonstrably be able to meet. However, BTR schemes typically support lower values, meaning they simply cannot compete with private-sale developments for sites if up against the same or very similar affordable housing requirements.

By asking that BTR schemes meet these affordable housing requirements, local authorities are missing out on the myriad benefits that the sector can deliver. BTR schemes are built quickly and all in one go, rather than in phases, as they are not reliant on the sale of individual units. This means that residents do not have to wait for neighbouring homes and facilities to be built, as is typical with large private-sale projects.

Placemaking is also a significant benefit associated with BTR schemes. Once complete, the homes are quick to let, establishing vibrancy and community – as well as stable revenue streams – from day one, whilst supporting local retail, restaurants and other social and physical infrastructure. Likewise, the associated amenity spaces delivered alongside such schemes add to the sense of place.

Some local authorities are starting to recognise BTR’s potential. For example, the London Borough of Ealing – now home to London’s largest purpose-built rental community, Greenford Quay, along with other major BTR schemes, where the Council and adjoining Old Oak and Park Royal Development Corporation (OPDC) have taken a more flexible approach to allocating sites for BTR housing.

It is also important to note that what local authorities gain in speed and placemaking, they do not necessarily lose in low-income housing. Discounted market rent (DMR) is an alternative to affordable housing that allows BTR operators to earmark certain units for below-market rent once a scheme is complete, rather than building a separate block of affordable housing that is then sold to a Registered Provider. In this way, DMR allows BTR schemes to be tenure-blind, with the sharing of all amenities, creating truly inclusive and mixed communities.

Authorities that are more supportive of BTR have embraced London Plan policy H11 in seeking 35% affordable housing but through proportions of London Living Rent and DMR, rather than a social rent equivalent product. This makes the affordable housing requirements more comparable with market sale housing, and necessitates a Registered Provider, undermining the concept of a single management approach across all the BTR housing.

To take the approach that social housing is the only option when it comes to providing for lower-income residents is to limit the viable options for development, and to force not only developers but also residents, into a mould that no longer fits, especially where the only alternative option is then greater density – often not popular option, politically.

The housing market continues to evolve, with new viable alternatives to traditional private-sale developments gaining a strong foothold. In order to get the most out of BTR – its placemaking opportunities and the speedy delivery of rental homes – local authorities should embrace the innovation in the sector.

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Nick Brindley