Are Build-To-Rent schemes the smartest residential investment for developers?

Built-to-Rent (BTR) schemes have always been a key way to invest for developers, but with recent building development goals set by the new government, is this still the way to go? We got Shereen Lloyd, Commercial Real Estate partner, to take a look into this.

The BTR sector has boomed in recent years, and with the new Government’s commitment to supporting new house building projects and deliver 1.5m new homes across the UK, I can only see a further surge in such developments in the immediate years ahead.

Until now a major hurdle to overcome had been identifying sites where planning permissions could be obtained relatively easily – seeking out areas which had a track record of supporting similar developments.

However, with the new Labour Government set to place significant pressure on local authorities to identify new areas of land for housing developments, the doors could be opened for many more BTR schemes.

Deputy Prime Minister Angela Rayner has set out how councils will be required to review local green belt land and identify suitable so-called “grey belt” sites for developments, such as land on the edge of existing settlements or roads, old petrol stations and car parks.  

Where councils fail to properly do this, housebuilding companies will be able to present their own proposals for development on what they believe is a grey belt area – and so after years of planning permissions being at a low, we are likely to see a significant change, and more support for developers and investors.

Sector has attracted huge investment

Statistics show a £4.5 billion of investment in the BTR sector in 2023, with the first quarter of 2024 seeing the highest proportion of investment into schemes since 2015.

It is a market fuelled by societal changes such as housing shortages and families finding themselves priced out of the buying market due to rising mortgage rates.

BTRs are particularly appealing because they offer investors and developers a steady and predictable income through rental yields, which can be more stable than traditional buy to let investments.

It’s an investment which is also likely to appreciate in value over time, offering capital growth opportunities alongside rental income.

However, under the rules of BTR schemes, developments have to provide at least 50 homes, and include local facilities such as gyms and bars – therefore raising the initial level of investment required.

Location, location, location

When considering potential development sites, clients should remember the well-known phrase linked to all residential properties – location, location, location.

The key with BTR schemes has always been identifying locations with the most potential, and striking while the iron is hot – which given the relaxation of planning regulations being introduced, could be right now.

Any development which can offer rental accommodation close to areas of employment opportunities, with good transport links, and with good local amenities such as schools, health facilities and of course recreational facilities, is ideal, and will provide strong rental yields to make the development financially viable and profitable. 

Ultimately, a developer or investor needs to focus in on areas with strong rental demand and low vacancy rates.

Obviously, areas close to cities such as London, Manchester, and Birmingham will appeal, as they have strong rental markets, excellent connectivity, and a high concentration of amenities.

However, there are a number of emerging cities, towns and neighbourhoods which I have been researching for clients, which are the centre of regional hubs, experiencing growth and offering strong employment opportunities, which look ideal locations too.

With growing market demand and government-backed tax incentives for landlords looking at build to rent for a long-term investment, including grants and tax benefits, these schemes can offer a compelling combination of stable income and reduced risk, making them an attractive proposition for both investors and developers.

Throughout her career, Shereen has advised a variety of developers and investors and, using this experience, she has been able to help clients through the legal processes and achieve their goals.