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Build To Rent – What we learn from Germany and the US

I make no apologies for returning to Build To Rent, the institutional investment in building and managing blocks of flats to let – the next big thing in the British residential industry.

Some weeks ago I made clear that in my judgement BTR (also known as Build To Let or PRS in some quarters) might actually be a good thing for letting agents as well as a good thing for anyone interested in addressing Britain’s chronic housing shortage.

Now I’ve seen two international examples that convince me that BTR can work here; they neither cut across nor diminish the returns of our already prosperous buy to let sector.

The first example is Germany.

Some 60 per cent of German adults now privately rent – the largest proportion in western Europe and one of the largest in the world. That 60 per cent adds up to 24m households.

Around 9.5m of those rental units are built and managed by institutions; the financial vehicles used to fund them range from Real Estate Investment Trusts to banks and even some churches, which have funds and housing-related histories quite unlike UK churches. 

Germany’s other 14.5m units are owned by small-scale landlords – very much like the British style buy to let sector. Ironically there is greater involvement of letting agencies in the German Build To Rent sector (where institutions leave it to the experts to operate blocks) while Germany’s buy to let landlords typically do their own property management.

Further comparisons with the UK are difficult because of Germany’s rent controls. 

Existing tenants, many of which have been renting the same property for several decades, have controlled rents – a fact that makes institutional investment less appealing because those putting down the money cannot have absolute control of charging. 

The second example is the United States, where Build To Rent really started (they call it multi-family renting over there, for obscure reasons). 

Like Britain, the US is slowly reversing its home ownership trend. A decade ago only 31 per cent of the population rented; now it is 35 per cent, accounting for 43m households – some 25m of them are in what in Britain we call Build To Rent accommodation, a figure that was reached more rapidly than expected thanks to the US housing recession.

During that recession, roughly 2006 to 2013, mortgages for a lot of house purchases dried up, or became heavily restricted, meaning that not only were there few homes bought by owner-occupiers but few were bought by investors too. This mean that BTR purpose built sector had clear run to become larger – it was the only way new homes were being funded.

Now some of the largest US BTR institutions, such as Starwood and CORT, for example, are so large they have their own in-house ‘letting agents’ - skilled staff managing the day to day activities within blocks of 100, 200 or sometimes up to 400 units. But many of the smaller institutions, or those not heavily into Build To Rent, hire in expertise from realtors – in other words, letting agents who exist ‘in the field’, hired in to manage the big blocks.

Now there’s no guarantee the UK’s Build To Rent journey – expanding almost monthly now as new schemes get the go-ahead – will necessarily follow either of these examples. 

But I’m holding firm to the proposition that in this country BTR and Buy To Let will co-exist and possibly even help each other prosper as our private rental sector expands. 

This new type of letting isn’t a threat – it’s an opportunity.

*Editor of Estate Agent Today and Letting Agent Today, Graham can be found tweeting all things property @PropertyJourn

  • Simon Shinerock

    All well and good Graham and you may well be right, I'm all for seeing opportunity and embracing change. However and it's a big 'however' I'm also all for fairness and one rule for everyone, put another way I'm anti hypocrisy. So what I find unpalatable about the changes to the PRS is that institutions have been given a more favourable tax treatment than private individuals, if you want people to support something this is not the way to go about it. This is an example of blunt force social engineering, I personally am investing in hay making equipment, why? Well you will need an awful lot of hay to fill up the millions of rabbit hutches that this policy is going to create

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    Germany is not a comparison I would use because:

    1) as you rightly say they have strict rent controls - and private landlords could be in trouble when mortgage rates rise and rents remain regulated (I know this personally believe me!)
    2) largely its the institutional landlords over there become wealthy with property assets and 'joe blogs' gets a mere few crumbs from the table.

    For your BTR comparison to work it should be set in the existing UK model or perhaps with some minor tweaks, as that's all that will happen in reality. There will be no wholesale or radical changes - we are different markets and different systems entirely.

    On another note: I thought the UK already had a BTR industry operated through housing associations - but i expect I am wrong and will be told so.

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