Commercial property: Build-to-rent is a growing family affair

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Research by the Institute of Fiscal Studies suggests that owning their own homes is no longer a priority for younger generations, particularly those in the 25-to-34-year-old bracket.

But renting is not just for singles or couples. Families are increasingly turning to the private rental sector, with a five per cent rise in Scotland over the last last year and three and four-bedroomed houses generating the steepest growth in rent.

This is where build-to-rent (BTR) comes in – homes which are built to a high standard specifically for the long-term rental market.

Up until now, BTR developments have captured a completely different market, but if it continues to deliver only for young professionals it will not achieve its full potential.

Families who cannot afford to buy their own homes are looking for security and are much more likely to settle for longer periods, providing a steady income stream for large-scale investors.

This is ideal for BTR developers who offer greater security to renters, with specialist operators rather than local factors managing accommodation.

On the regulatory side, there have been some notable moves in the last few years to support the case for family-friendly BTR.

Local authorities were given the power to create Rent Pressure Zones (RPZ) in December 2017, capping rent growth at four per cent per annum in areas where rents were at risk of overheating.

This is particularly important for Scotland’s cities showing strong growth – including Edinburgh – with population growth forecasted at 7.7 per cent by 2026.

Perversely, by smoothing out the inflation and deflation cycle, RPZ provides greater levels of security for tenants and specialist landlords relying on a long-term investment.

The balance of risk between tenant and landlord has also shifted, with all leases in Scotland now based on a lifelong security of tenure.

Landlords can no longer terminate a lease on “no fault” grounds. Again, specialist landlords see this as underpinning the case for providing suitable and family-appropriate private rental accommodation.

Developers and investors should also take heart in the fact that a tax incentive, whereby six or more dwellings can be treated as non-residential thus exempting them from LBTT, is now in force.

This, coupled with economies of scale and efficacious modern methods of construction, is strengthening the business case for BTR in Scotland.

Some 6,300 BTR units are currently at various stages in the planning process, with developments such as Candleriggs Court in Glasgow and Lochrin Quay in Edinburgh, already complete.

A successful and inclusive BTR sector in Scotland is a win-win-win for policy makers and the Scottish Government, which is keen to meet ambitious housing targets; for developers and investors, who are seeking to capitalise on the growing demand for larger private rental accommodation, and especially for the growing family of Scotland’s renters.

Heather Pearson is head of the housing sector at Addleshaw Goddard