B2R Juggernaut Gearing Up To Battle Buy To Let

Build to rent is finally gaining a foothold in the housing market as a viable alternative to letting from a private landlord. A report from November 2021 lifts the veil on build to rent, revealing how far the concept has jumped off the drawing board to provide thousands of homes across the country. But is build-to-rent - or B2R for short - taking over from buy-to-let as the property rental method for private tenants? 

It’s clear from the data that buy to let and build to rent are targeting the same tenants. So, can buy to let and B2R live side-by-side, or is private letting a prize that will eventually end up in corporate hands?

What is build to rent (B2R)?

Build to rent is a scaled-up version of buy to let. Instead of letting a home from a private landlord, builders and financial institutions fund to develop large-scale housing to rent to private tenants. B2R is a long-term business model with rents over time, providing cash flow for the developer. Rather than buying individual properties to let over a wide area, B2R developers build blocks or estates that allow them to benefit from economies of scale, like cheaper maintenance and property services.

How big is B2R?

B2R is the fastest-growing housing market but still registers low on the scale compared to buy-to-let. 

Buy to let - or BTL - covers around 4.2 million homes in the UK, with the most significant players owning perhaps a few hundred homes. At the end of Q3 2021, the BTR market comprised 205,525 planned and completed houses to rent. With 63,950 homes built, 42,032 under construction and 99,543 in the planning pipeline, B2R is way off competing with BTL as the favoured method of renting for private tenants. 

According to the report, Who Lives in B2R? by the British Property Federation (BPF), B2R is focused on 20 major cities, with one in five B2R homes in London.

Top 10 B2R cities - Three years to Q2, 2021

Source: Savills, British Property Federation, Molior, DLUHC

Who lives in B2R homes?

The BPF report throws some illuminating insights into the profile of tenants living in B2R homes. Covering 20,000 people living in more than 15,000 B2R homes from 89 schemes across England, the researchers compared the BPF data with similar data provided by buy-to-let tenants and found:

• Income - 32 per cent of BTR tenants earn between £19,000 and £32,000 a year compared with 37 per cent of BTL tenants with the same earnings
• Age - Most BTR and BTL tenants are aged between 25 and 34 years old
• Affordability - BTR tenants spend an average of 29 to 33 per cent of their income on rents, which matches affordability figures for buy-to-let tenants
• Jobs - The B2R employment profile shows the same proportion of public sector workers - 18 per cent - rent B2R homes as other private tenants. The most common job for a B2R tenant is finance or professional services.

The conclusion is that B2R and BTL compete for the same tenants - but B2R offers extra benefits that private BTL landlords cannot match.

The threat from B2R

BTL landlords cannot hope to match the facilities offered by B2R unless they invest significant amounts in a modern property. B2R beats buy to let, hands down, by bundling a package of amenities into the rent. The most common are:

• Shared maintained gardens or roof terraces (in 78 per cent of developments)
• Concierge services (73 per cent)
• Permission to keep pets (73 per cent)
• Social events (73 per cent)
• Parcel acceptance (69 per cent)
• Coworking and lounge spaces (61 per cent)

Other benefits offered at B2R developments include better energy efficiency ratings leading to cheaper utility bills, bike storage, and close public transport links.

Build to Rent FAQ

What’s the future for B2R?

Banks, pension providers and investment funds have plans to expand B2R into a significant property sector. B2R may be grabbing headlines now, but the concept has existed for some time. The main instigators have been the lack of affordable new-build homes and the financial issues of younger home seekers who don’t have the cash to buy a property until later in life. 

These people still need somewhere to live, and B2R offers modern, clean and warm homes with more than basic amenities at the exact cost of a buy-to-let home.

Is B2R limited to big cities?

No. B2R has no geographical limits, and developments are taking place outside the larger cities. However, the most available land to develop and market for tenants tends to be in areas with the largest populations.

Who’s investing in B2R?

Household brands like Lloyds Bank and insurer Legal & General are investors in B2R, with more businesses, investment funds and private equity companies lining up to participate.

What sort of property can B2R renters expect?

B2R has various housing types, from a studio or one-bedroom flats to five-bedroom family houses. Suburban buy-to-let (SB2R) outside city centres tends to cater to families and young couples. B2R homes are modern, well-insulated and energy-efficient.

How long are B2R tenancies?

B2R tenancies tend to be more flexible than those in the buy-to-let sector. For example, rather than six or 12-month terms, B2R renters can opt to stay for 36 months or longer.