You have now left the UKAA - how would you describe your tenure as CEO?
A bit of a cliché, but it’s been a real rollercoaster of a ride; lots of incredible highs and some lows. I started almost four years ago in 2018. It took me a while to work out where we should be going as an organisation with a few little hiccups on the way (an excellent conference but a dreadful comedian who cleared the room come to mind).
2019 was pretty much all up; growing the membership, doing some great things and 2020 looked all set to be even better. So I go into hospital for planned heart surgery in February and come out in March to a world turned upside down by the pandemic. Then we had a really tough 18 months of reinventing ourselves, of bringing the sector together to prove that BTR was robust as an investment class because it provided a great experience for customers.
Since the end of summer 2021, it’s just been non-stop culminating in the amazing 2022 BTR Expo and the hard work that my wonderful team have put in is bearing fruit – membership continues to grow, sponsors see what we’re doing as valuable, and we’ve laid the foundations for a sustainable business and helped shape the direction of the sector. I’m very proud of what we have achieved so far and really excited to see what happens next.
What is the current state of the BTR market? Is it still thriving and dynamic, or is it starting to slow down?
There’s no doubt that BTR is thriving and dynamic! Demand outstrips supply and new schemes are being filled ahead of plan across the country. There is a fundamental imbalance between supply and demand for good-quality rental accommodation and, as long as UKAA members are meeting that demand by providing a better quality product that offers value and service, then it will continue to thrive.
What are the main challenges it faces in its next stage of growth?
The challenges are in delivering and operating as many homes as investors wish to fund. These are primarily around finding suitable land, the planning processes, construction capacity and costs as well as finding sufficient people to manage and work in the sector. This may be one of the reasons why Single Family Rental has come to the fore so much over the last year or so. It is inherently simpler to build and manage and extends the sector’s appeal beyond the original demographic.
Will it ever be mainstream?
I’m not sure what the term mainstream really means. If we’re talking investment, then there’s no doubt that the perceived risk of investing in residential property has become mainstream for intuitional investors precisely because of BTR. If we’re talking construction, then BTR is taking up to 25% of capacity in some areas, and if we’re talking about interest in the sector, then the almost 800 people who turned up for the UKAA BTR Expo in April represent a pretty sizeable mainstream vote of confidence, as far as I can see.
What has still to happen is for retail investors to see BTR as a mainstream alternative to BTL, but I am sure that will happen. The number of REITs, property funds and other indirect investment vehicles will grow, as well as the exposure that pension funds and institutional investors already provide.
Where do you see BTR in five years' time?
Bigger – if we grow to a similar size to the US, then the potential for the sector is to deliver between 500,000 and 1 million homes. The last report by the BPF quoted a total sector size of 212,000 homes, of which 71 ,000 were operational, 42,000 under construction and 99,000 in planning. Construction and planning will determine how fast the sector’s potential is achieved, but is it likely to take at least 10 years to achieve that total.
In parallel, there is growth in related sectors – PBSA, co-living, affordable housing, flexible/short-term renting and later living. I see a real convergence in these sectors in coming years – led by common investors. All of them share the characteristics of institutional long-term ownership and professional management and a focus on the customer. It’s all about providing better rental experiences.
What do you say to those who say BTR is unaffordable and exclusive, and that companies like Greystar or Grainger are merely there to make as much money as possible?
Investors in the sector, including those who are part of social housing providers, are doing so because they wish to make a profit and they believe that the BTR sector provides a better return than other alternatives open to them. However, better does not mean the most money in the shortest time, regardless of risk – precisely the opposite.
The BTR sector is characterised by sustainable, predictable returns generated by providing customers with experiences that they value. It depends on loyalty and maintaining quality of service over the long-term. BTR started by providing high-end property to customers with significant disposable income, but its growth has and will continue to be driven by ordinary main-stream renters.
The analyses provided by the three “Who Lives In Build To Rent?” research reports published by the UKAA, BPF and London First show that the demographic profile, including income, of renters in BTR is pretty much identical to those in the broader PRS. The Singe Family Rental market takes this even further, providing quality long-term rental accommodation for families typically on new estates and is the fastest growing segment of the sector in the UK.
Lastly, is BTR trying to replace the traditional PRS, or can the two co-exist happily alongside each other?
Even if BTR delivers 1 million homes in 10 years, that should be compared to the total 4.4 million homes in the Private Rented Sector reported in the last English Housing Survey. It is clear that BTR will not replace PRS, any more than it has done so in the US. A model for the future growth of BTR may be that of the supermarket in the 20th century. Before the development of the self-service supermarket in the 1960s, most grocery shops were small, independent operators.
Tesco, Sainsbury's, etc, replaced them over some 30 years because they offered a better range of products and services, convenience, consistent quality and better value. They were able to do this because they had the investment to afford scale, automation, amenities and professional management and staff.
Independent grocery stores survive where they offer something different – higher quality, different products or better local service. BTR’s greatest innovation is to put the customer at the heart of homes for rent and as long as it does that then it will continue to thrive.