Exclusive research by EG reveals that government claims that renting is key to fixing the country’s broken housing market are misplaced
When the government revealed its Housing White Paper earlier this year the message was clear: renting is key to fixing the housing crisis. Former housing minister Gavin Barwell talked about a “change of tone” in the government’s attitude to renting, admitting that there are people who cannot afford to own houses and others who want to rent out of choice. In order to fix the affordability gap, both the public and private sectors would have to take PRS seriously.
But an EG analysis of 117 PRS schemes across the UK, with more than 10,000 homes between them, shows that the sector has so far failed to address unaffordability.
More than half of schemes with one-bed flats had rents of more than 40% the local median salary before tax. In over a quarter of the PRS schemes, tenants would have to pay half the local median salary toward rent if they lived alone. By contrast, the average household that rents in England spends 35% of their income on rent.
Rental costs across the UK
The study also showed that the average PRS scheme is 6.9% more expensive than the average one-bed rent in their local areas, with just under a third offering prices below that average. That premium tends to go toward services and amenities provided by PRS operators that might include on-site management, gyms or flexible leases.
Melanie Leech, chief executive of the British Property Federation, says that addressing housing affordability is a work in progress in the build-to-rent sector, and a fix requires a significant development pipeline.
She says: “What is the fundamental problem in the housing market? It’s the mismatch between supply and demand. The focus has to be on stimulating supply because if you can get supply into the market at anything like the level of demand, then prices will even out and come to a level.”
Leech says the pipeline of build-to-rent developments, which the BPF estimates includes more than 56,000 homes across the price spectrum, is already addressing that imbalance because there is growing appetite among investors. The more interest the sector draws, the more supply there will be.
READ MORE: Can the housing white paper fix the residential market?
More supply would mean more choice for renters, which would force investors to compete either by lowering rents or offering more for their price.
EG’s analysis focused on schemes that advertised prices for available, recently let or upcoming homes on their website or sites such as Zoopla or Rightmove, giving a picture of the available market as it stands, rather than what might happen in the future.
“It’s still relatively new. There is potential to do much more with the right policy environment. We think by 2030 [build-to-rent] could deliver 240,000 units. That is clearly not going to solve the housing crisis on its own, but it’s a significant contribution,” Leech says.
Last year, Savills research showed that the absorption rate for build to rent property was four times higher than for build-for-sale property, which means new homes can be supplied more quickly.
Leech says there is more “active and positive government support” for the sector than in the past, and this needs to continue because investors are making long-term decisions by committing to build-to-rent schemes.
“We’re talking about taking decisions to invest for a 30-year timescale and they have to believe that the policy environment is going to be with them rather than against them in that investment.”
Paying a modern premium
Outside of the lack of supply, some PRS schemes are more expensive than the average because they include services and amenities in their rent.
Among these schemes is Get Living London’s 1,439 home development at East Village, E20, where a one-bed flat at Calico House was advertised in July for £1,668 a month – 73% of the median income in the London borough of Newham.
A resident in a one-bed flat such as the one at East Village would have to earn £57,200 if they were to pay 35% of their income toward rent.
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A spokesman for Get Living says it has cut costs for residents by scrapping deposits, not charging agency fees, offering free broadband and running an on-site management team. In effect, its product would give residents more for their money.
Get Living says: “When East Village opened, we were the first to operate at scale, but when residents can so easily vote with their feet by moving out, we know we need to continue to innovate.
“When we first started Get Living in 2013, the industry was sceptical; fast-forward to 2017 and we have proven the model works.”
View our 2014 tour of the East Village:
The company also says most its one-bed flats are typically shared between couples, which effectively halves the rent for both people, and it is looking at ways to support residents who want to change whom they share their accommodation with, helping to spread out costs.
Other PRS operators, like Essential Living, whose Vantage Point scheme in Archway, N19, costs £1,950 a month for a one-bed flat, also offer services such as on-site management teams and shared dining and leisure spaces.
Leech says: “This is a new purpose-built rental offering, and it’s built with the modern renter in mind. So you often get a different kind of accommodation, reflecting modern life, rather than an old-style conversion of a terraced house.”
How expensive is the UK rental market?
Outside the more professionalised PRS sector, renting is becoming increasingly as difficult for Londoners as getting a step on the housing ladder. A tenant has to earn as much as £81,000 a year – or more than 97% of the UK population – to avoid spending more than 35% of their income on rent in parts of the capital. The average full-time worker in London earns about £33,000.
The average rent for a one-bed flat in the EC postcode in London, which includes the City of London and parts of Islington, Camden and Hackney, was £2,366 per month as of mid-July, according to data from Zoopla. This is 86% of the median pre-tax income in London of £2,740 per month for a full-time worker.
In Greater London, which included all 10 of the UK’s most expensive postcode areas, residents would have to pay between 43% and 86% of their pre-tax income on rent.
READ MORE: Is PRS a sector for everyone?
Oxford was the most expensive area outside the capital, with an average rent of £1,066 a month – 42% of the median pre-tax salary in the area. In other words, someone looking to rent in the area on their own would have to earn £36,500 if they spent 35% of their income on rent.
But outside of London and the South East, rents are more manageable. In parts of Scotland, Wales and the North of England tenants making as little as £14,000 could afford to rent on their own.
That means the solution has to involve a focused approach to supply, targeting places where demand is pushing rents to disproportionate heights. The BPF build-to-rent pipeline is a start, but unless more developers find reasons and space to push it forward, it will only dent an ongoing crisis.
To send feedback, e-mail karl.tomusk@egi.co.uk or tweet @ktomusk or @estatesgazette
