The changing property market, why PRS is becoming the first choice for many people
The last remaining undeveloped site overlooking Erie Basin, in Salford Quays was given planning permission this week for 270 private rented sector (PRS) apartments by developer Glenbrook. With this in mind, we look at why PRS has become so popular rental and what else is needed in a sector that predominantly provides apartments.
The private rented sector PRS is grabbing property headlines more and more as this becomes the default choice for many people looking for a home. Whilst developers are choosing this route merely as a reaction to market demand, at the same time there is also a shift from individual investors, who were dominant in the ‘buy-to-let’ boom before the recession (partly due to tax changes) to institutional investors that are active in this sector today.
The Royal Institution of Chartered Surveyors (RICS) reported in its January 2017 UK Residential Market Survey that a shortage of supply remains a challenge in the lettings market – an issue that could worsen over the medium term – as respondents expect landlords to decrease their portfolios over the next three years.
Private renting provides benefits to local economies
The low transaction costs of entry and exit have enabled the private rented sector to provide accommodation to a growing number of transient populations, not just young and mobile professionals, but contractors, workers moving from other areas and newly formed households, such as young people leaving home and the UK’s growing student population.
Expanding the rental market will offer these groups a much wider choice of accommodation and location, as well as greater flexibility for those who may not want to stay in an area long. Perhaps most importantly, the sector is playing a growing role in meeting the needs of the “intermediate” market, providing the only option available to households earning low to medium incomes and households which are not eligible for social housing but cannot afford to buy. This is reflected in the recent increase in the number of young people accessing private renting as house prices have increased, alongside a corresponding decrease in young owner-occupiers.(According to Hometrack Housing Intelligence, 75% of tenants in the private rented sector cannot afford to purchase a lower-quartile house nationally)
A wide choice in tenure gives the option of purchasing or renting, but high sales prices (compared to average earnings) difficulties in obtaining mortgage finance and market uncertainties, including Brexit are both factors influencing peoples decision into renting rather than purchasing.
At the same time, the rental market itself has changed from the bottom up; student accommodation has seen a quantum shift in recent years, where today students are offered, and expect luxury accommodation, with a range of additional facilities, including fast WIFI, communal spaces and concierge as standard. When these students graduate, they expect the save level of accommodation.
PRS – Flexibility for today’s mobile workforces
With advances in technology, todays workforce is also much more mobile, with this is the need for mobility in the housing market, including renting on flexible contracts. Knight Frank noted in a recent report examining the private rented sector that there will be continued demand for rental property as a more flexible tenure, especially among urban workers.
PRS – Placemaking and Delivering the Right Homes
As long-term investors, Build to Rent providers’ only interest is in creating ‘places’ that thrive. Their investments will gain or lose value depending on their wider environment. They therefore have a huge motivation to ensure that not only their developments work well, but also the neighbourhood and services that surround them. They have no motivation or incentive to leave homes empty.
Communities are hemorrhaging young talent because there are no obvious housing options for them. Just over half (51%) of private renters are under 35 years of age and 54% have no dependents, and so are unlikely to get social housing. Build to Rent is about the mainstream market. Several local authority pension schemes are investing in Build to Rent, or are contemplating doing so, because it is delivering affordable homes for key workers and other important groups that are critical to their local economies.6
PRS developments tend to be built and occupied quickly, perhaps within weeks of completion. This contributes to the creation of neighbourhood and community on large schemes, including estate regeneration projects. The new residents should create the critical mass to support local services such as shops, schools and GP surgeries, which might not otherwise be provided for some time.
Both middle income and more affluent sharers and families offer benefits for estate regeneration: their disposable income often mean they are active users of services like restaurants, pubs and gyms, and can contribute to a lively street scene.
Family sized houses – the missing PRS link
Most PRS schemes tend to deliver just apartment accommodation, with few delivering houses. Criticism of some schemes have been that no houses are being delivered at all. There is demand for private rented family size housing, we have seen clear evidence of this ourselves at our recently completed Hulton Square development in Ordsall, close to Salford Quays. Here we specifically developed larger homes to rent with a mix of three bedroom townhouses and three bedroom duplexes, all with private outside space. Placing these on the open rental market we saw reservations in record time, indicating pent up demand for this type of product to rent. Interesting was the mix of tenants, which included families with young children as well as couples without children, who had previously been renting apartments, and were looking for more space, but still with easy access to their workplaces at MediaCityUK and Exchange Quay.
A clear element lacking from the PRS market is family size houses, where people who are not yet ready to purchase their own homes, either for financial reasons or through choice, require more space, including outside amenity.
Providing family homes to privately rent offers an important gap in the market, A report by the Joseph Rowntree Foundation, “What will the housing market look like in 2040?”, published in 2014 states that that private renting will grow to house one-fifth of the population while social renting will decline so that it houses around one-tenth of the population by 2040. Although owner-occupation is also set to decline slightly from 2020, the big tenure story is the balance between private and social renting.
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