Politicians remain obsessed by the idea of home ownership but build to rent is where the real opportunity lies

Joe Thormton

The general election last year was the usual Punch and Judy show, with party leaders hitting each other with higher and higher housebuilding targets.

Given our longstanding obsession with homeownership, it was unsurprising to see politicians focusing on delivering homes for sale. This may backfire in the long run: demand for house purchases is fuelled by personal debt, and a ballooning mortgage book is not necessarily good for the economy, as the Bank of England noted recently.

The current approach to housing also overlooks the nine million renters now living in Britain. Renting has been on the increase since 2001, and looks set to keep growing, with house prices still rising, lending requirements tighter and wage growth lacklustre.

Many now choose to rent as well. Surveys reveal between a fifth and third of renters say it suits their lifestyle, and for others, it allows them to live in areas they couldn’t afford to buy in.

Seeing an opportunity, investors are pouring money into Britain’s private rental market. Knight Frank estimates £50bn of institutional money is ready to be invested over the next five years. Unlike individual investors who have dominated the rental market until now, institutional investors will be spared the reforms to stamp duty, removing what could have been a major obstacle to growth.

Stability is key for the construction industry, and rental demand doesn’t collapse when the economy dips in the same way the for sale market does

This has created opportunities for developers, and will also allow them to navigate the low points of the economic cycle. Stability is key for the construction industry, and rental demand doesn’t collapse when the economy dips in the same way the for sale market does.

Dozens of purpose-built rental developments are now springing up across the UK, particularly in London and Manchester. Fizzy Living has operational apartments in east and south London and Grainger has opened its first purpose-built rental development in Barking. Essential Living’s first build to rent scheme, Vantage Point in Archway, will also open this year.

As more and more schemes designed specifically for rent become operational, 2016 will see the sector emerge as a genuine new asset class. The continuing growth of the build to rent is why it will be a key focus for our new consultancy, Cast.

Build to rent will create a new type of social living centred around communal facilities and shared services. This model is booming in North America, where the multifamily business has coined the phrase of “sleeping in the unit, but living in the building”, which perfectly demonstrates the culture that developers want to bring to their buildings.

This will shake up the traditional private rented sector, by giving renters a purpose-built, professionally managed option to choose from. Tenants currently get a raw deal, with many living in ageing buildings owned by amateur landlords. Build to rent will transform this, and help make renting an aspirational tenure.

The sector still has some way to go before it makes a meaningful contribution to new housing supply, with only 20,000 or so units in the pipeline. But with the market fundamentals creating the perfect investment environment, and Britain in dire need for more homes, 2016 will be the year that build to rent finally moves out of the shadows.

Joe Thornton is a founding director at consultancy Cast