PRS should not be seen as a quick development opportunity, it is a long-term investment that can meet the needs of a community
The boom in private rented sector (PRS) might, to the casual observer, resemble a band wagon gathering speed.
Various economic, political and social drivers have come together to stimulate the growth of what is now the second most prevalent tenure in the UK, housing 4 million households; reflecting, arguably, the most significant recent change in home ownership. Initiatives such as the Build to Rent programme, and strong interest from institutions attracted by the relatively high yields, has generated growth forecasts of 20% in the next five years.
PRS has the potential to respond quickly to local demand because completion is not dependent on the pace of sales. Discounted PRS could also successfully meet local affordable need. I would, however, caution against viewing PRS as a quick win development opportunity.
PRS has the potential to respond quickly to local demand because completion is not dependent on the pace of sales.
PRS is an income focused model, requiring long term investment. This makes it a quite different product from Flats for Sale, or indeed, ‘Buy to let’ which essentially is a product of sales strategy.
As industry practitioners, we have much to contribute to develop the new approach and way of thinking that PRS requires.
At one level, the essence of PRS is simple: a long-term investment over say a 10-30 year cycle, encouraging long-term tenancies through an increased sense of community. This requires dedicated property management. The annual cost of running a residential development could equate to 20% of rental income, with general building operations accounting for two-thirds of this and planned/reactive replacement for one-third.
If PRS flats are to be accessible to the widest market, therefore, sustainable design, construction and management must be at the heart of the process, with whole life cost analysis the fundamental business tool; simply managing initial capital expenditure will not suffice.
The best PRS schemes offer a holistic service, with tenants feeling that they have a stake in the whole building, encouraged by a enhanced shared internal and external amenities designed with the specific target market in mind, be it young professionals, students, international workers etc.
Investors expect PRS to operate efficiently to minimise voids. In turn, tenants look for certainty of total monthly outgoings
Investors expect PRS to operate efficiently to minimise voids. In turn, tenants look for certainty of total monthly outgoings, including utilities; again, putting cost efficiency, life cycle and sustainability at the forefront of the concept.
Operation should influence design, whether that be integrated building management, more spacious circulation to accommodate the higher repetition of furniture movements, or the integration of sustainable resident facilities. Greater flexibility of living space will also be required to accommodate our increasingly changing lifestyles.
Great benefits can be achieved by efficient procurement, off-site manufacture to speed rates of construction and the systematic use of benchmarking to ensure continuous improvement.
In one sense, though, this is not new. PRS certainly owes much to its American cousin, multi-family real estate, but it also reflects the challenges that the affordable rented and modern student accommodation sectors have been meeting for years. PRS is not the singular solution to the nations’ housing crisis, but at its best it can make a valuable and sustainable contribution.
Richard Hill, director of cost consultancy, Sweett Group