Rowley can ensure BTR investment is not deterred

COMMENT This week the property sector welcomed the 16th housing minister since 2010, with Lee Rowley beginning his second stint in the role. Just last week, we had the pleasure of hosting him at an event to showcase innovation in the build-to-rent sector and, although he will inherit a packed in-tray, we will be continuing to make the case that more support is needed if we want the sector to play a key role in overall housing supply. The BPF, together with Savills, recently published our latest BTR analysis, which underlined the recent growth of the sector, but also some of the challenges ahead. The data shows that BTR now encompasses more than 260,000 units, including a robust planning pipeline of more than 60,000, and expansion across the UK with 200 local authorities now having purpose-designed homes for rent in their pipeline. Critical moment More concerning is how current economic uncertainty is impacting delivery, particularly in London. In the third quarter, new starts in the capital totalled just 434 units – compared to 2,479 in the same period last year. The challenges of build-cost inflation and higher financing costs are particularly acute in the capital, where land values are higher and developments tend to be higher-density and more complex and expensive to deliver. While construction starts are holding up better across regional cities, the number of units in planning is only up marginally year-on-year (6%) which suggests many developers are mindful of the challenges ahead. It is a critical moment as market conditions conspire to stymie delivery just as renters face unprecedented challenges in securing high-quality homes that are affordable. Getting it right on rent It is therefore vital that government strikes the right balance as it brings forward its flagship Renters Reform Bill. We fully support making the private rented sector a fairer place and an end to no-fault evictions. However, as we have raised with government, there is a danger that the bill has unintended consequences in deterring institutional investment into homes for rent and undermines the vision set out in the Montague Review 10 years ago. One significant issue is the removal of rent review clauses. Research indicates that tenants typically benefit from rental increases tied to the Retail Price Index, except during periods of high inflation. It is puzzling that government is eliminating this stable method of rent adjustment just as inflation seems to be coming under control. The proposed alternative is for landlords to use the time-consuming and costly Section 13 procedure to set market rents or through a tribunal when agreements with tenants cannot be reached directly. Although the proposals aim to empower tenants to challenge unjustified increases, Section 13 is ill-suited for managing large schemes. It is time-consuming, expensive and could overwhelm the tribunal system with an influx of cases. Adjustments needed The government’s primary aim with the bill is to offer tenants stable, long-term housing solutions, but the current wording raises concerns about potential adverse outcomes stemming from a short-term letting loophole. Although the Levelling Up, Housing and Communities Select Committee suggested implementing a minimum six-month notice period, the government has maintained the proposed one-month notice period for new leases, emphasising the importance of tenant flexibility. While this argument may hold true in the broader private rented sector where properties are less prepared for immediate occupancy, it poses a significant challenge for BTR landlords. Many BTR operators offer a “plug-and-play” solution from day one, with furnished homes and all-inclusive costs. This loophole could enable more short-term ‘Air BnB’ rentals, and the turnover of short-term tenants could alter the risk profile for long-term property investors, creating uncertainty and unpredictability. The Renters Reform Bill seeks to create a fairer, higher-quality rental market, an aim we know the new housing minister supports and is wholeheartedly backed by the BTR sector. However, there must be more consideration to the potential consequences of deterring investment at a time of an acute supply shortage. With some adjustments, this legislation could provide much-needed long-term certainty for investors and customers. Theo Plowman is assistant policy director at the British Property Federation Photo © British Property Federation