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Where do 55% of the UK population live? Answer: in the suburbs, at least according to the latest analysis from the Urban Land Institute. Surprised? I certainly was! Perhaps less remarkable is the dominance of one particular demographic: families. Although an increasing number of couples and single-person households live outside of urban centres too.
How does this fact align with the shifting composition of tenure in the UK and the introduction of (or, arguably, disruption by) new Build-to-Rent housing? Historically, families have usually owned the homes they live in; analysis by the National Audit Office suggests that around 65% of households with dependent children have a mortgage on the property.
Yet we also know that the prevalence of renting in the UK is increasing, hitting 20% last year according to estimates by the House of Commons. And it’s not just young, single people renting space either: a multitude of socio-economic and lifestyle factors mean there is no such thing as an “average” rental resident.
However, when asked to consider ‘rent’ and ‘suburbs’ in the same sentence, most people seem to draw a blank. Not surprising when you realise that the majority of Build-to-Rent schemes are developed in city centres. Clearly, it only takes the most rudimental rearrangement of the pieces of this jigsaw to realise there is a big gap in the housing market, for purpose-built rental property outside of crowded urban environments.
Is this situation different in other markets? The residential rental sector is more mature in the US, for example, and suburban homes have been a mainstay of US housing since the post-World War II economic boom. Still, it took plummeting home ownership rates and a significant correction in values following 2009’s recession to engender institutional interest in suburban rental housing.
Investors such as single family housing Real Estate Investment Trusts have subsequently made some big bets in the market, but only since 2012 when some stability returned. Most deploy an opportunistic strategy, building up scale quickly through the acquisition of thousands of distressed assets rather than strategic allocation of capital. Just think of the due diligence!
However, the UK is a sister, not a twin, to the US when it comes to residential dynamics. Households are bigger here, commutes shorter, there is less available land and institutional preference is purpose-built product, not conversions. Importantly, there was not the widespread handing back of front door keys when the global economy contracted.
There are still lessons that we can take from the US suburbs: efficiency is everything, with many investors using proprietary platforms that can cycle an asset from acquisition to exit, including marketing and leasing. Clever technology makes this possible, with maintenance apps and automated viewings just the beginning. Intriguingly, investors often have a ‘specification sweet spot’ for suburban schemes, which reduces turnover and encourages long-term tenure.
The high-density Build-to-Rent model has already been proven in the UK. On paper, there appears to be a clear case for rental homes outside of urban centres too – one that does not have to mean family housing exclusively. Now is the time to size up the opportunity and scale up the specification, because there is a lot of room for rental in the suburbs.
© Treex 2020