Build to Rent Consultation

6 March, 2017

Introduction

Build to Rent (BTR) started in the 1920s and 1930s as insurance companies and other investors developed homes specifically for private rent, but it declined post-war thanks to rent controls and regulation.  The government wants planning policy to be recast to support BTR. The DCLG has therefore published a consultation paper seeking views on planning and affordable housing policies intended to speed up large-scale development of purpose-built BTR housing. The aim is to realign national policy to ensure that local authorities consider BTR when assessing their housing needs. The consultation expires on 2 May.

Clear support from the Housing White Paper

The Housing White Paper provides clear support for the BTR market. The government has provided backing to the BTR model in the UK through the £3.5 billion Private Rented Sector Housing Guarantee Scheme and the £1bn Build to Rent Fund.  A clear aim of the Housing White Paper is to diversify  the current market, and one way of achieving this is by encouraging institutional investors, lenders and capital markets participants to invest in the private rental sector and, in particular, new large-scale BTR housing development.

What you need to know

Key measures embedded within the Housing White Paper include: proposals to enshrine BTR within the National Planning Policy Framework as a type of home authorities should be seeking to promote; making family friendly tenancies available for three years or more by working with the British Property Federation and National Housing Federation; and introducing a definition of affordable private rented housing and a flexible definition of BTR.

The consultation itself identifies key proposals in order to implement those laid out in the Housing White Paper:

Affordable Housing

The consultation proposes a rebrand of Discounted Market Rent as Affordable Private Rent (APR).  It considers how to create an affordable element of private rental homes. The intention is that at least 20% of BTR developments should be for APR and that the average discount to be offered on APR across any development should be at least 20% relative to local market rent levels. 

Claw-back mechanism

Up until now, planning covenants imposing a widely accepted minimum period of 15 years have been used on BTR schemes to ensure that these private rent units at affordable levels remain within the rental sector.  The government proposes instead that the 20% discount should apply indefinitely. However, it is intended to be possible to sell off or let out at full market rent APR homes, but if that happens the developer must make an affordable housing contribution equivalent to what would have been required if the relevant planning permission had instead been for a private sale scheme.

What’s the verdict?

The BTR market is still very much at its early stages.  The Housing White Paper therefore provides a safety net for developers, by enabling them to shift to a sales model if needed.  The newly proposed APR model maintains the theme of flexibility for developers by allowing schemes to meet a range of needs where, in some cases, they might offer some Affordable Private Rent units at a greater than normal discount to market rent and others at less – provided the average discount is at least 20%.

This flexible approach may, however, be a mixed blessing with planning authorities having to agree the framework for each scheme on a case by case basis.

Any developer interested in constructing homes for rent should certainly consider responding to the consultation paper.