PRS is frequently seen as an alternative to the often-maligned private landlord sector. Many schemes are built specifically for rent, with the capital coming from international investors, institutions such as pension and insurance funds, housing associations and a £1 billion fund from the Government (now closed).
It’s frequently described as a ‘new asset class’, one that is increasingly attractive to institutional investors. These funders are treating it as a long-term investment, not a source of immediate profit, one that will bring a steady income stream. It therefore serves as an alternative model for the private developer, who can flip a phase or a building in an existing private sale scheme over to PRS.
So far, there are around 140,000 PRS homes completed or in the pipeline, which would appear to be good news for tenants. 20% of UK households are in privately rented accommodation – and it’s 30% in London and rising!
Much of this is provided by private landlord-investors, who make up 50%-60% of new build purchasers in London (30% elsewhere) and often buy off-plan, certainly a benefit for developers. However, more recently, the buy-to-let investor has been hit by increased taxation and tighter lending regulation, so the traditional buy-to-let market may be stalling, creating an opportunity for PRS.
The UK is short of homes. A growing population means that we need up to 300,000 more per year, 60,000 in London.* Many people cannot afford to buy a home: the average first time buyer, according to Halifax, is 31 and needs to scrape together more than £33,000 for a deposit, much more if they want to live in London, so home ownership has become a distant dream for many.
Secure, affordable, quality renting, as per the continental model, could be a good alternative. What's more, for the tenant, PRS appears to offer significant advantages over renting from private landlords.
One is that most of the PRS providers offer tenancies longer than the standard one-year renewable Assured Shorthold Tenancy offered by conventional landlords. It’s an important point for private tenants who, at present, usually don’t know how long they’re going to be allowed to stay in their home.
The PRS homes are new, with the latest tech and wi-fi, and usually include a maintenance/management element to deal with any problems. In theory, you won’t be kept waiting for weeks if your boiler goes kaput in the middle of winter. You’re also likely to be allowed to have a pet, and redecorate if you feel like it. Investors are motivated to create quality locations where tenants will stay, so there’s an element of placemaking involved, and PRS developments often include concierges, gyms, cinemas and private lounges.
At present, most PRS schemes are in the UK’s big cities and near good transport links and other amenities – prevalent in London, but also becoming commonplace in Birmingham, Sheffield, Manchester and Liverpool.
Some are marketed under trendy, upbeat brand names, and appear to be aimed squarely at urban professionals, offering a well-serviced, hotel-like experience. Their websites show designer-outfitted young men and women sipping wine on their roof terraces, and children and older people rarely feature. It's all about the lifestyle!
Many of the schemes are quite expensive, leading to criticism that PRS only helps well paid young urban professionals and is not a solution to the UK’s general shortage of homes. An article in The Guardian** cited £1,841 pcm for a 1 bedroom apartment in gritty Elephant and Castle – you’d need to earn £60,000pa to qualify to rent there.
But there are also some providers who recognise that not everyone has, or wants, the Champagne city lifestyle and emphasise that theirs are ‘forever homes’ where families can feel settled.
A 2018 report*** by JLL into the sector challenges the idea that PRS is solely for high earning young professionals. The schemes that the report looked at had tenants from 18 to 55 (average age 31) earning a decent £37,321 pa on average, which is 30% above the UK average, but hardly megabucks, especially in London...
It’s true that PRS rents are higher than those in the broader rental market (PRS landlords achieve a premium of 8.4% in London and 12% regionally), but it can be argued that tenants do get more for their money. But, does everyone want a gym or a cinema lounge?
PRS is still in its early days, and whether it continues to be attractive to investors and to tenants remains to be seen. At Key Property Marketing, we are looking closely at this emerging sector and are ready to advise on branding and marketing to anyone who wants to dip a toe into the water or take their brand to the next level.
It's all about creating brand affinity, telling a story and selling the benefits of PRS, so as to substantiate the prices and create a need and desire for the scheme. Call us today to discuss your PRS scheme.
*Unlocking the Benefits and Potential of Build to Rent, British Property Federation, 2017
***Evaluating Build To Rent Performance, Jones Lang Lasalle 2018