Build-to-rent is the future, says the chief executive of Grainger
The head of Britain’s biggest residential rental company has told amateur landlords to give up and buy shares in her company instead, because the traditional rental sector’s days are numbered.
Helen Gordon, the chief executive of Grainger, a build-to-rent developer that has 8,431 flats across the country and the same number in the pipeline, says the company’s buildings will be the future of renting once landlords are hit by diminishing returns and rising taxes.
“Instead of people investing in buy-to-let properties, what they should invest in is a Grainger share. They would get 50 per cent of our net rental income paid out as dividends,” she says.
“So many people remain landlords — or accidental landlords if they can’t sell their homes — as a way of feeling secure. Yet the tax regime looks increasingly unfavourable. I think there are some big changes coming, which will make many people reconsider.
“Are landlords going to be able to compete with the big build-to-rent operators for amenities or quality? It’s very unlikely. Individual landlords will increasingly find it hard.”
The FTSE 250 company has recently completed its 614-home Clippers Quay in Manchester, Britain’s biggest such development, and has others ready or under way in Bristol, Leeds, Birmingham and London.
Clippers Quay has facilities more like a hotel than a typical block of flats, including a 24-hour gym, communal living and co-working spaces, superfast wifi, an on site handyman and Amazon delivery lockers. There is also a cinema room, which can be booked for £8.
The company, founded in 1912 in Newcastle to offer long-term tenancies, constructs, buys and runs apartment blocks. Its properties are aimed at mid-market renters, and offer leases of up to five years, mostly in urban locations near train stations. “In the past, people used to have awful student accommodation and then leave university and buy their own home,” Gordon says. “Today people often have fantastic quality student accommodation, full of amenities, and end up living somewhere really grotty. Why should they?”
Her call for small landlords to desert their trade and join her has been dismissed by investor groups, who say the build-to-rent sector is still small. David Smith, a policy director of the Residential Landlords Association, says that developments such as Grainger’s, although common in Germany and the US, only accounted for 3 per cent of the private rental market in Britain. He says they are overwhelmingly based in cities, are too small for families and too expensive for most people.
“This means that there will continue to be a very high demand for buy-to-let housing. As more older people and those with families are renting, this demand will mainly be met through rented houses rather than purpose-built flats,” he says.
“Generally, buy-to-let offers a more secure investment with property prices rising over the long term, whereas share prices can, and do, go down as well as up, and are as dependent on the vagaries of company management.”
Last week The Times highlighted the decline of the amateur landlord sector after cuts to mortgage interest tax relief, which makes servicing debt more expensive for landlords, and the introduction of a 3 per cent stamp duty surcharge.
Banks are advancing 4,800 loans a month to landlords compared with 16,000 in 2007, when buy-to-let was at its peak. Hamptons International, an estate agency, says that the number of landlords has fallen by 120,000 in more than three years. Research from the Residential Landlords Association last week found that a quarter of landlords were planning to sell at least one property over the next year.
The sell-up is causing rents to rise, according to Spare Room, a flat and house-share site. It says the average cost of renting a room in the UK has risen £15 a month, or 3 per cent, since April last year, bringing the average monthly rent to £582.