I’m up on the 15th floor of a tatty, brutalist Sixties office block in the middle of the Archway gyratory system in north London, gazing at the future. Possibly.
This unlovely tower, directly above the Tube station, was once home to tax inspectors but has been vacant for seven years. It is being converted into residential flats. Nothing unusual in that.
However, its 118 planned apartments will not be sold. They are to be rented out to private tenants. For the first time in almost a century, large chunks of institutional money are being used to design, build, own and manage homes specifically and permanently for rent.
The phenomenon is called build-to-rent and is just reaching the interesting stage. The first guinea pigs, or tenants, are about to be signed up. The Archway tower is for now a noisy dusty shell, but the developer, Essential Living, and its institutional backer, M3 Capital Partners, which runs money for pension funds, are confident that tenants will be moving in from June.
Above a different Tube station in Acton, west London, Prudential’s M&G division is backing the development of 152 apartments. In Walthamstow, north London, Legal & General has its own 12-storey build-to-rent project. At an earlier stage in the planning process are schemes in commuter towns such as Bracknell, Crawley and Stevenage.
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An estimated 30,000 build-to-rent homes are going through planning. About £30 billion of instititional money is poised to enter over the next five years if the early results are promising, according to a British Property Federation estimate.
Those are the kinds of numbers that just might start to move the needle in addressing the grotesque imbalance between supply and demand in the housing market. We are building 130,000 homes a year, while the number of households is growing at 250,000 a year.
Unlike individual private landlords, who largely buy existing homes, the new generation of institutional landlords are building new ones, increasing supply. Those who argue that this doesn’t help first-time buyers are wrong: it puts downward pressure on prices of all residential property whether to own or to let.
It addresses concerns about foreign buyers snapping up flats and then leaving them empty. These apartments will be lived in. The owners want the rents.
It also addresses worries that developers have no lasting interest in the communities in which they build. In Archway, the developers have a strong interest in maintaining not only the building but also in the local community’s rising prosperity. Not that that has impressed either Islington council or the local MP, Jeremy Corbyn, who both opposed the project.
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Residential property is an obvious asset class for pension funds and insurers. Inflation-protected rents perfectly match their long-term liabilities, the honouring of pension promises decades into the future. It’s a wonder it hasn’t been done before. Actually, it has. The Pru was a big provider of homes to rent in the interwar years, but pulled back as over-zealous tenant protection rules destroyed the industry’s economics.
In another boost for overall home-building capacity, insurers and pension funds are entering the market in a way that does not completely crowd out traditional housebuilders. Building flats at scale has more in common with office or hotel construction than it does with housebuilding. So build-to-rent is not making the skills bottlenecks even worse in areas such as bricklaying.
L&G has gone further, investing in a Brobdingnagian assembly line outside Leeds that this year will start to churn out finished flats, complete with plumbing, wiring, fitted kitchens and bathrooms and carpeting. Six-metre-wide lorries will then cart these prefabricated homes to developments across the country. They are surely destined to be road-hogging bêtes noires to motorists, but as they fume behind their steering wheels they can at least console themselves it all eases the housing shortage.
The insurer says it wants to do for home manufacture what Henry Ford did for the car industry. That’s a noble ambition if it brings down the cost of housing by even a fraction of the amount achieved by Ford’s trailblazing mass production techniques a century ago. Or speeds up the process of housing creation. The first “Model T” homes are due to roll off the production line in June at the rate of ten a day.
There’s one other innovation common to many build-to-rent projects: communal living areas. The top two floors of the Archway tower are devoted not to penthouse flats but to open space, with spectacular views where tenants can congregate. There’s an area that can be rented for dinner parties, a gym and a large roof terrace.
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A sense of community increases tenant longevity and reduces wear and tear. Essential Living is even hiring a “tenant retention manager” to jolly people along and organise communal events, such as wine-tasting evenings. This is a model that already works well in America. The aim is to engender a “wow” factor for the renter of even the most unexciting studio apartment. It perhaps enables the flats to be built a little smaller, too, though no one will admit to that.
Different landlords, different building techniques, different living arrangements. It’s all change in the brave new world of build-to-rent. Just as it was in student accommodation 20 years ago. Yet if all goes well, it might just help to address one of Britain’s most pressing problems. It deserves the support of Westminster policymakers. And a bit more enthusiasm from local councils.
Patrick Hosking is Financial Editor of The Times