Affordability And Additional Homes Could Make Single-Family Rental A Net Good For Society

The UK single-family rental sector is fast convincing real estate investors of its benefits. If it can prove it helps housing affordability and creates much-needed new homes, it just might convince society at large as well. 

“While we’re not necessarily doing God’s work in investing in single-family housing, by investing in that sector we’re creating additionality and net new housing,” Packaged Living Managing Director of Single Family Housing Jonathon Ivory told an audience of 200 at Bisnow’s Single-Family Rental event late last month. “Covid-19 has changed how and where people want to live, and single-family rental provides new homes in green and open places that improves wellness and quality of life.”

Packaged Living is backed by Canadian investment giant Fiera Capital, Ares is backing developer Moda for a £1B single-family rental drive, and Swedish investor EQT is backing Sigma Capital, among many large investors looking to buy into the sector in the UK.

In the UK, single-family rental has emerged in the wake of its rise in the U.S., where it has faced criticism for putting homes into the ownership of large institutional investors, rather than individuals. 

Conductor founder Charlotte Constance quoted a statistic from a survey undertaken by the data firm, highlighting that 86% of those polled wanted to own their own home rather than rent.

“How can you sleep at night?” she asked the panellists.

Ivory said that in building new homes, institutional investors and the developers they backed were helping to meet the housing targets set by government, and that structural factors had led to the consistent shortfall of housing built in the UK.

He made an often overlooked point that this structural shortfall had pushed house prices up. Combined with low interest rates and a decline in pension contributions, that meant that for many people, owning a home was a savings and pensions scheme as well as a place to live.

“It is not this sector’s job to fix those structural inadequacies,” he said. 

Other speakers argued when it comes to affordability, purpose-built single-family came out ahead of other forms of open-market rental housing.

“It’s a value proposition that’s attainable to the mass market,” Moda Family Homes Director Chris Procter said. 

“It will be at a significantly lower price point than city-centre apartment schemes,” he said, adding that although it may be slightly more expensive than a single-family home owned by a buy-to-let investor, the quality of the home and the service offered by a large scale, professional landlord would be significantly higher. 

Sigma Capital Investment Director Rob Sumner offered data to back this up. Sigma manages listed company PRS REIT, which owns 4,000 suburban single-family rental homes. He said the average household income of its tenants was £42K a year, and that those households spent about 25%-30% of their net income on rent, compared to 35%-40% in the urban BTR market. That makes its homes far from a premium product, he said. 

UKAA President and Allsop partner Lesley Roberts said it was easier to incorporate social housing into single-family rental schemes than traditional big-block urban multifamily schemes. The income differential between the open-market units and the socially rented units is smaller, and there is also a more practical reason. 

“The land is cheaper, and you can build to the pace of absorption in your market, which makes assimilating the two and creating a community easier,” she said. “Towers are expensive, you can’t occupy them until they are built, and the specification can be a bit higher.”  

IMMO Capital is a platform buying existing homes on behalf of institutional investors. In a podcast interview with Bisnow, Chief Investment Officer Samantha Kempe said the company was not necessarily taking homes out of the hands of individuals because it was often paying less than individuals were bidding.

"Quite often, we have [sellers] come back to us because the other bidders fell through," she said. "They weren't able to get their mortgages in place, or they changed their mind last minute, and they ended up finding another property. And the seller will come back to us and say, 'You know, are you still willing to buy that price? I'm in a chain, I need to move.' So, the convenience factor and the certainty that we can provide sellers — that often means that we are able to buy properties at a bit of a discount."