Adam Hall

We live very differently from our parents generation

There’s a lot more change to come in how we respond to the nation’s housing needs

Here’s a good pub quiz question: what percentage of UK households is made up of the standard family unit of Mum, Dad and two children? This is the unit, remember, that is still used as the short-hand for a ‘typical’ household.

The answer may surprise you – and offers one of a number of pointers to the rise of both the private rental (PRS) and the build-to-rent (BTR) models.

To put you out of your suspense, it’s just 5 per cent.

So who are all the others? Well, according to Mosaic, who provide data to marketeers to help them sell everything from fridges to soap powder, there are 66 different types of household in the UK, all with different needs and motivations.

Add in an era of seismic economic changes – where low interest rates have fuelled demand for housing, driving up the cost of buying – and you begin to see why the PRS and BTR markets are maturing quickly as developers find their feet and target their product offerings at different market niches.

That of itself is not an easy task as rents vary hugely region-by-region, whereas constructions costs don’t. So whilst there may be demand from different demographic groups for rental homes it’s a moot point in some areas as to whether the market can afford to deliver them.

As a lifestyle choice, renting has been embraced widely. Call it the new normal. Capitalists abhorring a vacuum, we’re seeing increasing choice and differentiation and a new generation who don’t view renting as a step on the way to ownership, but as an end in itself. Low hassle, known service standards and nothing to think about. For an increasing number, that equals freedom – many having become conditioned to its benefits whilst students, where they enjoyed well-designed spaces and fit-out. They now demand the same for their post-graduate existence.

All this means choices for funders and developers, of course.  For institutions the focus is on net operating income, not capital growth, and the desire to maintain high income ratios is driving product differentiation, service levels and build specification.  Developers are having to adjust to these new input factors.

BTR funds are using design and service to build in tenant longevity and innovating with lease lengths to give customers longer tenure.  For them, the home begins at the front door of the building and we’re starting to see a de facto star rating system where rental price dictates service levels as much as specification and fit-out standards.

In the US, where the BTR market is far more mature, there’s something of an arms race with regards to amenities and service.  As designers, we’re beginning to see demand for creches, communal lounges, gyms and cinema rooms, now recognised as vital to increasing neighbourliness and reducing tenant churn.  And we won’t be in the least surprised if there’ll be on-site dog groomers and personal assistants, too.  For designers, it’s stretching our experience and testing our creativity and the work is all the more enjoyable for it.

In the US bigger homes and additional amenities are off-set by larger developments so that amenity costs are shared more widely.  There’s more focus on design and specification, too, and the innovations described above are sought and embraced.  A perm for Fido, anyone?

For customers, this all equals unparalleled quality and choice and it’s coming the UK’s way already, as our own client instructions tell us.

But if the private sector is on top of such drivers, what about the public sector?  What role can local authorities play in ensuring sustainable communities and neighbourhoods?

There’s currently no separate use class for PRS or BTR developments and place-making considerations are often left to the developer.  And whilst there’s a mutuality for councils, funders, developers and tenants in ensuring a well-designed public realm and quality façade treatments, they are harder to accommodate in areas where lower rental levels push the boundaries of financial feasibility.

This may change, however, due to the government’s focus on limiting the ‘buy-to-let’ market.  It’s  leaving the door open to institutional investors whose long-term view is more attuned to the quality of place as a key component in tenant (and therefore income) stability.  We’re already seeing more focus on unit size and specification, too, with some developers adopting minimum density levels to support their wider financial and place-making aims.

My prediction is clear: there’ll be far greater differentiation in terms of product offering, with more of those 66 household segments likely to find something in the rental market for them.  Whatever the short- or medium-term financial considerations, one thing is for sure: our housing market will never return to its old ways.

Adam Hall, managing director, Falconer Chester Hall