The surging build-to-let sector has just received another boost: news came in two weeks ago that Sigma Capital Group, the urban regeneration specialist, plan to invest £800 million as part of a partnership with housing contractor Keepmoat.
Keepmoat CEO Dave Sheridan intends to turn that £800 million investment into more than 5,000 new homes for the private rental sector. The construction firm plans to build 1,000 of those homes within the first 12 months alone. The expected completion date for the project is 2021, and initial construction will commence on the first site of many this summer.
The 5,000 private rental sector homes will be constructed across several sites in the Midlands, Yorkshire, the North West, and just north of Greater London. The properties will have two, three or four bedrooms. Whilst the land will be owned by Keepmoat – which either owns or is in the process of acquiring land ownership for each site – the homes are being developed specifically for private ownership-for-rent.
The partnership: framework and benefits
As well as securing or purchasing the plots, Keepmoat will be in charge of the planning, design and construction processes. Sigma, on the other hand, will handle investment and lettings management. This partnership is a well-timed response to ever-increasing demand on the private rental sector, alongside the housing sector in general and the buy-to-let sector specifically.
In 2015, Keepmoat built more than 4,000 residences, and the firm aims to continue increasing their growth in number of homes constructed by 25% for every year moving forward. The benefits to the industry don’t just stop with Keepmoat, either: Sheridan says that in order to deliver that impressive growth target, Keepmoat continues to work closely together with the small or medium enterprises that make up their supply chain, helping them to flourish and grow in response to market needs.
A new foray into private rental sector housing for Keepmoat
So far, although Keepmoat have a significant track record of providing housing development planning and construction, the firm has not yet developed properties purely for the private rental market.
Sheridan said that investment with Sigma represents ‘a significant milestone for our business, and we are proud to be working alongside Sigma to scale up their PRS growth ambitions.’ He continued ‘Sigma came to us because of our national capability, our great quality product and our efficient supply chain that delivers great value for money.’
Significant expansion of assets and activity across England for Sigma
Sigma CEO Graham Barnet said that the partnership with Keepmoat has many benefits for Sigma in return: ‘this partnership will enable us to expand into other parts of the UK, where currently we do not have coverage. It also complements our existing partnership with Countryside Properties by significantly increasing our construction resources and providing further access to land assets in geographies not served by our existing partners.’
Sigma seeks to provide high quality homes for family rental, on large-scale developments, throughout England. The partnership with Keepmoat will be beneficial to both companies, provide new jobs and business growth for a vast number of small and medium contract and supplier businesses. This investment will ultimately deliver thousands of much-needed homes into the undersupplied private rental housing market.
The current state of the PRS property market in England
Despite a government focus on catalysing and rewarding institutional investment, most PRS properties across England today tend to be constructed, acquired and then managed by individual landlords. The Government is currently attempting to support both institutional investment and smaller landlords to increase the national number of privately rented homes.
According to 2011 figures released by IPD/KTI, the UK government is currently well behind many Western European nations in terms of the percentage of institutional real estate investment that is allocated to residential properties. At one end of the spectrum – Ireland and Italy, say – that figure is 0%. In Switzerland and the Netherlands, on the other hand, residential investment is between 45% and 50%. In the UK, that figure is 1%.
There are many reasons for such a lack of big, institutionally-supported developments in the UK. The main suppressing factor is the historically pervasive demand for properties that are owner-occupied homes rather than buy-to-let.
Secondly, the for-sale market is so robust in the UK at present (the first quarter of 2016 saw record housing price highs in London) that whilst there are few factors preventing large-scale PRS developments, the alternative investments for institutions are simply too attractive.
Why the new private rental sector needs to be built
Today’s younger and more mobile workforce, combined with a wider availability of professional and technical employment opportunities, results in a growing percentage of people who prefer or need to live in privately rented accommodation. Nationally, the percentage of the population living in rented accommodation is now 18%. In London, the figure is even higher at 25%, and predicted to rise up to 37% before 2026.
Much of recent growth in the PRS sector must be attributed to individual or small-scale landlords, who have found support in the form of tailored buy-to-let mortgages. The large-scale letting firms and construction companies have tried to impress upon the government that where land space is limited, large developments of build-to-let apartments could help keep up with demand for affordable private rental housing.
Moving forward in the private rental housing sector
Currently, large developments of build-to-let apartments are not included within the definition of ‘mixed-use’ zoning, creating a significant block to companies who would otherwise want to invest in new PRS housing construction in such locations. Some property experts argue that buy-to-let property owners already have an advantage over first homebuyers, even after the April 1st changes to stamp duty.
Projects like the one invested in last month between Sigma and Keepmoat represent an important avenue for more housing to be created where there does exist the zoning possibility, the corporate capital, and the technical experience to make it work. Perhaps as Sigma and Keepmoat build on this and future success in the private rental sector, property experts and policy advisors will have more tangible evidence of the advantages to these developments.