Why Labour’s solution to the housing crisis is doomed to fail

Dawn rising on skyscrapers surrounded by construction cranes in London
Dawn rising on skyscrapers surrounded by construction cranes in London

As a property investor, I’ve watched with fascination as the build-to-rent sector has expanded.

A few years ago, it was a tiny glint in the eye of private equity funds. Now, it’s cemented itself and is growing at pace to become a major part of the British housing landscape. Walk down any street in any big city and you’ll likely see the footings for a new build-to-rent site.

What’s always piqued my interest in these sites – compared to land where homes are being built for sale – is the dense packing.

Driving through London the other day, I was astounded to see the height of some of the tower blocks being erected. The key question that bugged me was – how on earth are they building so many places for so many people to live in such a small space?

The research soon told me that because of the baked-in community aspects of build-to-rent sites, there isn’t deemed to be as much need for the things we take for granted in owner-occupier homes, such as having your own back garden.

This community aspect is often one of the reasons why build-to-rent is treated differently when it comes to planning.

This seems to have happened in Greenford, west London, where the former GlaxoSmithKline and Sunblest Bakery site had initially outlined planning for 593 homes, but ended up becoming Greenford Quay delivering 2,188 homes, most predominantly for rent.

Big capital thrives on big numbers. With a need to extract as much revenue as possible, most institutional investors look for at least 200 units to make a site viable. The savings on economies of scale makes sense, as does the ability to control – and possibly uplift – the local environment.

While welcoming a diverse mix of residents, the success of these sites relies on tenants who can afford to live in these places and strong management who can quickly identify and iron out any kinks before they spill over. When you’re living in such close quarters, problems can quickly spiral.

The thing I can’t get my head around is the speed with which many build-to-rent operators claim they can build the units. Apparently, they can build rental units much more quickly than homes for sale.

On the one hand, that’s great news. Since the 1980s, successive governments have averaged 150,000 units per year, well below the 300,000 target. But on the other hand, if homes are going up so quickly, are we storing up future trouble when it comes to build quality?

In many ways, build-to-rent is being presented as a panacea to our housing crisis and, as a private landlord, it’s interesting to see how its operators seemingly exist in a vacuum.

As large-scale landlords – that’s really what they are – they don’t appear to be vilified as parasites or leaching the lifeblood out of society. And one can only wonder if it’s their size and scale that puts them out of reach.

The thing is, there’s still an inherent conflict here – the Government is encouraging build-to-rent schemes, while promoting the ideology of private home ownership at the same time. How will this end?

I will admit I’m troubled. Most build-to-rent sites charge higher rents than their buy-to-let equivalents, which means most of their tenants are paying a larger share of their take-home pay in rent, making it more difficult to save for a deposit.

While at the moment the new-build premium may be deemed “value for money”, what about 10 years from now when the shine has dulled?

Reports are starting to emerge of properties being beset with building problems, that rents are soaring and – unless management keeps a firm grip of these large sites – it won’t be long before what was a halcyon home ends up a mess.

I don’t doubt the Government will want to intervene and call for rent controls and more regulation. But I also don’t doubt that big capital will take flight and maintenance will drop off.

It may surprise you to learn that I am in favour of build-to-rent – it has a place in our housing market – but what I worry about the most is the gung-ho approach around it being the answer to our housing crisis prayers.

By building places where people would only want to rent – not own – we are potentially creating the ghettos of the future.