Real Estate

Should tenants fear the rise of the corporate landlord?

This year, House & Home covered the boom in corporate landlords in the UK. Typically backed by institutional finance, these large companies operating “build-to-rent” blocks intend to shake up a private rented sector dominated in the UK by individual buy-to-let landlords. They promise professionalism, high-level services and stable pricing designed to promote long-term renting.

After the story was published in January, we received an email that raised questions about whether standards were being met: “The other side of the story needs to be told,” it read, “before these organisations get too powerful.” Simon (not his real name) used to live in a build-to-rent apartment in London, operated by housing association London & Quadrant (L&Q), which owns or operates more than 95,000 homes.

Traditionally focused on social housing, L&Q has moved into the private rented sector. Rents were supposed to be stable but after living there for a year, Simon’s rent rose 4 per cent. These were special circumstances, he was told. The next year it happened again. Meanwhile, London-wide rents were almost static, edging up 0.2 per cent in the year to February 2019, according to the Office for National Statistics.

The rent hike might have been justifiable, he added, “if they were great landlords and on the ball with maintenance . . . but they are dreadful in so many ways”. In email and text conversations seen by the FT, a number of L&Q tenants in the same development list complaints. Broken locks on gates to car parks and bike sheds were not repaired quickly, say residents, and in the meantime bikes were stolen and cars broken into. These complaints were logged with L&Q, but often went unresolved for long periods, say tenants. “Residents are encouraged to report issues to their named contact so we can provide a quick and satisfactory resolution”, says a spokesperson for L&Q, who, because Simon wished to remain anonymous, could not comment on his case directly.

It was rent rises that most animated the group. “We take several factors into consideration when reviewing rent charges, including the current local market and increased costs,” L&Q said. “On average, our rental increases are below the rate of inflation.” L&Q will soon offer residents three-year tenancies linked to the consumer price index.

That may not be of interest to tenants: private rent increases in London have been below the rate of consumer price inflation since late 2016, according to the ONS.

Tenant grievances are nothing new. But the growth of the build-to-rent sector is predicated on a promise to do things differently.

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“Landlords have a bad reputation,” says Ryan Prince, founder of rental brand Uncle. Rather than treating renters like second-class citizens, he says “the idea of Uncle is to treat you like a human”. Prince’s company markets itself as “a kinder, simpler rental experience”. Another operator, Tipi — which has hundreds of apartments in Wembley, west London, and plans to expand by another 3,500 units by 2021 — invites customers to “Join the Rental Rebellion”. A third, Fizzy Living — which operates seven blocks across London — claims to be “Reinventing Renting”. Fizzy recently held a Valentine’s day competition, asking residents to submit reviews demonstrating their love for the landlord. The winning entry opened as follows: “There are so many reasons why I love Fizzy, trying to think about them all makes my dizzy.”

Uncle Elephant & Castle © Alastair Levy

Not all renters are enthusiastic. “Private landlords in London are all so crappy,” another L&Q resident says. Her grievances also centre on rent rises and a feeling that management is distant and “faceless”.

Exchanges between L&Q and its tenants seen by the FT show that the landlord responded to queries with stock responses.

A resident of East Village, a massive build-to-rent community in Stratford, who wished to remain anonymous, articulated “a whole host of problems” with Get Living, the site’s operator.

Residents of East Village enjoy three-year tenancies, private security and community events. A three-bedroom furnished apartment is available for £2,730 per month. Across build-to-rent schemes, estate agency JLL estimates an average price premium on surrounding rental blocks of 9.3 per cent.

There was much to love about East Village, says the resident, “but the problems they [Get Living] cause by being a poor landlord constantly leaves a bad taste”. When his heating failed in winter, it took Get Living too long to fix it, he says. “After the maintenance issue I tried to negotiate on rent, but they said it would increase regardless.”

“As a company, and a sector, we’re still five years young and learning, so we’ll keep pushing ourselves to meet our residents’ growing expectations of us,” says Neil Young, chief executive of Get Living, which has launched an app that allows residents to submit maintenance requests and track their progress. “On pricing, we’re confident we offer great value rents,” he says. “With great homes and neighbourhoods, combined with no security deposits, no fees, superfast broadband and longer, secure tenancies, we’re offering a more rewarding renting experience.”

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East Village, Stratford © Alastair Levy

At Tipi’s Wembley Park site, residents in the community’s Facebook group have complained about the company using Airbnb to fill vacant apartments with holidaymakers.

Rajesh Shah, managing director of Tipi, explains. “Last year we explored working with a number of operators including Airbnb for the short-term rental of Tipi apartments, but this is an initiative we are now phasing out,” he says. “We concluded that these short-term lets are not compatible with residents. The interests of our Tipi residents are our absolute priority.”

The FT conducted a survey of readers that identified similar issues. Of a dozen respondents who rented from a corporate landlord, nine had problems with their tenancies — ranging from poor maintenance to rising damp and a vermin infestation. “I won’t ever rent from a large company again. Individual private landlords have been infinitely better and more accommodating,” says Ian Waterton, a renter in London.

“I don’t think build-to-rent is ever going to be for everyone,” says Jacqui Daly, director of residential investment research and strategy at Savills. Nonetheless, more and more Britons are likely to be renting from companies rather than individuals in coming years, which should offer greater certainty for many tenants, she says.

Virtually non-existent as a sector just a few years ago, there are now at least 132,000 build-to-rent homes in the pipeline, according to Grainger, the UK’s largest landlord, which — like L&Q — is increasingly pivoting from regulated tenancies to the private sector.

Corporate landlords are alighting on build-to-rent schemes in part because of enormous investor demand: well-managed build-to-rent sites can offer stable if not spectacular returns for long-term investors. Knight Frank forecasts that £75bn of investment capital will have flowed into the professionally-managed private rented sector by 2025.

The rise of corporate landlords also owes something to government encouragement. Where buy-to-let landlords have seen their margins squeezed by regulation, “the government is looking to bring more long-term secure capital in the market” and to increase housing supply, says Daly.

And demand is rising. The number of private rental households increased by 74 per cent to 4.7m in the decade to 2017, according to the English Housing Survey. That number is forecast to reach 7.2m by 2025, according to PwC.

According to the Resolution Foundation, a third of the UK’s millennials — more than 2m people — can expect to live their whole lives in the private rented sector. Almost 40 per cent of investors in the sector are therefore developing a “cradle to grave” portfolio of rental housing.

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“There genuinely is a real determination to change the way residents are treated, to make it a more mutually trusting relationship between the operator and the resident,” says Richard Berridge, an expert on build-to-rent. Nonetheless, he adds, “some of the early movers have not been able to live up to their claims”. It is also early days — build-to-rent has “not yet been properly tested”, says Tim Hassell, managing director of Draker Lettings.

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Hassell suggests that what are being touted as high-quality blocks could deteriorate over time as institutions look to save on ecosts. Knight Frank expects the average net yield for professionally managed rented UK properties to be 3.9 per cent by 2022. That leaves little financial headroom, particularly as private rents in London are falling, according to the Mayor of London.

So far, the main take-up has come from a young professional crowd. Build-to-rent is a service for people “towards the upper quartile” of the wage spectrum, says Berridge, with Prince estimating his average tenant earns £35,000. JLL puts the average age of tenants at 31. In East Village, in Stratford, London, a “Preferential Partnership” scheme gives employees of companies such as Deloitte and Linklaters a discount on rent.

While corporate landlords may currently represent a fraction of the overall rental market — buy-to-let landlords still account for roughly 97 per cent, according to the Investment Property Forum — they are poised to expand.

“In the end, the product will speak, or not speak, to the individual. You can make an assessment on how valuable a 44th-floor sky-lounge and a gym are to you. If you don’t like working out, that’s personal,” says Prince.


Corporate landlord
A company which manages a number of properties, typically in the same block or blocks of apartments.

Private rented sector
Covers all households renting privately, whether from individuals or companies.

A distinct asset class within the private rented sector. Typically these are large-scale blocks, specifically designed and built for rental.

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