Insurance and pensions firm will be landlord of thousands of flats, starting in Bristol, Salford and London, in partnership with Dutch PGGM
British insurer Legal & General has teamed up with a Dutch pension fund manager to construct 3,000 apartments across the UK under a £600m “build-to-rent” plan.
L&G and PGGM will initially build 650 flats in Bristol, Salford and Walthamstow, north-east London, to help tackle the housing crisis. Only about half of the 250,000 new homes thought to be needed every year are being built.
The UK private rental market has traditionally been dominated by individual buy-to-let landlords, but the past in the few years, big institutional investors and developers such as Berkeley Homes have entered the market to build blocks of rental homes.
Paul Stanworth, managing director of Legal & General Capital (LGC), the insurer’s main investment division, said: “The UK rental market, compared to the US and Europe, is dysfunctional, with ever increasing rents and increasingly poor accommodation. For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock.”
L&G will act as the developer, and once the flats – ranging between one and four bedrooms – are built, it will be the landlord and use rental income to pay pensions. It is targeting yields of 3-5%.
Other insurance companies and pension funds have been investing in private rental housing in the hope of stable long-term rental yields. M&G, the asset management arm of insurer Prudential, and Hermes Investment Management have launched funds in the past two years. M&G Real Estate’s first deal in the sector was to build 152 private rental homes in Acton, west London, in partnership with developer HUB.
The new stamp-duty surcharge on second homes, coupled with the removal and erosion of tax breaks for property investors, is likely to lead to falling supply – while demand for rented homes from those who cannot afford to buy continues to go up. But rather than buying up old buy-to-let properties, Stanworth believes L&G is “better off creating purpose-built blocks” with shared utilities.
L&G intends to focus on urban areas with good transport links across the country and on the outskirts of London. Its partnership with PGGM comes nearly a year after the UK insurer made its first investment in private rental housing and set out plans to invest £1bn in the sector. In February 2015, LGC bought a £25m site at Walthamstow to build and rent more than 300 flats. It is putting this site into the new venture.
A report by PricewaterhouseCoopers published last summer predicted that almost a quarter of all UK households would be renting privately by 2025 (taking the total to 7.2m households), and that more than half of those would be aged 20 to 39. As house prices have risen much faster than earnings, the number of households renting privately has more than doubled since 2001.
L&G has also been investing in rented student housing in partnership with universities, and is talking to local authorities about providing affordable housing. Stanworth said the way in which houses are built needed to change – pointing to the modular housing popular in continental Europe and the US.
Factory-made modular housing is still a cottage industry in the UK, but Stanworth thinks it could become more popular. “People see the quality of modern modular housing. It’s hugely energy efficient and the costs are competing quite significantly against traditional build. If you create the same unit again and again, like a car, you get the same efficiencies.”
The insurer’s Dutch partner, PGGM, has invested in build-to-rent housing for more than 40 years, pouring close to £3bn into residential projects in the Netherlands and the US.
Property market analyst Hometrack welcomed the new venture. Alex Rose, managing director of data analytics, said: “L&G has joined many other investors pursuing the attraction of stable returns from investing in private rented housing. Build-to-rent unlocks capital-intensive housing schemes, typically in city centres. The practice will be an increasingly important feature of the new-build market.”
Tom Ground, CEO of L&G Homes will be presenting at the forthcoming Explore Offsite Housing event at the NEC Birmingham on 23 & 24 March 2016 – full details available at www.exploreoffsite.co.uk
Original link - The Guardian
