Build To Let - A Threat Or A Challenge To Letting Agents?

If there’s one thing that looks like a good move right now, it’s becoming a letting agent.

Whereas some years ago we used to see letting agents diversifying into sales to get a piece of the growing owner-occupation market, now we see moves in the other direction.

The headline figures show why embracing lettings looks sensible.

The number of households in the UK expands by 225,000 a year thanks to divorce, inward migration, and the longer lives enjoyed by most. Yet in 2014 the number of new homes built fell below 150,000. If there aren’t homes for people to buy – or the shortage of supply means the homes are too expensive – then of course people will rent instead.

Meanwhile data from the Office for National Statistics shows that 9.1m people in England alone privately rent already – that’s 18 per cent of the population, with forecasters from across the property and business industries anticipating that proportion growing sharply.

So letting is the game to be in right now – isn’t it?

Well, up to a point as someone once said. But there is one thing on the horizon – it’s called Build To Let (or Build To Rent, or PRS, depending on what you read).

One of Build To Let’s objectives – or more precisely, the government’s objectives in creating a £1 billion Build To Let fund to encourage investment – is to improve the quantity and quality of private rented stock.

Currently 89 per cent of rental units are owned by private landlords – only one in 45 of these owners have 10 or more properties, meaning buy to let in the UK is almost literally a cottage industry.

Many people – and I think I fall into this camp – believe Build To Let, in attempting to improve quality and quantity, may actually be good news for some letting agents, while others believe it could be a problem.

Here’s why I take the glass-half-full view.

There is every evidence that Build To Let will attract institutional investment funds which will bankroll, build and then operate purpose-built blocks of ‘branded’ rental units in locations most likely to produce a good return, based on local employment, wage and demographic forecasts. These are primarily going to be London and major provincial cities.

I doubt very much that every investment fund will bother recruiting, training and manage its own staff to operate these blocks: instead they will bring in experienced letting agencies. Not the small letting agencies, I would imagine, but the mid- and large-size agencies.

So for those sectors of the agency industry at least, I can see a benefit.

But I do not foresee the smaller agencies therefore falling by the wayside – far from it, and for two reasons.

Firstly, with the legendary slowness of the UK’s planning system it will take years (and yet more years) for a Build To Let sector to become large. And there is every suggestion that as it does eventually expand, so will the demand for rental property anyway.

Secondly, where Build To Let does exist it will aim at the mid- to higher-end tenant; the bulk of renters in the rest of the private sector are likely to still rely on the properties of buy to let landlords and the agents they will use.

I can see why this scenario is not universally popular – it effectively makes individuals’ buy to let investments, and the properties let out under this umbrella, a second class kind of rental unit. I don’t disagree with that view, much as I wouldn’t want it to happen.

But even so it would mean this: that the size of this country’s growing private rental sector is so large, and growing so much, Buy To Let and Build To Let could easily co-exist.

And, if letting agents play their cards right, they could get a bite of both cherries.

This blog first appeared on the Industry Views section of Estate Agent Today and Letting Agent Today