Over the past twelve months, there has been significant coverage regarding the increasing cost of rents and the limited availability of rental properties. As interest rates rise, many private landlords are leaving the market because rental yields haven't kept pace with these increases, making it financially challenging to cover mortgage payments, see our blog here. As a result, additional supply in the rental market from private landlords seems unlikely, which could pave the way for the more long-term focused Build-to-Rent sector to fill the gap.
Many companies and public bodies rely on rental price indices to inform their substantial investment decisions. However, a problem arises when local indices are created without accounting for the extensive growth of Build-to-Rent properties in an area, resulting in a skewed and inaccurate representation of rent performance. In this article, we will explore why this issue occurs and how Bricks&Logic is striving to provide the most precise local market data available to combat this problem effectively.
Over the past twelve months, there has been significant coverage regarding the increasing cost of rents and the limited availability of rental properties. As interest rates rise, many private landlords are leaving the market because rental yields haven't kept pace with these increases, making it financially challenging to cover mortgage payments, see our blog here. As a result, additional supply in the rental market from private landlords seems unlikely, which could pave the way for the more long-term focused Build-to-Rent sector to fill the gap.
Many companies and public bodies rely on rental price indices to inform their substantial investment decisions. However, a problem arises when local indices are created without accounting for the extensive growth of Build-to-Rent properties in an area, resulting in a skewed and inaccurate representation of rent performance. In this article, we will explore why this issue occurs and how Bricks&Logic is striving to provide the most precise local market data available to combat this problem effectively.
The most common type of Build-to-Rent (BtR) development in the UK typically consists of purpose-built apartment complexes. These developments often feature a range of apartments of various sizes and configurations, designed specifically for long-term rental. They are constructed with the needs and preferences of renters in mind and may include amenities such as communal spaces, gyms, on-site management, and other services to enhance the rental experience.
These BtR apartment complexes are commonly found in urban areas with high demand for rental housing, such as major cities like London, Manchester, and Birmingham. They cater to a wide range of renters, including young professionals, families, and individuals seeking quality rental accommodations with professional management and modern amenities.
While BtR apartment complexes are the most prevalent type of BtR development in the UK, there can also be variations in the form of BtR houses or mixed-use developments that combine residential units with commercial or retail spaces. However, purpose-built rental apartment complexes remain the dominant and most recognizable form of BtR development in the UK's housing market.
The most common type of Build-to-Rent (BtR) development in the UK typically consists of purpose-built apartment complexes. These developments often feature a range of apartments of various sizes and configurations, designed specifically for long-term rental. They are constructed with the needs and preferences of renters in mind and may include amenities such as communal spaces, gyms, on-site management, and other services to enhance the rental experience.
These BtR apartment complexes are commonly found in urban areas with high demand for rental housing, such as major cities like London, Manchester, and Birmingham. They cater to a wide range of renters, including young professionals, families, and individuals seeking quality rental accommodations with professional management and modern amenities.
While BtR apartment complexes are the most prevalent type of BtR development in the UK, there can also be variations in the form of BtR houses or mixed-use developments that combine residential units with commercial or retail spaces. However, purpose-built rental apartment complexes remain the dominant and most recognizable form of BtR development in the UK's housing market.
According to the British Property Federation, there are currently 253,402 Build-to-Rent homes in the UK, encompassing both London and regional areas. Among these, 88,100 are already completed, 53,487 are under construction, and 111,815 are in the planning phase.
Considering that there are currently 4.6 million privately rented homes in the UK, the BtR sector is poised for significant growth, increasing its share from just under 2% to nearly 6% in the coming years. This growth will be especially pronounced in urban areas where BtR developments are concentrated. Notably, in Q1 2023, BtR schemes accounted for almost half of all new housing sales in the capital, according to data from Molior.
According to the British Property Federation, there are currently 253,402 Build-to-Rent homes in the UK, encompassing both London and regional areas. Among these, 88,100 are already completed, 53,487 are under construction, and 111,815 are in the planning phase.
Considering that there are currently 4.6 million privately rented homes in the UK, the BtR sector is poised for significant growth, increasing its share from just under 2% to nearly 6% in the coming years. This growth will be especially pronounced in urban areas where BtR developments are concentrated. Notably, in Q1 2023, BtR schemes accounted for almost half of all new housing sales in the capital, according to data from Molior.
At Bricks&Logic, we've extensively discussed our innovative approach to house price indices, which is detailed in this blog. The fundamental concept to grasp is that most indices concentrate on specific geographical regions and calculate the average property prices within those regions over defined time periods, typically on a monthly basis.
This calculation takes various property attributes into account, such as the number of bedrooms. For instance, if a 4-bedroom property is sold, the index adjusts to accommodate the expectation that this property should command a higher price compared to a 2-bedroom property.
While sale price indices are more common, rental indices face unique challenges due to the absence of a public register documenting actual rental prices, akin to the land registry for sale prices. Consequently, the majority of rental indices rely on averaging listing prices.
At Bricks&Logic, we've extensively discussed our innovative approach to house price indices, which is detailed in this blog. The fundamental concept to grasp is that most indices concentrate on specific geographical regions and calculate the average property prices within those regions over defined time periods, typically on a monthly basis.
This calculation takes various property attributes into account, such as the number of bedrooms. For instance, if a 4-bedroom property is sold, the index adjusts to accommodate the expectation that this property should command a higher price compared to a 2-bedroom property.
While sale price indices are more common, rental indices face unique challenges due to the absence of a public register documenting actual rental prices, akin to the land registry for sale prices. Consequently, the majority of rental indices rely on averaging listing prices.
As previously mentioned, when analysing how listing prices change over time to create an index, property attributes are usually considered.
However, what's more challenging to account for is the "location and type" of the property. For example, Build-to-Rent (BtR) properties tend to fall in the upper value range of properties in the local area. They offer numerous amenities, are exceptionally new with brand new kitchens and bathrooms, and are situated in urban areas with proximity to job opportunities for professionals. All of these factors contribute to a higher-than-average rental price for these properties in the area.
Therefore, as an increasing proportion of these types of properties enters the rental market in relation to the total available rental stock, failing to account for this change can result in the misleading appearance of rising average rental prices when, in fact, it is the composition of the average rental stock that is evolving.
As previously mentioned, when analysing how listing prices change over time to create an index, property attributes are usually considered.
However, what's more challenging to account for is the "location and type" of the property. For example, Build-to-Rent (BtR) properties tend to fall in the upper value range of properties in the local area. They offer numerous amenities, are exceptionally new with brand new kitchens and bathrooms, and are situated in urban areas with proximity to job opportunities for professionals. All of these factors contribute to a higher-than-average rental price for these properties in the area.
Therefore, as an increasing proportion of these types of properties enters the rental market in relation to the total available rental stock, failing to account for this change can result in the misleading appearance of rising average rental prices when, in fact, it is the composition of the average rental stock that is evolving.
A prime example of this phenomenon can be observed in Manchester, where nearly 9,000 Build-to-Rent (BtR) apartments have been completed since 2018. At Bricks&Logic, we collaborate with Estate Agents to not only gather listing data but also acquire a more comprehensive breakdown of property attributes, location, and the achieved rental prices. Our process involves in-depth analysis that factors in property location and type, enabling us to construct a bottom-up, like-for-like index comparison.
Chart 01 illustrates the median listing price of rental properties in Manchester compared to what we calculate to be the evolving rental value of all properties in the city. It's evident that the average listing price has increased at a significantly higher rate than the Bricks&Logic rental index suggests when considering the achieved price and property type included in these listings.
A prime example of this phenomenon can be observed in Manchester, where nearly 9,000 Build-to-Rent (BtR) apartments have been completed since 2018. At Bricks&Logic, we collaborate with Estate Agents to not only gather listing data but also acquire a more comprehensive breakdown of property attributes, location, and the achieved rental prices. Our process involves in-depth analysis that factors in property location and type, enabling us to construct a bottom-up, like-for-like index comparison.
Chart 01 illustrates the median listing price of rental properties in Manchester compared to what we calculate to be the evolving rental value of all properties in the city. It's evident that the average listing price has increased at a significantly higher rate than the Bricks&Logic rental index suggests when considering the achieved price and property type included in these listings.
As BtR developments are becoming increasingly prevalent, rental price indices face challenges, especially in accounting for BtR properties. These indices often rely on averaging listing prices, which may not accurately represent the evolving rental market, particularly in urban areas where BtR developments are concentrated.
Bricks&Logic addresses this issue by capturing detailed data on property attributes and achieved rental prices, allowing for a more accurate and comprehensive analysis to create precise rental indices that account for changing property types and locations, ultimately providing a more accurate picture of the rental market.
If you would like to find out more the services that Bricks&Logic provide then please contact us at contact@bricksandlogic.com
As BtR developments are becoming increasingly prevalent, rental price indices face challenges, especially in accounting for BtR properties. These indices often rely on averaging listing prices, which may not accurately represent the evolving rental market, particularly in urban areas where BtR developments are concentrated.
Bricks&Logic addresses this issue by capturing detailed data on property attributes and achieved rental prices, allowing for a more accurate and comprehensive analysis to create precise rental indices that account for changing property types and locations, ultimately providing a more accurate picture of the rental market.
If you would like to find out more the services that Bricks&Logic provide then please contact us at contact@bricksandlogic.com
