As a specialist property developer and operator, Strawberry Star has managed end-to-end property services for 15 years including tenancy agreements as well as architectural and contractual specifications for buy-to-let property including management and servicing.
Building on its experience and market insights, the company launched a dedicated Build to Rent (BTR) arm, Star Living [https://www.showhouse.co.uk/news/star-living-launches-btr-arm-with-1bn-target/] , with sites in Harlow and Gravesend [https://development.whathouse.com/news/star-living-announce-gravesend/], earlier this year.
Here, Santhosh Gowda, chairman of Strawberry Star, has answered some frequently asked questions about BTR.
What is BTR – and how does it differ to the Private Rented Sector (PRS)
BTR offers purpose built rental accommodation blocks retained by the developer operator and often funded by pension funds and institutional investors. Characterised by best-in-class standards and designed specifically around renters, they are agile developments which can be easily adapted in response to market trends, customer needs and social drivers. BTR is an easily scalable alternative to the traditional Private Rented Sector (PRS) where property is owned by a landlord and leased to a tenant. According to a government report ‘A fairer private rented sector’ [https://www.gov.uk/government/publications/a-fairer-private-rented-sector/a-fairer-private-rented-sector], the PRS housed 11million people across 4.4million households, equivalent to 19% of homes, between 2020-2021. However, while the PRS is huge, the challenge lies in maintaining high-quality services, safety and innovation across such a decentralised system.
Isn’t BTR a niche sector of the housing market?
No. The BTR sector is the fastest growing in the UK residential market with a 13% growth in BTR homes that were completed, under construction or going through planning in the second quarter of 2022, according to the British Property Federation (BPF). In a short period of time, BTR has evolved from a niche offering in the UK property provision ecosystem to a mainstream residential solution characterised by low voids and demand that far outstrips supply. BTR now accounts for 40% of all new housing in London, predicted to triple in size by 2024 as the sector matures. The BPF estimates there will be 200,000 BTR homes under development in the next two years. Having shown incredibly strong resilience during an unpredictable year for the UK economy, BTR is providing an obvious quality option in this highly pressurised market.
Is there a difference in energy efficiency between the BTR and PRS sectors?
The government has set the minimum EPC threshold for a ‘C’ level by 2035 but a survey of private landlords showed only 15% met the new criteria, whereas 87% of BTR homes achieve an A-C EPC rating, according to Hamptons Research. Hamptons also said that if every household currently renting privately were to move into an equally sized purpose-built BTR home, they would save a combined total of £860million annually on utility bills (gas and electricity only) based on 2021 prices. This equated to an average saving of just under £200 per household each year.
How do the tenancy lengths differ in BTR?
BTR operators typically offer three-year contracts, some of which include 12-month break clauses. The assured shorthold tenancy can also be extended beyond that period by executing it as a deed. By contrast, typical PRS tenancy lengths vary from very short-term lets to long-term lets of a year or more.
How are BTR rents and costs determined?
BTR developments are funded by long-term capital including pension funds and institutional sources, and they are therefore less susceptible to short-term fluctuations in macroeconomic markets, including rising interest rates, than their PRS alternatives. This provides stability and certainty about the rent, costs and any subsequent increases, which are formula-linked. The Office for National Statistics (ONS) considers the threshold for affordable rent to lie at 30% of income. A study by the BPF finds that monthly rental costs for couples and sharers living in BTR pay 30%, aligning with the ONS affordability benchmark, compared to 33% of monthly income in the wider PRS. For single renters, BTR is on average fractionally more affordable than the PRS at 32% of monthly income compared to 33%.
What is included with the rent – what services and amenities are there?
The BTR rent includes more than just a home and, particularly significant during the cost-of-living crisis, often includes bills. A report last year, ‘Who Lives in Build to Rent?’ by the BPF, Dataloft, London First and the UK Apartment Association (UKAA), found 78% of schemes had a roof terrace or shared garden, 73% had a concierge, 73% had social events, 69% had parcel acceptance and storage, and 61% had a co-working space.
Building owner operators take a long-term view, investing in their developments both through accommodation maintenance and managing services such as pubs and restaurants, ensuring they are welcoming and attractive places for tenants and the wider community. Other amenities frequently on offer include gyms and workspaces while services often include broadband.
Incentives are frequently available. For example, at the Lu2on [https://www.whathouse.com/news/strawberry-star-lu2on-phase1-topping-out/ ] development, one-bed apartments come with a furniture pack worth up to £3,000. Spending between £3,000 to £15,000 on furniture is the industry average for first-time buyers. At Lu2on, there is no service charge for the first year; this covers services such as general maintenance and repairs, buildings insurance, central heating, lifts, porters, and lighting and cleaning shared areas, gardening, communal facilities, management costs, caretakers and concierges.
Can I bring my pet?
All our Star Living properties are pet friendly but that varies across operators.
Who lives in BTR homes?
BTR developments may once have been seen as the preserve of young professionals but that has changed, as demand for rental properties has grown to include a broader age range. There is a diverse collection of BTR operators in the market with different objectives and offerings. Developments, such as our Star Living homes in Harlow and Gravesend, feature professionally managed homes at different price points in the market across a mix of housing types from one-bedroom accommodation to family housing.
Is there a sense of community within BTR developments?
The BTR sector takes community building and placemaking very seriously, both within developments and in the wider public realm. The sole ownership model gives the developer-operators both the ability and the incentive to focus on community integration and at Star Living, it is at the core of our services. This in turn supports and encourages the successful delivery of regeneration programmes in local areas, such as Luton and Harlow.
Can BTR help solve the housing supply crisis?
The UK is experiencing an acute housing supply imbalance with affordability concerns particularly pronounced for first time buyers and those just entering the housing system. Consequently, demand is growing in an already competitive rental market. Given rising interest and mortgage rates, inflation, as well as the end of fiscal supports such as the Help to Buy Equity Loan scheme, the BTR market offers a solution to the supply crisis, redressing the balance which is causing an upwards pressure on rental values. Urban living is making a huge post-pandemic comeback, and BTR new build developments have the unique potential to create thriving, modern communities through innovative technology and strong estate management.
What do I need to do next?
BTR landlords aim to offer a hassle-free experience with transparent contracts, help to move and flexible-deposit options. If you decide BTR is the housing option for you, then do take the time to explore the growing number and variety of BTR development options that are proliferating across the country. A professional can help ascertain the best natural fit for you as well as guide you through opportunities and incentives. Work out your budget, including an allowance for the deposit, a month’s rent in advance and some contingency savings. While not essential, a rent guarantor can help you secure your desired property. Make sure you check your credit rating – and do everything you can to improve it – as this does have an impact, as well as references from employers and/or previous landlords.