Briefing: The implications of the new policy framework on build-to-rent

The government's approach to build-to-rent homes provides opportunities to help boost housing delivery, says Melanie Leech.

Build-to-rent: sector gathering momentum
Build-to-rent: sector gathering momentum

Q What are recent revisions to policy and guidance for build-to-rent designed to achieve?

A The build-to-rent sector – which constructs new, professionally managed homes built for renters – has been growing over the past five years without any form of planning blueprint from the government, but this has now changed. Following the recently revised National Planning Policy Framework (NPPF), updated Planning Practice Guidance (PPG) on the sector  requires local planning authorities to identify their local rental housing need and explains how to treat planning applications submitted from the build-to-rent sector. The government has strengthened its position on the need for multi-tenure housing delivery, faster delivery of homes and higher density homes in the right places. Those building homes for sale won’t be able to achieve this alone – we need housing delivery firing on all cylinders. Investors and developers in build-to-rent can offer quick delivery and quality living at higher density.

How should councils go about assessing the need for rental and build-to-rent properties in their area?

The PPG states that local authorities should, as part of their plan-making process, undertake a more granular assessment of need, which considers those who wish or need to rent. Then, if there is a need for rental homes, local authorities should include a policy in their plans setting out how they will seek to promote and accommodate new ones.

What does the revised guidance say about mechanisms for ensuring long-term availability of rental properties?

The new guidance says local authorities should consider covenants that require private build-to-rent homes to be retained in the sector for a defined period, along with potential compensation mechanisms in the event that private build-to-rent homes are sold before the expiry of an agreed covenant period. However, the sale of homes from a build-to-rent development should not result in the loss of affordable housing without alternative provision being made, the guidance states.

What does the revised guidance say about affordable housing requirements?

Within a relevant build-to-rent development, as a guide, 20 per cent of the homes should be identified as affordable in the form of affordable private rent, a class of affordable housing designed specifically for the build-to-rent sector. The rent payable for these homes should also be set at a discount of 20 per cent relative to local market rents, it says. The proportion of affordable homes and the rates of discount can be varied across the development over time. The updated PPG states that build-to-rent developers should use the International Valuation Standard Committee’s definition of market rent to determine the private market rent for the area. If local authorities wish to set a different level, they will need to justify this by using evidence from their local housing needs assessment. Developers will also be able to make the case to differ from the 20 per cent benchmark, as set out in the viability guidance. It is expected that developers will meet their affordable housing requirement by providing affordable private rent homes directly. When necessary, if an agreement between the local authority and the developer can be reached, this requirement can be met by other routes including commuted payment, the details of which must be set out in a section 106 agreement.

What are the likely practical implications of the guidance for developers involved in the sector?

This formal recognition in planning policy will give investors and developers a much-needed boost to continue investing in and delivering new, high-quality rental homes. The UK needs a well-functioning housing market that meets everyone’s needs, and the build-to-rent sector is fully committed to providing long-term, family-friendly tenancies for customers who require additional security. It is funded by long-term investors, managing pensioners’ savings, and so its success is dependent on ensuring that its customers’ experience of renting is an enjoyable one.

Melanie Leech is chief executive of the British Property Federation

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