The great Build to Rent myth: Why millennials want to own not rent


The great Build to Rent myth: Why millennials want to own not rent

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I’ve always been jealous of millennials. Not because they are infinitely more tech savvy than me or even because they have a cool sounding name to describe themselves. My frustration with this selfie-taking generation (generally accepted to be the cohort of individuals born between the early 80’s and early 2000’s) is that the media’s constant use of the term millennial (used about 15 times per person per day in the business world of 2017) is an ongoing reminder to me that, as someone born in 1978, I just missed the cut.

Imagine my excitement then when I recently discovered that a sociologist just coined the term ‘Xennial’ (those born between 1977 and 1983) to describe the micro-generation that serves as the bridge between the disaffection of Generation X and the blithe optimism of millennials…either way I just edged it!

Whilst the assignment of these titles to each generation may be useful to sociologists, they are manna from heaven for manufacturers, retailers and marketers selling everything from smart phones to skinny jeans too lazy to unpick this amorphous demographic.

One such bunch that is no less keen to jump on the millennial bandwagon is the build to rent sector which has rightly identified a ready-made consumer for its product.

Young, economically mobile, light on possessions and unburdened by trivial things like savings…. the millennial is firmly in the sights of build to rent owners and operators throughout the UK.

There is a narrative doing the rounds in our sector that ‘generation rent’, as we like to call them, do not wish to own their own home. Millennials, we are told, belong to the sharing economy. They use Uber instead of owning cars, Airbnb instead of staying in hotels. Why would they want something as old fashioned as a mortgage?

Our industry often looks to the North American multifamily sector for inspiration. Yet if The American Dream is homeownership, then why do 35% of its population rent? If an Englishman’s home is his castle, then why is the private rented sector the fastest growing tenure in the UK? Why has the PRS doubled in size over the last 20 years? Why do PwC think that 1 in 4 households in the UK will be privately rented by 2025?

Is it because those millennials seeking shelter no longer value security of tenure or the opportunity for tax free capital gains on their primary residences?

Of course not! The simple truth is that the UK does not build enough homes. For decades, the UK government has outsourced the housing of its population to the private sector and the private sector has failed to deliver. This acute shortage of housing has had an amplifying effect on house prices which are no longer correlated to earnings or wage inflation. Thus anyone not lucky enough to be a Baby Boomer, Generation X or have a credit line from the ‘bank of mum and dad’ has no option but to rent.

This supply demand imbalance is what underpins the institutional drive into the build to rent sector but we should continue to learn the lessons from North America. In the run-up to the Global Financial Crisis, lending standards were lowered and credit was loose. 100% LTV mortgages were commonplace and people who had rented their whole lives were suddenly able to fulfil their American Dream and become the home owners they had always aspired to.

The multifamily industry suffered as their customers left the sector in droves, pushing down rents in the process as home ownership benefited at the expense of the rental apartment business. Of course, we all know how that story ended but what is less well known is that the US apartment sector was the last into the recession and the first out.

The defensive countercyclical nature of the asset class makes it well positioned to withstand economic shocks. As the shine of home ownership dimmed, residents returned to the rental sector once again, remembering the professionalism and customer service that is now standard across the business.

As the UK build to rent sector takes off, we would do well to remember that renting may not always be our customers default choice. Do the basics right, maintain your buildings, keep your rents affordable and most of all… look after your residents.


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