Legal & General launches £600m Build to Rent partnership

Legal & General has launched a Build to Rent partnership today, announcing plans to invest £600 million in creating purpose-built rental homes in the UK.

The partnership with Dutch pension fund manager PGGM will see the FTSE 100 company, one of the biggest investors in infrastructure in the UK, turn its hand to the housing market, providing over 3,000 new homes. Unlike most developments, though, these properties will not be for sale – they will be solely for rent.

Paul Stanworth, Managing Director of Legal & General Capital, says the UK rental market is “dysfunctional”, with “ever increasing rents and increasingly poor accommodation”.

“For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock. At Legal & General we’re going to play our part by disrupting the market, and invest significant sums of long-term institutional money to build new rental housing, and develop a UK institutional rental market.”

The announcement is a sign of how much the private rented sector has grown in the UK. Around 5.4 million households (roughly one in five) are now let out to private tenants.

In America and Europe, where renting is as popular as owning, fully-fledged institutionally funded and managed rental properties have become the norm, but in the UK, private landlords have been the main driver of the rental market.

The government, meanwhile, is racing to increase the UK’s housing stock, reducing planning red tape and opening up new land for development, as well as controversially changing the Right to Buy system. At present, the country is building around half of its 250,000 annual target to meet the demand from a growing population. The rise of institutional investment could prove a significant force in boosting not just homes for sale but homes for those who cannot afford to become homeowners yet.

It occurs as the government is introducing multiple blows to smaller landlords in the form of tax hikes and additional stamp duty charges – both of which will not apply to institutional investors. Landlords have been campaigning in response to the changes, as the unfair measures prevent them from operating as normal businesses, lowering their profitability and, as a result, impacting housing supply and causing rents to rise.

Nigel Wilson, CEO of Legal & General, told BBC’s 5 Live Breakfast that their investment is the start of a wider shift.

“I think we’ll see a huge trend in more institutional money going into building private rented accommodation,” he commented.

“We’re obsessed with owning homes, we are obsessed with house price inflation and it isn’t good for society and is very poor for young people. Rental [will help] social mobility right across the country.”

Built to Rent made its first strides in the UK with the redevelopment of the London 2012 Olympic Village into private rental homes, backed by Delancey and Qatari Diar (the state’s investment arm). Delancey has since launched a joint venture with APG for a similar project in Elephant and Castle, while M&G announced its own Build to Rent project in Acton, West London, in 2014.

According to the British Property Federation, Build to Rent development remains relatively small-scale, with London dominating activity: as of October 2015, over 14,276 units are in planning, under construction or completed in the capital, compared to 7,112 in the rest of the country.

Legal & General’s first three schemes are in Walthamstow, Bristol and Salford, with Wilson promising “really competitive rents”.

Knight Frank estimates the current investment in the sector to be around £15 billion, predicting that this will increase to £50 billion by 2020.

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