“Generation Rent”: Shaping the Future of Residential Property

June 28, 2017

Ever increasing property prices indicate that, by 2025, home ownership will be a luxury enjoyed by the minority. The future of urban living is destined to be rented, and “Generation rent” poses us with a number of significant social challenges:

  • Residential developers face the challenge of designing aspirational rental accommodation that offers premium tenant services at an affordable price point in order to ensure long-term occupancy.
  • To future-proof against long-term yield erosion, we need to develop schemes that retain their value; they need to show a deeper understanding of the needs, lifestyles and habits of their target audience in order to remain timelessly relevant.
  • Developers need to harness the sharing economy to unlock greater flexibility and value for tenants.

Official estimates by The National Housing Federation now peg the minimum salary required to buy property in London comfortably north of £100k, and up to £130k per annum. London property prices remain unaffordable for the majority – a trend that shows no sign of abating.

Perennial demand to live in and travel to the capital (be it for business or leisure), compounded by a lack of supply, has driven up asset values. The proportion of homeowners in the UK is in steady decline from about 60% in 2000, to an estimated 40% in 2025. “Generation rent” is here to stay. It is not a fleeting issue, but a deep societal shift that presents a huge set of new challenges and opportunities.

As the population grows, the future lack of housing supply is a major issue that needs to be top of the agenda today. One avenue worth exploring involves looking at how we can reinvent the current rental model with a view to unlocking long-term social value through better, more efficient resource utilisation. In fact we believe that the future of the UK’s rented sector has the sharing economy at its very heart.

What’s the role of the sharing economy?

The “homesharing” economy, epitomised by Airbnb, affords long-term tenants the ability to monetise slack capacity in their rented homes through professionally managed subletting. This ability to “claw back” money has the obvious effect of reducing the overall cost of renting (the total amount paid to rent your home), turning it into what is essentially a pay-as-you-go service. As the government wakes up to the fact that homesharing is fast becoming the new norm because it has the capacity to create significant value, we believe this will be comprehensively embraced by the industry, unlocking its true potential to shape the rental experience of the future.

Underpinning this thesis are a number of important trends:

  1. Demand for shorter, more flexible tenancies is only increasing as we become a more transient, globally mobile society.
  2. Exploding demand for Airbnb-style “homestays” is putting traditional hotels under increasing pressure – a trend that will only accelerate as this sector becomes increasingly professionalised and thus de-risking the experience for guests.
  3. Perhaps most importantly, growing demand for rental accommodation is simply not translating into higher yields for property investors.

Optimising and future-proofing the private rented sector

More and more people are obliged to rent, putting pressure on the existing supply of rental stock. Due to inflated asset prices and inefficiencies within the existing value chain, however, private rented sector (PRS) yields are actually decreasing for prime locations such as Central London – making it an unattractive market for traditional buy-to-let investors.

Consequently, the government is working hard to remedy the inevitable lack of long-term rental stock by incentivising investment in new “build-to-rent” (BTR) schemes across the country. Money is now flooding into the sector (read more on this from a recent House of Commons paper here).

Savvy build-to-rent developers will acknowledge and embrace the 3 key trends outlined above, using them to inform the design of a new wave of multipurpose housing schemes to ensure they address the needs and challenges of their target audiences – be it young professionals, key workers, students, etc. Value-added services such as professionally managed, controlled homesharing and subletting will be baked into the design of the units from inception, ensuring a frictionless, hassle-free experience for the building’s long-term tenants. This is our vision for the future of the private rented sector (PRS).

Find out more

Keen to learn how homesharing can unlock value for your development project? Contact Lavanda on 0203 859 8661 and one of our property experts can answer any questions you may have.