Private and Institutional landlords will need to be alert to the changes

Private and Institutional landlords will need to be alert to the changes

Amidst the Covid recovery, enduring Brexit impacts, and a shambolic attempt to deliver effective government, 2022 was a year of real change for the real estate industry.–2023 looks like it will be more of the same. Landlords have been in the government crosshairs for some time now, and the reappointment of Michael Gove means that won’t be slowing down soon. Both the Rental Reform Bill and implementation of the Building Safety Act are the centrepieces of a man on a mission - both private and institutional landlords will need to be alert to the changes that lie ahead. 

The enforcement of the Building Safety Act was the watershed moment of last year. Corporate landlords have been forced to dip into sinking funds or adjust spending plans for future schemes merely to contend with the raft of new safety measures in front of them. The Fire Safety Act will also see buildings subjected to intense safety criteria, with regular inspections for cladding, doors, balconies, insulation, and other common equipment such as firefighting lifts to ensure they are meeting new standards.  

There will need to be capital commitments for both, else occupancy levels, values and portfolio performance are at risk. The government’s proposal to mandate second staircases for new buildings above 11m illustrates that further safety measures will surface in 2023. Landlords must be generous with the size of contingency budgets when mapping out project costs and viability, to safeguard against any rabbits pulled out the hat during a development’s planning journey, given that building regulations are more likely than ever to change.  Landlords – commercial and residential – will need to achieve a minimum band EPC before April 2023. This will mark the beginning of the next round of EPC regulations, with fines of up to £150,000 for non-compliance.

Buy-to-let Fixation

The media has been awash with discussion of what this means for buy-to-let (BTL) landlords, a fixation which fails to recognise that old offices, ageing dilapidated industrial sheds and much of the purpose-built student accommodation (PBSA) legacy stock the UK is renowned for, face the same test. EPC demands in residential won’t be such bad news for the growing single-family housing rental sector, particularly for investors and managers acquiring existing stock, who can reap the benefits of the BTL exodus. Expensive EPC upgrades, high interest rates, and a hostile policy landscape are driving landlords out en masse, and those looking to build institutional grade portfolios through a strategy of aggregation can exploit the proceeds of these fire sales.

The Build to Rent sector will also benefit from a shrinking private rented sector, as well as additional demand from would-be first-time buyers deciding to wait for the housing market to fall. A continuing surge in renters is assured. The professional rental sector will have its own challenges to face, however. Abolishing Section 21 evictions is still very much on the cards–and is part of a Rental Reform Bill which includes rent review clauses, where landlords can only increase rents once per year. This could be further compounded by rent controls of some description if the cost-of-living crisis continues and Sadiq Khan remains galvanised by the actions of the SNP. There is a feeling that the introduction of a Labour government renders controls an inevitability in one way or another.  

The good news for institutional landlords is that the sheer strength and volume of demand drivers in the rental market are an effective counterforce to a punitive policy landscape. The transformation of a rental market, where poor build quality, poor management, and value for money have been thrown into the spotlight, is well underway. The growth of the single-family housing sector, which complements the mature multifamily market, as well as co-living and senior-living, is evidence that institutionally backed operational housing is in high demand.

Target audiences are growing by geography, age and salary, with these sectors becoming increasingly universal in their appeal. Operational strategies are becoming more sophisticated, and consumers are waking up to the benefits of professional rental living, with Build to Rent alone set to reach 380,000 homes by 2032, says the BPF and Savills–a fivefold increase. It’s now up to investors to balance their caution with a recognition of the opportunity that lies ahead.