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BTR – A Data Driven Check-Up

Consistently attracting and retaining customers is the core requirement for the financial success of the BTR business model. Although the BTR sector has shown promise at attracting new customers, the ongoing challenge faced by providers is the requirement to continually evolve their housing services to repeatedly position themselves ahead of the market as the most attractive accommodation option in the customer's eye. This is no small challenge. Providers are tasked with continually out-innovating more traditional housing alternatives such as private rentals, other BTR accommodation providers and even against the British dream of homeownership, to provide more appealing housing services for the marketplace.

 

The best way for BTR providers to stay ahead of competitors and ensure long term financial success is to focus efforts on providing home environments that are designed and operated specifically to improve occupants quality of life, so the longer occupants reside, the happier, healthier and better wellbeing they experience.

 

By focusing on designing and operating homes for a better quality of life, the outcomes ensure prospective occupants are more likely to be attracted to and reside for a longer period; resulting in greater market demand and happier long term residents that lead to better operational and financial portfolio performance.

 

How Can Homes Be Designed and Operated to Improve Occupant Quality of Life?

 

The answer is Data.

 

Most BTR providers actively capture portfolio data which is a fantastic first step. However, through the application of Data Science Analysis, BTR providers can further capitalise on these efforts with a far deeper understanding of how the design and operation of their properties directly influence the health, wellbeing and quality of life of their occupants over time.

 

When empowered with higher quality Data evidence, BTR providers can better leverage information from their existing properties, extracting aspects most positively associated with better customer health and wellbeing so every future new build development is scientifically proven to perform better than the last.

 

Why is Data Science needed in Property?

 

Because Data Science is one of the most accurate forms of scientific methodologies available, it provides high quality, low bias evidence that enable better portfolio decisions to be made. Due to the reliability of the information, Data Science is the process used by evidence-based professions such as the medical, fitness and nutritional industries whereby every decision, recommendation or intervention made is based on a robust body of evidence, derived from Data Science Analysis.

 

The consistently accurate decision making in these industries is reliant on the quality of the data supporting it, therefore having the highest quality evidence base possible is critical to their long term success. As the operational and financial success of BTR providers is also reliant on consistently accurate decision making, having the highest quality evidence base available to support decision-makers is vital to continually attract new customers by outpacing competitor housing alternatives.

 

Why is it important to measure the correlation between homes and occupant quality of life?

 

The true performance of any product or service is how does the product or service (variable 1)  influence the health and wellbeing (variable 2) of the consumer over time. In the evidence-based medical, fitness and nutritional industries, the success of every prescription, exercise or diet plan is measured against how it influences the patient’s health and wellbeing.

 

The true performance of the property is no different. Having an accurate identifier for the exact design and operational aspects which provide the greatest positive and negative impacts on occupant quality of life is incredibly powerful. This not only provides a better understanding of what benefits the customer but identifies the exact service aspects which improve operational performance so money can be better invested for greater returns.

 

 

But what does Data Science Analysis identify that normal data capture does not?

 

Data science is the process of measuring the strong correlation between 2 variables to identify a relationship, therefore it is possible to quantify how any portfolio aspect influences another.

 

For example, accurately identifying the specific building, property type, size, layout or location of properties that have the best quality of life outcomes. Understanding how specification levels, window sizes, storage or security in homes influences anxiety, stress, relaxation or calmness. Or even how the housing management team relations, building communal spaces, community feel and neighbourly interactions impact occupant health and wellbeing over time.

 

This evidence is powerful but becomes truly transformative for BTR providers when analysed alongside the operational and financial portfolio performance data, quantifying how the positive and negative health impacts, directly influence the financial performance over 1, 2, 10 or even a 30 year period.

 

Therefore, Data Science provides complete portfolio clarity as to what delivers best value and benefit to occupants and what doesn’t, so operational spending and new build investment can be streamlined for greater operational and financial benefit.

 

 

Geraghty Taylor and LifeProven have recently collaborated to use Data Science Analysis to deliver Evidence-Based Property Consultancy Services (architecture, cost and project management) to help BTR providers deliver better homes with greater accuracy and confidence.

 

 

Create Differently

 

#BTR  #BuildtoRent  #Brand  #Brandbeforebuilding

Will BTR Deliver on Latham’s 1994 Report?

Delivering BTR Through Collaborative Procurement

 

A successful BTR scheme is more than its asset or income value. As important as these business values are, they are not a complete value picture. To ensure revenue and value is optimised and sustainable what needs to be added is a strong value proposition for BTR customers. The characteristics of this offer will differentiate you from your competitors and also provide you with ‘tools’ to evolve your offer to meet changing customer needs.

 

At Geraghty Taylor we use brand as a dynamic collaboration and communication model (partly inspired by Latham) that accurately captures all the inputs that need to be part of well thought through BTR offer. As a methodology ‘brand before building’ describes the important drivers, relationships and outcomes which underpin all design, development and operational decisions for a project. In this context the brand is an ‘interactive detailed briefing document’ that moves the proposition from a business to business dynamic, to a business to customer relationship. In doing so it goes well beyond the usual parameters of a traditional development brief to include current and future operational requirements, how technology will be deployed, the customer experience evolution, design flexibility and futureproofing requirements, revenue and exit strategies, through to marketing and sales collateral.  It calls for a new approach to development, where the building is a derivative of the brand (and not the other way round) and it is created through curated collaboration between key stake holders from the onset.

 

Collaboration is not new, but it continually evolves. BTR is uniquely placed to oversee the next iteration of collaborative procurement and to harness its powerful outputs to make decisions that improve value and reduce risk.

 

What is collaborative procurement?

 

Sir Michael Latham, in his seminal 1994 report ‘Constructing the Team’[1] set out 5 key principles for collaborative procurement as follows: -

 

  1. ‘A specific duty for all parties to deal fairly with each other, and with their subcontractors,

specialists and suppliers, in an atmosphere of mutual cooperation’ [2]

 

  1. ‘Clearly defined work stages, including milestones or other forms of activity schedule’[3]

 

  1. ‘Integration of the work of designers and specialists’[4]

 

  1. ‘A ‘specific and formal partnering agreement’ that is ‘not limited to a particular project’[5]

 

  1. ‘Partnering arrangements that ‘include mutually agreed and measurable targets for

productivity improvements’ [6]

 

How is collaborative procurement relevant to BTR projects?

 

By analysing the specific characteristics of a BTR project against the criteria above it is possible to deduce whether collaborative procurement could be of benefit as follows: -

 

What are the next steps for using collaborative procurement for BTR projects?

 

  1. The delivery phase a BTR development represents a comparatively small portion of the overall expenditure by the BTR developer on the scheme over the lifetime that it holds the asset; typically 30 years. It is therefore important that the design and construction teams work closely together to avoid short-sighted cost savings which may cause the BTR developer to incur increased operational or maintenance costs throughout the life of the asset. Moreover, there is a need for the design and construction teams to work closely with the BTR operator who will manage the development on a day-to-day basis to ensure that scheme is optimized for the efficient operation of the development. Collaborative procurement could help create obligations for the design, construction and operations teams to work together for the long-term benefit of the asset. The BTR developer may also consider that they would not have realised all of their profit from the scheme by the end of the limitation period, typically 12 years after practical completion, of the designers’ and constructors’ appointments so a situation may arise where there is a defect detected in the scheme that affects profitability but the BTR developer has more limited options for recourse. Consequently, it is important that all members of the delivery team work together collaboratively in the BTR developer’s interest to avoid issues occurring.

 

  1. It is important that all stakeholders in the project review and sign-off the proposals as they progress at relevant milestones in the knowledge that rather than the asset being sold at completion it will instead be retained. It is consequently especially important that the proposals are tested that they will deliver expected returns over an extended lifespan. This review process would benefit from the input of the wider design and construction team as well as the BTR developer and their advisers so that it can occur in an atmosphere where the priorities of the overall project and business priorities of the individual contributing organisations are aligned.

 

  1. BTR developers as experienced commercial clients are likely to have specific products that they favour through their own first-hand experience in operating BTR schemes. There will be a desire that the design team works with these specialists through the design process to ensure the design meets client requirements and also to minimize re-design at a later stage. However, there will be little incentive aside from the potential promise of an order for the specialist to help the designers in a typical lump sum contracting scenario. This is particularly relevant where off-site and modern methods of construction is being contemplated where the input of the specialist at an early stage is crucially important.

 

  1. It is likely that a BTR developer will not have only one project in mind and their business model will likely involve a programme of projects. Consequently, there can be benefits of lessons learnt on one project being fed into the next with consistent design and delivery teams selected from a pool that have been determined to possess the necessary qualities and have an established working relationship.

 

  1. As BTR projects generally involve the long-term retention of an asset then how this asset performs over time with respect to maintenance and operational efficiency can be measured and fed back to the original design and construction team. A clear incentive for providing an asset that meets the BTR developers aspirations for annual operating costs for example which be the offer to contribute to future projects.

 

What are the next steps for using collaborative procurement for BTR projects?

 

The BTR developer should assess the different contract forms available and how these support the aims set out above. For example the BTR developer could set up a framework of suppliers which it uses to build up knowledge of BTR delivery and drive best practice from which individual projects are called off. There could be a case for a multi-party contract where all members of the team have obligations to each other to meet the overall project goal with governance structures to suit.

 

Create Differently

 

#BTR  #BuildtoRent #Brand  #Brandbeforebuilding

 

 

[1]Latham, M. (1994). Constructing The Team; Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry; Final Report (London: Department of the Environment)

[2]Latham, M. (1994), Section 5.18.1.

[3]Latham, M. (1994), Section 5.17, 4.a.

[4]Latham, M. (1994), Section 4.3.

[5]Latham, M. (1994), Section 6.43.

[6]Latham, M. (1994), Section 6.47.

 

With thanks to Daniel Sharp, Senior Quantity Surveyor at Kier Construction, for collaborating in writing this article.

 

 

 

 

BTR: Power to the people

The British Property Federation has estimated that there is 148,046 build to rent units either completed or planned across the UK – a rough breakdown is 34,840 completed, 35,760 under construction, and a further 77,446 with planning permission. This is a substantial addition to the UK’s housing stock, but unlike BTS or traditional PRS models, BTR needs a completely different operational infrastructure.

 

Based on comprehensive experience in the market, Property Recruitment Company has a  formula of 1 employee for every 60 units. Working with this figure, they estimate that there will be a need for over 2500 hires in building operations alone, and that is on the basis of every organisation having a 100% retention rate. To this ends, attraction and retention are going to be of crucial focus for the sector.

 

The operations of a BTR development are crucial to its success and engaged motivated staff are paramount to those operations. There is little point creating fantastic, enticing offerings if they are ultimately poorly staffed by people who are unmotivated. BTR customers increasingly expect greater levels of service, and the optimal running of these services is one of the key factors that is critical in keeping block retention high.

 

To get an insight into their employment journeys so far, Property Recruitment Company, surveyed candidates who have entered the BTR sector at an operational level within the last two years. Below are some of their key findings.

 

86% of employees see themselves working in the BTR sector for at least the next two years

81% Were satisfied by their company’s induction and onboarding

75% Also agreed that the role was what they expected

53% of respondents do not have a clear progression plan

 

Their research suggests that at the moment adequate resources are being put in place to onboard staff, but transparency around career progression needs serious improvement.  They also looked at similar sectors to understand why career progression plans are important and in a survey they conducted with operational employees within the PBSA sector, the biggest reason employees left their current employer was lack of career progression.

 

So, what advice would they give to anyone that will be operating assets within this sector?

 

PROTECT YOUR BRAND – It is surprising how much employers invest in their brand to appeal to customers but don’t connect that job applicants are also their customers. Be clear on your attraction strategy, values and vision, as outside of the conference venue the wider employment market is still very unaware of the great potential career in BTR can provide. Also, for every person who is offered employment there are many more who applied but didn’t make the shortlist, or those that were successful through the interview process, but ultimately were not offered positions. Every step of the process needs to be a positive one as the old adage is still the same: that bad experiences tend to be spoken about more than the good and in a world of online reviews this cannot be taken lightly.  Lastly, ensure you educate and trust your supply chain who are your some of your most important brand managers. This aligns with Geraghty Taylors Brand-Before-Building methodology which focuses on the essential elements of the brand in the design planning stage, building it into the project from the very start.

 

ONBOARDING – Never underestimate the power of a structured onboarding programme.  As a sector, BTR is experiencing record numbers of candidates entering with non-property related backgrounds and with this will come new ideas and innovation, but also a responsibility to educate and alleviate the fear of the unknown. Onboarding should not be perceived as what happens on the first day of employment alone, but instead, from the moment you have found your new employee, it should be a continuous journey.  Ensure there is constant engagement throughout the time from offer to start. Simple things such as site days, team interactions, company educational documents will reap huge reward, comfort and satisfaction.

 

CAREER PROGRESSION – Previous surveys across property classes have suggested that organisations struggle to present operational staff with career progression routes. Even though the route may initially seem unclear, not everything has to be fixed around the next job title people are going to secure. The feedback received is that candidates are happy to be patient providing their skills can be recognised. Ensure you are constantly reviewing your employees, providing training, benefits, work-life balance, corporate social responsibility and internal/ external award recognition.

 

In conclusion, the next few years will see unprecedented levels of employment within the BTR sector and with that will come unique challenges, but many of these can be mitigated through preparation and understanding of your attraction and retention policies. Get your staffing right and the rewards will follow. 

 

Geraghty Taylor understands that good design and customer experience are the source of your revenue, and good staffing is the cornerstone of good customer experience. Looking after the staff who look after your customers is the easiest way to protect your asset and is therefore integral to the success of every BTR development.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

Thank you to Kevin Redman from Property Recruitment Company for his expert collaboration on this article.

Delivering on the Promise

Since the BTR market emerged, much lip-service has been paid to the overriding importance of customer experience and service.  It is now great to see that, as an industry, it appears to be delivering on its promises by creating many happy BTR customers.  These same customers are also scoring their experiences more highly than their counterparts who rent their apartment from private landlords in schemes built for sale.  These are the striking findings of the just-released HomeViews Insights 2019 National Build to Rent Report.

 

Launched in February 2019, HomeViews are like the TripAdvisor for new residential developments in the UK.  TripAdvisor have nurtured our growing appetite for independent reviews of hotels, restaurants, activities and attractions. They now boast an archive with a staggering 760 million reviews and opinions with something like 300 new ones being added every minute.  HomeViews are a welcome addition to the fabric of the BTR market offering occupiers the opportunity to review and rate the developments they live in.  This survey draws on over 5,000 reviews from private rental tenants including those in 84 occupied BTR schemes across the UK.  Residents are invited to rate a number of factors relating to Design, Facilities, Location, Value for Money and Management.

 

Do these reviews matter? In the States, research has shown that 70% of renters decided to visit properties with higher reputation scores and 73% said that reviews had influenced their decision to rent.

 

BTR rated higher than BTS (Build to Sell) in every category.

 

The eye-catching result of the Survey is that BTR occupiers have rated their rented residences in these purpose-built schemes more highly than their apartment-renting counterparts in buildings where the units have been privately sold (BTS), in ALL of the rating categories.

 

* All scores are out of 5

 

A BTR resident’s review for The Trilogy in Manchester says it all; “This experience blows my previous rental experience out of the water! It’s everything I could have asked for and more.”

 

And the apartment owners themselves are less satisfied with the post-purchase service they receive than their renters. Whilst 92% of those in BTR homes would recommend their landlord only 80% of owners would recommend their developer and those that let out their flat themselves get a lower vote of confidence from their tenants at 89%, below the BTR operators.

 

 

BTR is leading in resident experience

 

It is in the sphere of customer service and maintenance where BTR eclipses the experience of New Build owners. 

 

 

 

But is great customer experience ubiquitous?

 

Looking at the Overall Star rating, BTR has a significant advantage over BTS.

 

 

 

Over two thirds of BTR developments have a Star Rating of over 4 out of 5 on HomeViews but clearly some are achieving below average. This information will be available in their Full report to be published later this month.

 

The biggest differentiator between BTR and BTS occupiers, though, is registered in Building Maintenance with a difference of 0.43.  This is where great operators make their mark.

 

 

But it isn’t all a perfect picture for BTR. As HomeViews say, “with 10 of the 84 developments receiving a management rating of 3 or below. However, 26 developments are delivering an incredible building management service and have been rated 4.5 and above.  These include schemes managed by Allsop, Essential Living, Fizzy Living, Way of Life, Greystar, be:here and Legal & General.”

 

.....and great experience is national

 

It is interesting to see that great BTR is far from London-centric.  When comparing the average ratings and scores from BTR tenants living in the regions to London, the regions scored higher on every rating.

 

 

The top 5 developments in Manchester are all BTR schemes with The Trilogy topping the list. Looking at the top 10 BTR schemes nationally, 4 are in London, 3 in Manchester and one each in Birmingham, Liverpool and Newcastle.

 

Maybe Urbanbubble’s Michael Howard had the answer yesterday at the UKAA Annual Conference? In his inimitable style, he said that maybe the occupiers in Liverpool and Manchester have lower expectations, “they’re just happy that the loos are inside the house, not outside!”

 

Location really is a key factor for BTR

 

Maybe one of the advantages regional cities offer their customers is superb location, close to the town centre, an easy walk to work and proximity to great recreation.  This is harder in a city the size of London where local suburban centre amenities become more important.

 

So who is leading the pack in terms of customer satisfaction?

 

HomeViews estimate that the 84 schemes reviewed in the report represent 30% of currently occupied BTR developments and have 34 different developer/operators across 8 cities. At this early stage, there will be well known schemes and operators missing from the review.

 

The Trilogy in Manchester, operated by Allsop tops the list of places to rent in the survey.  In second place is The Cargo Building in Liverpool operated by Savills.  Coming in third is Dressage Court in London operated by Essential Living.

 

Other operators featuring in the winners list include Greystar, Legal & General, Fizzy Living, be:here, Get Living and Tipi as well as Way of Life,  JLL, Grainger and Uncle in the regions.

 

The report is a great read and a very valuable contribution to the sector’s understanding of its own business.  Congratulations to Rory and Hannah at HomeViews.

 

Geraghty Taylor has been at the forefront of identifying and distilling the factors that truly differentiate BTR from other rental propositions.  It is great to see that customers really do appreciate those differences and are happy to pay to access them.  We know that this is an ever-evolving sector and to get your ratings high up the HomeViews chart you will need to continually innovate in your new builds and re-engineer your older product.  We look forward to continuing to help lead in this “Ratings” battle.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

If you work within the property industry and would like more information on HomeViews contact: Rory Cramer Rory@homeviews.com

 

For more information on marketing and reports from HomeViews contact: Hannah Marsh Hannah@homeviews.com

 

 

 

Since the BTR market emerged, much lip-service has been paid to the overriding importance of customer experience and service.  It is now great to see that, as an industry, it appears to be delivering on its promises by creating many happy BTR customers.  These same customers are also scoring their experiences more highly than their counterparts who rent their apartment from private landlords in schemes built for sale.  These are the striking findings of the just-released HomeViews Insights 2019 National Build to Rent Report.

 

Launched in February 2019, HomeViews are like the TripAdvisor for new residential developments in the UK.  TripAdvisor have nurtured our growing appetite for independent reviews of hotels, restaurants, activities and attractions. They now boast an archive with a staggering 760 million reviews and opinions with something like 300 new ones being added every minute.  HomeViews are a welcome addition to the fabric of the BTR market offering occupiers the opportunity to review and rate the developments they live in.  This survey draws on over 5,000 reviews from private rental tenants including those in 84 occupied BTR schemes across the UK.  Residents are invited to rate a number of factors relating to Design, Facilities, Location, Value for Money and Management.

 

Do these reviews matter? In the States, research has shown that 70% of renters decided to visit properties with higher reputation scores and 73% said that reviews had influenced their decision to rent.

 

BTR rated higher than BTS (Build to Sell) in every category.

 

The eye-catching result of the Survey is that BTR occupiers have rated their rented residences in these purpose-built schemes more highly than their apartment-renting counterparts in buildings where the units have been privately sold (BTS), in ALL of the rating categories.

 

* All scores are out of 5
* Click images to enlarge

 

A BTR resident’s review for The Trilogy in Manchester says it all; “This experience blows my previous rental experience out of the water! It’s everything I could have asked for and more.”

 

And the apartment owners themselves are less satisfied with the post-purchase service they receive than their renters. Whilst 92% of those in BTR homes would recommend their landlord only 80% of owners would recommend their developer and those that let out their flat themselves get a lower vote of confidence from their tenants at 89%, below the BTR operators.

 

 

BTR is leading in resident experience

 

It is in the sphere of customer service and maintenance where BTR eclipses the experience of New Build owners. 

 

 

 

But is great customer experience ubiquitous?

 

Looking at the Overall Star rating, BTR has a significant advantage over BTS.

 

 

 

Over two thirds of BTR developments have a Star Rating of over 4 out of 5 on HomeViews but clearly some are achieving below average. This information will be available in their Full report to be published later this month.

 

The biggest differentiator between BTR and BTS occupiers, though, is registered in Building Maintenance with a difference of 0.43.  This is where great operators make their mark.

 

 

But it isn’t all a perfect picture for BTR. As HomeViews say, “with 10 of the 84 developments receiving a management rating of 3 or below. However, 26 developments are delivering an incredible building management service and have been rated 4.5 and above.  These include schemes managed by Allsop, Essential Living, Fizzy Living, Way of Life, Greystar, be:here and Legal & General.”

 

.....and great experience is national

 

It is interesting to see that great BTR is far from London-centric.  When comparing the average ratings and scores from BTR tenants living in the regions to London, the regions scored higher on every rating.

 

 

The top 5 developments in Manchester are all BTR schemes with The Trilogy topping the list. Looking at the top 10 BTR schemes nationally, 4 are in London, 3 in Manchester and one each in Birmingham, Liverpool and Newcastle.

 

Maybe Urbanbubble’s Michael Howard had the answer yesterday at the UKAA Annual Conference? In his inimitable style, he said that maybe the occupiers in Liverpool and Manchester have lower expectations, “they’re just happy that the loos are inside the house, not outside!”

 

Location really is a key factor for BTR

 

Maybe one of the advantages regional cities offer their customers is superb location, close to the town centre, an easy walk to work and proximity to great recreation.  This is harder in a city the size of London where local suburban centre amenities become more important.

 

So who is leading the pack in terms of customer satisfaction?

 

HomeViews estimate that the 84 schemes reviewed in the report represent 30% of currently occupied BTR developments and have 34 different developer/operators across 8 cities. At this early stage, there will be well known schemes and operators missing from the review.

 

The Trilogy in Manchester, operated by Allsop tops the list of places to rent in the survey.  In second place is The Cargo Building in Liverpool operated by Savills.  Coming in third is Dressage Court in London operated by Essential Living.

 

Other operators featuring in the winners list include Greystar, Legal & General, Fizzy Living, be:here, Get Living and Tipi as well as Way of Life,  JLL, Grainger and Uncle in the regions.

 

The report is a great read and a very valuable contribution to the sector’s understanding of its own business.  Congratulations to Rory and Hannah at HomeViews.

 

Geraghty Taylor has been at the forefront of identifying and distilling the factors that truly differentiate BTR from other rental propositions.  It is great to see that customers really do appreciate those differences and are happy to pay to access them.  We know that this is an ever-evolving sector and to get your ratings high up the HomeViews chart you will need to continually innovate in your new builds and re-engineer your older product.  We look forward to continuing to help lead in this “Ratings” battle.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

If you work within the property industry and would like more information on HomeViews contact: Rory Cramer Rory@homeviews.com

 

For more information on marketing and reports from HomeViews contact: Hannah Marsh Hannah@homeviews.com

 

 

 

Renting For Life

An investment opportunity not to be missed!

 

Imagine, if you will, the average Brit being approached in the street by someone offering an amazing investment opportunity that has apparently worked for thousands in the past. It could make you a small fortune and give you enough money to retire on. And it’s not Bitcoin.

 

But to participate you have to invest the lion's share of your life's savings and take out the biggest loan you can afford on your current income to invest in the scheme. You won't receive any income or dividend from this investment and your success depends on you personally selling the investment at a profit in the future. Of course, he goes on to explain that your investment is at risk if values go down. In fact, you could lose the whole investment and ruin your credit rating but at least your other assets are safe (unlike in America!) Oh, and the name of this investment is a mortgage or "death pledge" as it translates in old Norman legal French from where it originates. Appealing?

 

You can just imagine the pennywise British queuing up for this investment can't you? Well we did! In fact by 2003, over 70% of the British population lived in a home that was secured on such a mortgage.

 

There’s money in property

 

Clearly something was driving this stampede towards the biggest financial risk that the majority of those involved had ever taken on in their lives.

 

The answer, we are reliably informed by Dr. Mark Andrew of Cass Business School, is explained by the Standard Housing Arbitrage Condition formula; see if you can spot it.

 

UCC=(1-θ)r+δ+tc+pt–phe+λ/μ

Where the user cost of owning a house (UCC) is determined by:

 

  •  r = mortgage interest rate [+]
  •  δ = depreciation/maintenance expenditure rate [+]
  •  θ = housing mortgage subsidies / tax breaks[-]
  •  pt = property tax rate [+/-]
  •  tc = annualised transactions costs [+]
  •  λ/μ = credit market constraints [+]
  • phe = expected (housing) nominal rate of capital gains [-] where (phe = ge + π) and

                       o π = general inflation rate [-]
                       o ge = expected (housing) real rate of capital gains [-]

 

Did you spot it? It is the phe bit- in particular ge. Put into layman’s language it means that the imputed costs of owning a house are significantly influenced by the expectation of capital appreciation or as we said above, the chances of selling “at a profit in the future”.

 

The vast majority viewed the likelihood of house prices going up as pretty assured and this would have been based on what they, and their parents, had experienced themselves. Thus the cost of owning, albeit often initially higher in actual terms, was seen as far better than renting because of the hoped-for investment gains.

 

 

Take a look at this chart of house price inflation from Nationwide. For a prolonged period from post war to 1989 prices had risen steadily. There was a fall and stagnation through the early 1990’s following recession (which partly put to bed the long vaunted idea that residential values never fall) but this then fuelled the huge growth through to 2007.

 

So this expectation of a significant investment return, over and above the simple utility of having a place to live, coloured decision making throughout the last 50 years. John German at Invesco has often said that their research shows the residential rental market to be quite rational but that the residential capital market has the ability to defy logic at times, often when phe is coming in to play.

 

Take the recent situation where many Central London schemes were valued at a level that means the rent achievable equated to a yield of maybe less than 2.5%, but canny BTR operators would not bid much below 4.5% for similar property in the location. John’s theory suggests the rent being paid is properly reflecting the location and quality of the apartment but its price is putting a serious premium on its value as an investment. Clearly other factors like phe come in to play compounded by the influence of foreign investors seeing it as a store of wealth and using different target rates, borrowing rates and even currency gambles.

 

So why the rise in renting – is it just a reaction to those high prices?

 

Renting as a choice is on the rise. Consultants PwC argue that there will be a shift in London from 60/40 in favour of owning in the year 2000 to 60/40 in favour of renting by 2025.

High prices clearly play an important part, probably best indicated by this chart of Affordability taking into account the cost of buying a house and household income. Whilst at a high level, the market is not at an extreme so there are clear secular trends at play.

 

 

These underlying trends are powerful. Society, especially in developed countries, is changing from a materialist to experiential consumer; it is not about owning things but about great experiences. If renting means I can afford to live in a better apartment than the one that I can afford to buy, why wouldn’t I make that choice? We have embraced the sharing economy and are now more comfortable to share with people rather than own in everything from music and videos through to cars and workspace. This has brought a willingness to have amenity outside the confines of our own living space and has allowed us to trade “space for place” so that one advantage of not owning might be the ability to rent a smaller apartment in a far more attractive location.

 

The search for experience and flexibility to work remotely has created the digital nomad or even the “figital” nomad as my typo just delivered! Someone who is willing to take, or maybe even searching for, opportunities to work in different locations, unencumbered by ownership.

 

On top of these, add a general urbanisation of the population with a new found desire to live centrally in cities rather than the earlier drift to the suburbs and rural areas driven both by the positives of more access to experience through culture and entertainment and the avoidance of a long and tiresome commute. The sea-change in demographics that is delivering a population that is no longer dominated by family units with a number of kids but now has over two-thirds of households without children and many more single occupiers both young and old.

 

This is delivering a consumer base that requires a whole lot more choice than the conventional volume-built family home and whose predisposition to the mortgage is far from guaranteed.

 

Renting for Life

 

So what can rental markets offer? In essence, a solution for life; both in terms of space that can suit the wants and needs of individuals at all stages of their life and in terms of the style of life they may wish to follow.

 

Purpose-built student housing is now a recognised part of the property landscape. Colleges often supplement their own stock with direct relationships with independent operators. The standard of accommodation is good and rent is often higher than an equivalent room in a shared house. Higher quality options with larger room sizes and more amenity are common, usually chasing wealthier older or foreign students.

 

Bolstered by this positive experience, students will naturally consider extending their stay of tenure in the collegiate style and look at co-living options. These offer very small apartments but considerable shared amenity space in central locations where the development of strong community in the schemes is actively promoted. Operators like The Collective have proved that this kind of offer has wide appeal across the age groups, not just the young.

 

The next progression is to the Build to Rent market. We now change from rooms to units ranging from studios to 4-bed apartments able to accommodate individuals, sharers and families. Whilst many originally envisaged these only suiting Millennials, the experience of the earlier operators has shown that BTR has wide appeal across age groups and interestingly has attracted many ”millennial-minded” older people. In the States, the market has developed the idea of age-restricted multifamily schemes to appeal to those that prefer the idea of a scheme designed to the needs of their generation. In reality, the typology of the building is pretty similar but the amenity component can be increased and charged for and maybe additional sensing can be built in to monitor the health of individual residents.

 

There is an argument that suburban semi offers a better solution to many bringing up families where the private garden, greater space and independent living is preferable. Maybe, but these families can now take advantage of new villages provided by innovative operators like Sigma Capital Group who have delivered nearly 5,000 family units through the PRS REIT plc.

 

 

Geraghty Taylor has created a very adaptable solution for the next-generation family home called LivinHome.

The concept is simple; a typology which can accommodate different lifestyle requirements through flexible and adaptable design. On a conventional basis, the home “chassis” can deliver a home for a small family with a connected rental unit. As the family grows, the rental unit is taken in for bedroom space but as the family matures and kids move out it may be re-configured to house elderly family members moving in. All of this achievable over a weekend! The BTR industry is fascinated by the application of this design to help de-risk unit mix decisions where these are no longer literally set in concrete on day one but can adapt to the experience of marketing and to changes in the market over time.

 

The next step from suburban BTR might be back in to its urban counterpart as the children move away. Or it could be a first step onto the Senior Living continuum. In America, AEW’s Research team have set out a “Continuum of Care” which stretches from age-restricted multifamily through Independent Living and Assisted Living to Memory Care and Nursing Care. The provision of new senior housing has overtaken nursing care provision and the general picture is one of providing desirable facilities for active seniors. They identify that 13% of USA’s 80+ population are occupying independent living or assisted living in private paying accommodation and why wouldn’t they when amenity in the building can represent as much as 30% of the floors space and include several high class restaurants, fitness facilities and almost certainly a bar to cater for their life-long passion for a drink.

 

This compares to less than 5% of the UK’s 80+s where the attitude is to avoid care at all cost. Just to match the US percentage, we would need to build 260,000+ units. But the number of seniors over 85 is set to treble over the next 30 years so there is a clear need for new rental solutions.

 

Where does the value lie?

 

Delivering a product that meets the wants and needs of the occupier, whatever age, is the key to creating happy customers. Flexibility of approach and provision of new and changing amenity as needs evolve is essential for retention, as well as maintaining income in a competitive consumer market. Has the nascent UK industry really embraced the fact that creating this user experience is where value lies and not in the physical asset itself?

 

Modern data capture and use of clever Proptech can inform the owner about the use of the building and help with adaptation and changes as long as the original structure is flexible enough to allow this.

 

So what have we lost by ditching the mortgage?

 

To come back to where we started, the case for renting to achieve “a life less ordinary” has been argued strongly but won’t we miss out financially?

As a renter you will retain your large deposit and possibly have some extra income that would have funded the higher mortgage cost to rent a better experience or invest. This can go in to the wider investment market or maybe into assets offering the old-world appeal of property.

There is no reason why a Sigma Capital occupier should not invest that deposit in the shares of the UK PRS REIT. This would offer exposure to a wider portfolio of assets just like the home they occupy. We may in the future see scheme-specific offerings through new exchanges like IPSX.

 

Operators themselves may bring forward clever schemes related to their own buildings to help with funding and to deliver a sense of ownership without losing any management control.

 

Maybe even clever futures products could deliver the income and capital gain from a house price index to retail customers, similar to those available to institutional investors on the Nationwide index.

 

An Englishman’s home can still be his castle; he just doesn’t have to own it anymore.

 

 

Geraghty Taylor creates differently and inventively develops new products to meet changing market requirements.

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

An investment opportunity not to be missed!

 

Imagine, if you will, the average Brit being approached in the street by someone offering an amazing investment opportunity that has apparently worked for thousands in the past. It could make you a small fortune and give you enough money to retire on. And it’s not Bitcoin!

 

But to participate you have to invest the lion's share of your life's savings and take out the biggest loan you can afford on your current income to invest in the scheme. You won't receive any income or dividend from this investment and your success depends on you personally selling the investment at a profit in the future. Of course, he goes on to explain that your investment is at risk if values go down. In fact, you could lose the whole investment and ruin your credit rating but at least your other assets are safe (unlike in America!) Oh, and the name of this investment is a mortgage or "death pledge" as it translates in old Norman legal French from where it originates. Appealing?

 

You can just imagine the pennywise British queuing up for this investment can't you? Well we did! In fact by 2003, over 70% of the British population lived in a home that was secured on such a mortgage.

 

There’s money in property

 

Clearly something was driving this stampede towards the biggest financial risk that the majority of those involved had ever taken on in their lives.

 

The answer, we are reliably informed by Dr. Mark Andrew of Cass Business School, is explained by the Standard Housing Arbitrage Condition formula; see if you can spot it.

 

UCC=(1-θ)r+δ+tc+pt–phe+λ/μ

Where the user cost of owning a house (UCC) is determined by:

 

  •  r = mortgage interest rate [+]
  •  δ = depreciation/maintenance expenditure rate [+]
  •  θ = housing mortgage subsidies / tax breaks[-]
  •  pt = property tax rate [+/-]
  •  tc = annualised transactions costs [+]
  •  λ/μ = credit market constraints [+]
  • phe = expected (housing) nominal rate of capital gains [-] where (phe = ge + π) and

                       o π = general inflation rate [-]
                       o ge = expected (housing) real rate of capital gains [-]

 

Did you spot it? It is the phe bit- in particular ge. Put into layman’s language it means that the imputed costs of owning a house are significantly influenced by the expectation of capital appreciation or as we said above, the chances of selling “at a profit in the future”.

 

The vast majority viewed the likelihood of house prices going up as pretty assured and this would have been based on what they, and their parents, had experienced themselves. Thus the cost of owning, albeit often initially higher in actual terms, was seen as far better than renting because of the hoped-for investment gains.

 

 

Take a look at this chart of house price inflation from Nationwide. For a prolonged period from post war to 1989 prices had risen steadily. There was a fall and stagnation through the early 1990’s following recession (which partly put to bed the long vaunted idea that residential values never fall) but this then fuelled the huge growth through to 2007.

 

So this expectation of a significant investment return, over and above the simple utility of having a place to live, coloured decision making throughout the last 50 years. John German at Invesco has often said that their research shows the residential rental market to be quite rational but that the residential capital market has the ability to defy logic at times, often when phe is coming in to play.

 

The recent situation where many Central London schemes were valued at a level that means the rent achievable equated to a yield of maybe less than 2.5%, but canny BTR operators would not bid much below 4.5% for similar property in the location. John’s theory suggests the rent being paid is properly reflecting the location and quality of the apartment but its price is putting a serious premium on its value as an investment. Clearly other factors like phe come in to play compounded by the influence of foreign investors seeing it as a store of wealth and using different target rates, borrowing rates and even currency gambles.

 

So why the rise in renting – is it just a reaction to those high prices?

 

Renting as a choice is on the rise. Consultants PwC argue that there will be a shift in London from 60/40 in favour of owning in the year 2000 to 60/40 in favour of renting by 2025.

High prices clearly play an important part, probably best indicated by this chart of Affordability taking into account the cost of buying a house and household income. Whilst at a high level, the market is not at an extreme so there are clear secular trends at play.

 

 

These underlying trends are powerful. Society, especially in developed countries, is changing from a materialist to experiential consumer; it is not about owning things but about great experiences. If renting means I can afford to live in a better apartment than the one that I can afford to buy, why wouldn’t I make that choice? We have embraced the sharing economy and are now more comfortable to share with people rather than own in everything from music and videos through to cars and workspace. This has brought a willingness to have amenity outside the confines of our own living space and has allowed us to trade “space for place” so that one advantage of not owning might be the ability to rent a smaller apartment in a far more attractive location.

 

The search for experience and flexibility to work remotely has created the digital nomad or even the “figital” nomad as my typo just delivered! Someone who is willing to take, or maybe even searching for, opportunities to work in different locations, unencumbered by ownership.

 

On top of these, add a general urbanisation of the population with a new found desire to live centrally in cities rather than the earlier drift to the suburbs and rural areas driven both by the positives of more access to experience through culture and entertainment and the avoidance of a long and tiresome commute. And remember the sea-change in demographics that is delivering a population that is no longer dominated by family units with a number of kids but now has over two-thirds of households without children and many more single occupiers both young and old.

 

This is delivering a consumer base that requires a whole lot more choice than the conventional volume-built family home and whose predisposition to the mortgage is far from guaranteed.

 

Renting for Life

 

So what can rental markets offer? In essence, a solution for life; both in terms of space that can suit the wants and needs of individuals at all stages of their life and in terms of the style of life they may wish to follow.

 

Purpose-built student housing is now a recognised part of the property landscape. Colleges often supplement their own stock with direct relationships with independent operators. The standard of accommodation is good and rent is often higher than an equivalent room in a shared house. Higher quality options with larger room sizes and more amenity are common, usually chasing wealthier older or foreign students.

 

Bolstered by this positive experience, students will naturally consider extending their stay of tenure in the collegiate style and look at co-living options. These offer very small apartments but considerable shared amenity space in central locations where the development of strong community in the schemes is actively promoted. Operators like The Collective have proved that this kind of offer has wide appeal across the age groups, not just the young.

 

The next progression is to the Build to Rent market. We now change from rooms to units ranging from studios to 4-bed apartments able to accommodate individuals, sharers and families. Whilst many originally envisaged these only suiting Millennials, the experience of the earlier operators has shown that BTR has wide appeal across age groups and interestingly has attracted many ”millennial-minded” older people. In the States, the market has developed the idea of age-restricted multifamily schemes to appeal to those that prefer the idea of a scheme designed to the needs of their generation. In reality, the typology of the building is pretty similar but the amenity component can be increased and charged for and maybe additional sensing can be built in to monitor the health of individual residents.

 

There is an argument that the suburban semi offers a better solution to many bringing up families where the private garden, greater space and independent living is preferable. Maybe, but these families can now take advantage of new villages provided by innovative operators like Sigma Capital Group who have delivered nearly 5,000 family units through the PRS REIT plc.

 

 

Geraghty Taylor has created a very adaptable solution for the next-generation family home called LivinHome.

The concept is simple; a typology which can accommodate different lifestyle requirements through flexible and adaptable design. On a conventional basis, the home “chassis” can deliver a home for a small family with a connected rental unit. As the family grows, the rental unit is taken in for bedroom space but as the family matures and kids move out it may be re-configured to house elderly family members moving in. All of this achievable over a weekend. The BTR industry is fascinated by the application of this design, helping tp de-risk unit mix decisions where these are no longer literally set in concrete on day one, but can adapt to the experience of marketing and to changes in the market over time.

 

The next step from suburban BTR might be back in to its urban counterpart as the children move away. Or it could be a first step onto the Senior Living continuum. In America, AEW’s Research team have set out a “Continuum of Care” which stretches from age-restricted multifamily through Independent Living and Assisted Living to Memory Care and Nursing Care. The provision of new senior housing has overtaken nursing care provision and the general picture is one of providing desirable facilities for active seniors. They identify that 13% of USA’s 80+ population are occupying independent living or assisted living in private paying accommodation and why wouldn’t they when amenity in the building can represent as much as 30% of the floors space and include several high class restaurants, fitness facilities and almost certainly a bar to cater for their life-long passion for a drink.

 

This compares to less than 5% of the UK’s 80+s where the attitude is to avoid care at all cost. Just to match the US percentage, we would need to build 260,000+ units. But the number of seniors over 85 is set to treble over the next 30 years so there is a clear need for new rental solutions.

 

Where does the value lie?

 

Delivering a product that meets the wants and needs of the occupier, whatever age, is the key to creating happy customers. Flexibility of approach and provision of new and changing amenity as needs evolve is essential for retention, as well as maintaining income in a competitive consumer market. Has the nascent UK industry really embraced the fact that creating this user experience is where value lies and not in the physical asset itself?

 

Modern data capture and use of clever Proptech can inform the owner about the use of the building and help with adaptation and changes as long as the original structure is flexible enough to allow this.

 

So what have we lost by ditching the mortgage?

 

To come back to where we started, the case for renting to achieve “a life less ordinary” has been argued strongly but won’t we miss out financially?

Well, remember, as a renter you will retain your large deposit and possibly have some extra income that would have funded the higher mortgage cost to rent a better experience or invest. This can go in to the wider investment market or maybe into assets offering the old-world appeal of property.

There is no reason why a Sigma Capital occupier should not invest that deposit in the shares of the UK PRS REIT. This would offer exposure to a wider portfolio of assets just like the home they occupy. We may in the future see scheme-specific offerings through new exchanges like IPSX.

 

Operators themselves may bring forward clever schemes related to their own buildings to help with funding and to deliver a sense of ownership without losing any management control.

 

Maybe even clever futures products could deliver the income and capital gain from a house price index to retail customers, similar to those available to institutional investors on the Nationwide index.

 

An Englishman’s home can still be his castle; he just doesn’t have to own it anymore.

 

 

Geraghty Taylor creates differently and inventively develops new products to meet changing market requirements.

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding