Britain would be better off with fewer buy-to-let landlords, says L&G

Britain’s economy would be better off if it had fewer buy-to-let landlords, according to the country’s biggest investment company.

Legal and General Investment Management (LGIM) has hit out at “unscrupulous” landlords over claims many are taking people’s money and “giving them a bad experience”.

Bill Hughes, global head of real assets at L&G, is calling for a radical overhaul of the UK rental sector as he argues that too many buy-to-let landlords have been “suboptimal and substandard”.

He is spearheading L&G’s push into the build-to-rent industry, predicting that traditional landlords will gradually be replaced by purpose-built rental properties managed by institutions.

L&G, which manages nearly $1.5 trillion (£1.2 trillion) of assets, has built a portfolio of 10,000 build-to-rent homes in the least eight years, 5,000 of which are occupied.

This is the result of £3bn of investment.

Mr Hughes said the introduction of institutional investment into Britain’s rental market will help transform the sector, arguing that the economy will benefit from having fewer short-term landlords.

He said: “You have got owners of rental property who are not managing them well. Unscrupulous landlords who are taking people’s deposits and giving them a bad experience.

“We‘re here to reset standards of quality that renters should expect. That’s one of the things that institutional capital can do.

“You’re there at scale and very long-term and you know that your reputation matters so you’re not going to run the risk with it.”

Since 2015, the number of build-to-rent flats in the UK has increased more than 12-fold, growing from 7,200 to more than 90,000 today, according to JLL. A further 90,000 are in the pipeline.

However, changes to stamp duty and tax relief for buy-to-let mortgages have hit landlords’ profit margins in recent years, exacerbated by the recent influx of higher mortgage rates.

This has led to a surge in landlords selling off properties, which has driven up the cost of renting.

It emerged last month that UK rents rose at a record rate of 9.2pc in March, taking the average monthly rent across Britain to £1,200 – fuelling the country’s housing crisis.

Mr Hughes said the UK needs to construct between 30,000 and 50,000 build-to-rent homes a year to cater for growing demand, which in turn will boost productivity.

He said: “The UK needs flexible accommodation for people to come and go which allows them to move around freely and helps them to act productively with employers.”

James Stevens, head of real estate investment at Aviva Investors, added: “The standard of living generally in residential accommodation in the UK historically has been horrendously low.”

A growing push from pension funds into the rental sector comes as they shift away from traditional real estate investments, such as shopping centres, which haemorrhaged income during the pandemic.

Mr Stevens said Aviva Investors has ramped up the proportion of its real estate investments that are in residential property from 2pc to 8pc in the last four years and will likely increase this to 30pc in the next decade, with a big focus on build-to-rent.

Across the UK, he said, there will be “exponential growth” in institutional investments in building homes to rent over the next five years, particularly in properties for families.

High interest rates and construction costs meant total investment in the build-to-rent sector dipped from a peak of around £6bn in 2021 to £5bn last year.

However, investment in family-focused rental properties has increased nearly 10-fold in the last four years to more than £2bn.

Chris Norris, Policy Director for the National Residential Landlords Association, said the majority of private renters are satisfied with their accommodation and the services their landlords provide.

He said: “At a time when demand is far outstripping supply, we need more homes of all types. Whilst some of the demand for new rental properties will be met through build-to-rent schemes, it is not a panacea and should co-exist alongside buy-to-let.”