The term ‘build to rent’ refers to a type of home that is built exclusively for rental purposes.
This type of structure focuses attention on the owner and the user. In other words, the private space (the home) tends to be smaller, two or three rooms, while common areas and services (gyms, cleaning and laundry rooms, and co-working or co-living spaces) play a more important role, their design being adapted to the tenants’ needs for the best experience possible.
This trend has already gone mainstream in other parts of the world, such as the United States or Northern European countries, where the population is more familiar with living in rented accommodation.
Until now, this was often understood to be a matter of culture: ownership vs. use. Today, it is balancing itself out mainly due to this kind of trend that perfectly matches a lifestyle more focused on ‘pay to use’, disassociating itself from the ‘mere ownership effect’.
However, as shown in the graph below, there are countries (for example, Spain) where there is still a long way to go. The imbalance between supply and demand has caused this trend to take hold in Spain in a striking way.
according to Concha Osácar, founding partner of the investment management firm Azora, to achieve the infrastructure that responds to the needs of the population, i.e., affordable rent prices,
2.5 Million rental homes would be needed in Spain to avoid price tensions, which represents an investment of 300 billion euros that the public sector cannot achieve unilaterally.
Through this process, Spain could achieve the European rental levels, which represent about 34% of housing, while this figure is currently 21% in Spain, showing the road ahead in this market.
The debate generated around rent prices in certain areas, especially in large cities and their suburbs, raises the dilemma between buying or renting. Due to the high rent prices in some areas, many people are rethinking whether to buy or rent, despite the expenses, taxes and possible future costs normally associated with owning their own home.
According to a report published by the consulting firm Savills Aguirre Newman, in Europe, 26.3% of rented households use at least 40% of their income to pay rent. In Spain, as shown in the graph below, 42% of the population shares the same effort rate.
One of the causes of this situation in Spain is the lack of a professionalized rental market – 95% of the supply comes from individuals who own one or two homes.
First, this will increase the supply and avoid market tensions by balancing, to a certain extent, supply and demand.
Second, the professionalization of the industry will allow companies to take advantage of economies of scale and contribute to achieving more accessible rent prices.
And, finally, it will improve the quality of services in terms of facilities, maintenance, etc., because there will be more competition and it will no longer be in the hands of private owners.
Both the public and private sector agree that the solution, developed as part of the Ministry of Public Works’ 2018-2011 State Housing Plan, lies in reactivating the real estate sector through the construction of buildings that serve exclusively as rental accommodation.
It is also a solution for the tourism-focused demand. Given the strong impact of tourism on the Iberian Peninsula’s economy, expanding the rental housing stock would have similar benefits.
Buildings serving entirely as rental accommodation are an excellent option that combine short and medium-term stays. This way, they can be used for both residential and tourist rentals.
The primary beneficiary will be the citizen, given that, through the professionalization of the rental market, this investment is destined to build entire buildings made up of rental units, therefore increasing the supply and improving market efficiency, which will also bring more accessible prices as well as far more comprehensive services.
Finally, although these all seem like large figures and, therefore, inaccessible to private investors, beyond the improvement of the rental housing stock that, as mentioned before, will benefit the ordinary citizen, there are several firms that allow participation in these projects from a private investment perspective. This way, the circle is closed, and it can be said that multiple groups in society will benefit. Perhaps that is the cause of the build-to-rent fever in Spain.