What is Single Family Housing?
by Anna MacDonald, Consultant at SAY
Single Family Housing (SFH) is becoming one of the UK’s fastest-growing asset classes, with several prominent industry names announcing their entrance into the sector. At SAY, we have seen a huge upturn in interest in Single Family Housing but what exactly is Single Family Housing and what should those looking to enter the market consider?
SFH provides high-quality rental accommodation in suburban areas. The schemes usually comprise two to four-bedroom houses or low-rise apartments and are usually part of a wider mixed-use development, creating communities close to public transport, schools and areas of employment. Unlike urban Build to Rent (BTR), SFH schemes usually have minimal onsite amenities including a limited onsite staff presence.
The current suburban rental market is almost entirely supplied through traditional Buy to Let (BTL) properties, opening up a market opportunity for institutional investment. Around 60% of Private Rented Sector (PRS) households are based in suburban areas, with most of these households residing in houses, not apartments.
The pandemic and the increase in hybrid working has encouraged people to reassess their living arrangements. Many renters are looking to suburban areas for more space, a home office or study, gardens, and outdoor space.
The changes to the Help to Buy scheme which saw regional price caps introduced and restrictions to first-time buyers, also provides an opportunity with Single Family Housing helping to replace the demand for stock when these changes come into place.
This demand in the market is supported by current portfolios already in a steady state. In January 2021, BTR News reported on Gate House announcing the sale of its Thistles Portfolio to Goldman Sachs. The portfolio was at 99.8% occupancy with rental collection rates around 98% consistently.
There are several operational benefits associated with SFH. Firstly, longer tenancies and fewer voids are attainable whereby families living in SFH are less transient as they are tied to the property where their children have secured a place at the local school. As there are fewer onsite amenities and onsite staff, these schemes generally have a lower gross to net leakage than urban BTR schemes.
Utilising modern methods of construction such as modular, helps to speed up the return on investment and permits investors to deliver standardisation across the product specification. Furthermore, modular construction can allow for projects to be delivered quickly and can help contribute to ESG objectives whilst constructing lower carbon homes.
As with all investment there are some nuances to Single Family Housing. It is important that SFH is providing additionality, as opposed to taking away existing housing stock which was intended for home ownership, particularly where there is a current lack of stock available for purchase. Research demonstrates that there does not appear to be any current planning restrictions, however reducing the risk of government restrictions is important for SFH. This includes highlighting the benefits and security provided from having an institutional landlord.
There is an optimal investment gap for Single Family Housing. The rental values need to accurately reflect the scheme’s location, so that values can be set high enough to ensure the scheme is producing viable yields. However, the capital value of the properties cannot be too high or they are better placed as a for-sale product. If the values are set too low then fewer people will be looking to rent as they would be able to benefit from buying.
As with many urban BTR products which were originally designed as a for-sale product, investors must consider all aspects of the properties’ specification to ensure that it is fit for purpose when retaining the asset. This includes ensuring that the properties do not need to be retrofitted and there are no maintenance aspects which are going to cause increased operational costs.
Single Family Housing is still in its infancy but with the increasing number of investors entering the market, it is only going to expand and become more sophisticated.
For more information about Single Family Housing and SAY’s services, please contact Anna by emailing firstname.lastname@example.org