BtR, PRS & Rooftop Housing – Exclusive Q&A With Howard Kennedy Posted on: August 31st, 2020 Following her involvement in our Housing & Build to Rent Development Conference we’ve been speaking exclusively with Shreena Avery – a Senior Associate at Howard Kennedy, one of the UK’s leading full-service law firms in the real estate industry. Q. Howard Kennedy is one of the UK’s leading full-service law firms – and one area of expertise sits within real estate. Tell us a little about the company and their role in the real estate and property sector. Howard Kennedy is a mid-sized firm right in the heart of London Bridge overlooking the Thames. It’s exciting how much Howard Kennedy has grown as a firm over the years. We are now full-service and able to offer our clients a one-stop shop approach. We assist entrepreneurial clients with starting-up their business, whether that’s looking for investment, structuring their company, protecting their IP and brand, expanding their property portfolio, ensuring they have the right employment precautions in place or preventing a costly dispute. Our real estate team is one of the largest in London and we work with clients across a full spectrum of services from development, construction and planning to financing, commercial occupation and residential sales. We have a particular focus in the current market on the Private Rented Sector and are excited to be working with more housing providers, coming together with our shared goal of reaching the “Build, Build, Build” objective set by the Government. I find what makes Howard Kennedy so distinctive is the people. The lawyers and staff are personable and friendly and I think this really comes across in our service to our clients. Client service is key to a transaction and it’s something we pride ourselves on. Q. One particular area of interest for Howard Kennedy is the Residential and PRS market. Prior to the Covid-19 outbreak the market seemed to start 2020 quite positively didn’t it? Yes it did. There were a lot of encouraging signs at the beginning of the year and the first quarter of 2020 saw a large number of BtR homes completing across the country. A study by Savills suggests that the amount of completed BtR stock increased 42% in the last 12 months (which is the largest year-on-year increase since Q4 of 2018). Q. Do you expect to see a V shape recovery in the housing market? The industry is no doubt hoping for a V shaped recovery but I think it may be too early to tell at this stage. As we know from past recessions, the residential market is usually one of the most impacted sectors. We have seen house sales grinding to a halt, a drop in prices and an increase in repossessions by lenders. However, the potential impact of Covid-19 is nothing like we have seen before. It is not like other recessions. Whilst the slowdown in the market is evident, lockdown rules have lifted and we are seeing the housing marketing open up again. And the Government’s announcement to temporarily raise the SDLT tax threshold to £500,000 until next March is a real boost to the property market, and will hopefully help struggling buyers. Q. Do you feel there is a need to make some changing to the planning system to get some of these projects on-site sooner? Yes, I do, and we have already seen some very encouraging signs from the industry since the beginning of lockdown. For example, we have seen the introduction of virtual planning committees and the introduction of a fast track deemed consent regime for applications submitted to vary construction site working hours. We’ve also seen the grant of an automatic extension (until 1 April 2021) for planning permissions that are due to expire or have expired since 23 March 2020. These changes are underpinned by the Government’s commitment to “Build, Build, Build” and to build back better. Q. PRS and BtR developments are starting to take off across the UK – what are the key drivers behind this change? The UK is playing catch up to Europe and North America when it comes to BtR, where “multifamily housing” has been established for some time. However, what’s really driving change in the UK is the demand for quality rental housing. The UK rental market has been dominated by what some may call, “unprofessional landlords”, with little or no experience in managing a residential property. Further, a large proportion of homes in the rental market were not specifically designed for renting and with renters’ needs in mind. This has resulted in tenants seeking high quality rental homes and in response to this, the BtR sector has seen phenomenal growth in the last few years and, some commentators say, has proved its resilience since the start of this pandemic. Consumers want a high quality service, on-site management, access to amenities, green space where possible and the use of shared spaces such as gyms, residents’ lounges, amongst other things. These all make their rental experience as smooth and enjoyable as possible, and this is where BtR developers can really make their mark in the housing market. Q. There has been a real focus on trying to create PRS/BtR communities full of amenities, public realm and a sustainable environment – all included in the rental cost. How important is this type of placemaking for consumers? To the extent it was not a key factor before, placemaking and community living is certainly becoming more important now, in our post-Covid world. In the earlier days of lockdown, the message was to “stay home” in order to stay safe and with many of us not being able to see family members, friends or colleagues, many felt isolated and vulnerable. Now more than ever, people need to feel part of a community and PRS and BtR developers will no doubt be focussing on designing spaces which benefit the residents and local communities and also enhance the environment in which consumers choose to live. Q. Do you see this continuing then for the long run? Absolutely – the need for placemaking and a sense of community are not a temporary response to the pandemic; these important aspects of our home and wellbeing are here to stay. Q. An area highlighted, especially in London, as being a key area to help solve the housing crisis in rooftop developments. From a legal perspective that sounds quite a difficult one – are we seeing many successful projects coming forward in this area? I work with a number of freeholders and rooftop developers and I have certainly seen a lot more interest in this area, from both sides. Freeholders are looking to extract value from their buildings and one of the ways to do this is to grant a lease of the rooftop. Developers, in turn, are looking for their next opportunity and developing rooftops, as opposed to sourcing vacant land, particularly in cities, is proving more popular. We have also seen, as part of the UK Government’s reforms to the planning system, the recent introduction of new permitted development rights which allows the construction of up to two additional storeys onto an existing residential building, subject to prior approval and certain exclusions. Whilst certain limitations will apply (such as limits on the overall height of the extended building), the move will no doubt result in an increase in rooftop developments in certain cities, where building “up” is the only option. Q. Is Covid-19 impacting larger real estate investment too – not just individual buyers? It seems at the moment that those in the real estate industry, from developers to investment firms, are scrutinising their approach and looking to take advantage of their respective expertise in order to minimise risk whilst maintaining profitability during these unpredictable times. The strategy we are seeing now from many investors is that they’ll look to use tried and tested routes rather than pursue new opportunities which are not backed up by experience. However, emerging investment trends are beginning to emerge and these are worth keeping a close eye on, healthcare and life sciences in real estate, being one. Q. What do you think the lasting impact will be of Covid-19? What’s the future landscape look like to you? Well, I think as a starting point, it has highlighted the importance of the home and the environment in which we choose to live. What this means in terms of PRS and BtR is that consumers are likely to prioritise factors that perhaps they would not have considered as being at the top of their “wish list” pre-Covid. For example, I expect we will see a greater demand for homes away from cities and a move towards the countryside, particularly for people with families. Where a move to the countryside is not practical, there will be an increased demand for homes with access to garden areas/green space. With that in mind, we may see a shift away from city centre living for some, and a move towards settling down in the outskirts of town centres. Wellbeing will play a huge role in shaping the needs of the consumer and BtR and PRS providers will need to factor that in. We will also see more people working from home. If this lockdown has shown us anything, it is that for the majority of the workforce who were forced to work away from their usual office environment, working remotely is possible (albeit it does come with challenges). Therefore, finding a home to rent with a separate area to work (a spare room or perhaps home office with desk and good Wi-Fi) will be a key factor for many. Finally, given the uncertainties that the pandemic has brought upon many in terms of income and employment, I expect we will see many consumers looking for flexibility in their tenancy agreements to allow them to terminate their agreements at relatively short notice.