The UK faces a well-documented housing shortage, and to address this, the government has pledged to deliver 1.5 million new homes during this Parliament.
However, the scale of the challenge is daunting; even the Housing Minister recently admitted to the Housing, Communities, and Local Government Committee that the target is ‘more difficult than we expected’.
Savills reports that only 231,100 new homes were completed last year – a 9% drop from 2022. To put this in perspective, the UK hasn't reached 300,000 annual completions since 1977, much of which was driven by council and housing association builds.
This stark shortfall highlights the urgent need for innovative approaches to not only increase housing supply but also ensure we can absorb it effectively. So, how do we square the circle? There's no single solution to solving the UK's housing crisis.
To make meaningful progress in addressing the deficit, we must rethink how we stimulate demand alongside increasing supply. The Government is taking steps in the right direction with planning reforms, such as updates to the National Planning Policy Framework, which are critical to unlocking supply.
Housebuilders have welcomed these reforms – many even advocating for quicker and more ambitious changes. However, the reality is that no housebuilder will construct homes if there's insufficient demand to sell them.
This demand-side issue has received little attention but is essential if we want to effectively absorb the scale of homebuilding needed. We need to think differently.
Treasury is unlikely to launch a large-scale stimulus programme to incentivise first-time buyers – and arguably shouldn't. Instead, we need creative private market solutions to re-engage young people who have been excluded from the homeownership market. While it may seem counterintuitive, the growing single-family rental (SFR) sector doesn't have to focus exclusively on rental-only products.
A more diversified mix of tenures can enhance the SFH landscape, creating additionality and expanding access to this critical housing stock. On the purely rental side, players like Kennedy Wilson and Greykite are making significant and growing investment commitments, which is encouraging for increasing supply.
Their involvement demonstrates institutional capital's appetite for the sector. This is where innovative aggregation models like rent-to-own provide a promising solution. By leveraging pent-up consumer demand, these models can accelerate housing production while offering a compelling pathway to bridge the gap between renting and homeownership.
The rent-to-own model creates an alternative route to ownership for those who currently face barriers to entry, particularly first-time buyers struggling with deposit savings. With 52% of first-time buyers citing deposit savings as their biggest hurdle, rent-to-own allows them to save for their deposit and build their credit while living in the home they plan to own.
By fixing cash flow requirements – both rent and savings contributions – it provides a structured and achievable path to homeownership through a standard mortgage, typically within three to five years.
Rent-to-own as a concept is not new; several housing associations have run similar programmes for years, though many transition into shared ownership rather than a more efficient mortgage-backed ownership structure.
What's changing now is the influx of private capital, which is uniquely positioned to accelerate the adoption of rent-to-own as a viable pathway to homeownership.
As institutional investors increasingly look to the residential sector, rent-to-own offers an attractive investment opportunity, combining strong social impact with environmental credentials when purchasing new builds.
This alignment is no more evident than for the pension investment community, which represent tens of millions of members across the UK. With many younger members struggling to access homeownership, pension investors, encouraged by recent reforms, have an exciting opportunity to invest more of their member's pension contributions locally, creating better access to homeownership while fostering vibrant, resilient local economies.
If we're serious about solving the UK's housing crisis, we need to focus on both supply and demand. Building more homes is essential, but equally important is ensuring that these homes meet the needs of a diverse range of buyers.
Rent-to-own is just one example of the kind of innovative thinking we need to adopt to achieve this. By providing new pathways to ownership, we can unlock demand, support housebuilders, attract institutional investment, and create a more equitable and sustainable housing market.
This article was first published by BTR News.