Corporate landlords are building more homes, but they cannot replace private landlords

The latest agreement between Gleeson Homes and Lloyds Living will deliver another 104 private rental homes across two developments in the Midlands. The properties will be built at Hollinwell Heath in Kirkby-in-Ashfield and Watermills in Apedale, near Newcastle-under-Lyme, with a mixture of two, three and four-bedroom houses intended to appeal mainly to couples and families.

This is positive news for the housing market. Britain needs more homes of every tenure, and there is no sensible reason to object to institutional investors putting capital into modern, energy-efficient rental housing. The partnership gives Lloyds Living access to a pipeline of newly built homes while providing Gleeson with greater certainty over sales, construction schedules and cashflow.

The concern is not that Lloyds Living is building rental homes, nor that corporate landlords are competing unfairly with smaller landlords. The more serious concern is that politicians may look at transactions such as this and persuade themselves that institutional investment can replace the private landlords who are steadily reducing their portfolios or leaving the market altogether.

The evidence suggests that it cannot. The difference in scale is enormous, corporate investment is concentrated in a relatively narrow range of properties and locations, and the disappearance of established rental homes could have consequences that extend well beyond rents and housing availability. It could also make it harder for people to move for work and for employers to recruit the staff they need.

What Lloyds Living is actually buying

Lloyds Living is not searching property portals, attending auctions or competing with individual landlords to buy existing terraced houses, flats and suburban semis. It is agreeing to acquire a substantial number of new homes directly from a housebuilder, with the purchases being arranged while construction is still under way.

That is a very different investment model from the one followed by most private landlords. Gleeson is building two large mixed-tenure developments and Lloyds Living has agreed to purchase 104 of the homes for private rent. Across Hollinwell Heath and Watermills, more than 500 properties are expected to be delivered in total, which means the Lloyds Living transaction represents roughly one-fifth of the combined development programme rather than the acquisition of two complete estates.

The commercial attractions are straightforward. Gleeson secures a committed buyer for a significant number of homes without having to wait for 104 separate purchasers to reserve properties, obtain mortgages and complete individual transactions. This reduces sales risk, provides more predictable cashflow and may allow construction to proceed more quickly than it would if every home depended on the pace of open-market demand.

Lloyds Living benefits from acquiring groups of similar properties in the same locations. The houses will be new, built to modern energy-efficiency standards and likely to have fewer immediate maintenance problems than older housing stock. Their concentration also makes them easier to manage at scale than hundreds of unrelated properties spread across different towns and neighbourhoods.

There is nothing inherently threatening to private landlords in that arrangement. Most landlords are not in a position to negotiate for 50 or 100 partially constructed homes from a national housebuilder, and many would have no desire to do so. The two models operate in different acquisition markets, although they will compete to some extent once the homes are completed and offered to tenants.

Institutional investment should be welcomed

Property118 has consistently argued that the country needs more homes. Institutional capital can help to deliver them, particularly where a housebuilder wants certainty over future sales or needs a large purchaser to support the pace of construction.

Corporate landlords can also bring benefits for tenants. A newly built home should be cheaper to heat than much of the existing rental stock, while a large operator can offer centralised repairs, consistent processes and professional management. Some tenants will prefer the reassurance of dealing with a recognised organisation rather than an individual landlord, particularly if they expect to remain in the home for several years.

It would therefore be wrong to treat the Gleeson and Lloyds Living agreement as evidence of corporate landlords pushing traditional landlords aside. These are new homes being delivered through a bulk arrangement with a developer, not a corporate investor buying up a street of existing properties and displacing local purchasers.

The policy risk lies elsewhere. Institutional investment is increasingly spoken about as though it provides an answer to the contraction of the traditional private rented sector. Announcements involving hundreds of homes create the impression that large organisations are rapidly stepping in to replace the supply being lost as smaller landlords sell, but the numbers do not support that conclusion.

The scale of the problem is being understated

The latest Property118 Landlord Sentiment Survey received responses from 2,096 landlords and showed a substantial imbalance between those planning to invest and those expecting to reduce their exposure to the sector.

During the previous two years, 40.2% of respondents had reduced the size of their portfolios, while only 6% had increased them. Looking ahead, 67.7% expected to sell at least some properties or leave the sector entirely over the following three years, compared with only 9.5% who expected to buy more. More than a quarter of respondents, 27.1%, believed they were most likely to exit completely.

The survey should not be presented as a precise forecast of how every landlord in Britain will behave. It reflects the views of Property118 readers who chose to participate, rather than a statistically weighted sample of the entire private rented sector. Even with that qualification, the direction of travel is difficult to dismiss, particularly because the results are consistent with what landlords, agents and tenants are reporting across the country.

The typical survey respondent owned five rental properties. On that basis, the whole of Lloyds Living’s latest 104-home agreement is equivalent to the combined portfolios of approximately 21 typical respondents.

If 21 established landlords each dispose of five properties, the addition represented by this entire corporate transaction could be offset. Some of the properties they sell may be bought by other landlords and remain available to tenants, but others will be sold with vacant possession to owner-occupiers. The homes do not disappear from the national housing stock, but they do disappear from the supply of properties available to rent.

This is why corporate expansion can appear more significant than private landlord contraction. A large investor announces 104 homes in one press release, accompanied by quotations, development details and professional photographs. Private landlords generally leave without any announcement, selling one property here and a small portfolio there. Their individual decisions attract little attention, although the cumulative loss of rental homes could be many times greater than the additions announced by institutional investors.

Corporate rental housing remains a small part of the market

The Build to Rent sector has grown significantly and will continue to grow, but it is starting from a very small base when compared with the millions of homes already supplied by private landlords.

There are approximately 4.7 million privately rented households in England. By comparison, the completed Build to Rent sector across the whole of the United Kingdom accounts for around 148,000 homes. Even though the geographic comparison is generous to the institutional sector, completed Build to Rent stock still represents only a small fraction of the existing private rented market.

The difference becomes even more significant when the type of housing is considered. Most completed Build to Rent homes are apartments, often located in cities and larger urban centres. Only around 18,600 completed institutional Build to Rent properties are houses.

The Lloyds Living partnership is part of the growing single-family rental sector, which is an important development because families need good-quality houses as well as flats. Nevertheless, the number of institutionally owned rental houses remains tiny compared with the stock supplied by private landlords throughout the country.

Private landlords own ordinary family houses across thousands of locations, including places where no institutional investor is likely to acquire or build at scale. Their properties include Victorian terraces, post-war semis, rural cottages, bungalows, converted flats, homes above shops and houses on established estates. These properties are often scattered across wide areas and have different ages, designs, maintenance requirements and rental values.

That diversity is difficult to reproduce through a corporate model that depends on standardisation and scale. An institutional investor can efficiently acquire 100 similar new homes on one or two developments, but it is much less likely to buy 100 unrelated properties spread across villages, market towns and older suburban neighbourhoods.

Corporate landlords will not build everywhere

Institutional investors must put money into developments where the commercial case works. They need suitable land, planning permission, a housebuilder capable of delivering at scale and enough tenant demand to support the purchase price, financing costs and ongoing management.

There is nothing unreasonable about those requirements, but they inevitably influence where corporate rental housing is built. Investment will be concentrated in locations where large developments are available and where expected rents can generate an acceptable return.

Private landlords collectively operate across a much broader geography. They provide homes in smaller towns, villages, coastal communities, rural areas and older urban neighbourhoods where a 100-home institutional rental development may never be viable.

This creates a serious weakness in the assumption that corporate landlords can replace smaller operators. A new development in Nottinghamshire or Staffordshire may improve rental availability in those particular areas, but it does nothing for tenants searching in Norfolk, Cornwall, Cumbria, Cambridge or countless other places where local landlords are selling.

Housing supply cannot be moved around the country to satisfy demand. A tenant needs the right home in the right place, at the right time and at a rent that is affordable relative to local earnings. National figures showing that rental homes have been built somewhere do not resolve shortages in communities where employers need staff and available housing is already scarce.

If private landlords continue to withdraw while corporate development remains concentrated in selected investment-grade locations, Britain could end up with professionally managed rental estates in some areas and severe shortages in others. The result would not be a corporate takeover of the rental market, but a more fragmented market in which the availability and quality of rented housing depended increasingly on postcode.

Why rental availability matters to the economy

The private rented sector is usually discussed as though it concerns only landlords, tenants and housing costs. Its role in the wider economy receives far less attention, despite rental housing being essential to the movement of workers between jobs and regions.

People relocate for many reasons. A graduate may move to begin a career, a nurse may accept a post at another hospital, a teacher may take a promotion in a different county or an engineer may move closer to a specialist employer. Others need to relocate following separation, a change in family circumstances or the need to care for relatives.

Buying a property every time someone moves is neither realistic nor desirable. Social housing is rarely available at short notice and is not designed to support ordinary employment mobility. Private renting therefore provides the practical bridge that enables people to move before they are ready or able to buy.

English Housing Survey evidence consistently shows that private renters move more often than owner-occupiers and social tenants. That should not be confused with an argument for insecure tenancies. Many renters want stability and remain in the same home for several years. The important point is that the sector offers access to housing when someone needs to move, without requiring a deposit, mortgage approval and property purchase every time their employment or personal circumstances change.

When rental supply falls, that flexibility becomes more expensive and less reliable. A worker considering a new job may discover that there are very few suitable homes available, that rents consume too much of the proposed salary or that each property attracts dozens of applicants. The cost and uncertainty of relocation may then outweigh the benefit of accepting the job.

Some people will respond by commuting longer distances, adding pressure to roads and public transport while reducing the time available for family life. Others will remain living with parents or in unsuitable accommodation. A proportion will simply decline employment opportunities because moving is no longer practical.

The effect is eventually felt by employers. Hospitals struggle to recruit nurses and support workers, schools find it difficult to attract teachers, care providers cannot fill vacancies and private businesses have to raise salaries or operate with fewer staff because potential employees cannot find housing nearby.

A shortage of rental homes can therefore become a shortage of labour. Housing policy affects where people can work, how businesses recruit and whether economic opportunities are accessible to those who do not already own property in the right place.

Different landlords serve different parts of the market

Corporate and private landlords overlap, but they do not perform identical roles.

Lloyds Living can offer modern homes, professional management and consistent service standards. Its scale may allow repairs, administration and compliance to be handled through dedicated teams, while its new properties should offer tenants greater energy efficiency and lower maintenance risk.

Private landlords provide a far wider variety of homes and frequently operate in places where large investors have little presence. They can also make decisions on an individual basis, taking account of the property, the tenant and local circumstances without necessarily applying the same central policy across thousands of homes.

Some tenants will prefer the structure and perceived security of a corporate landlord. Others will prefer dealing directly with an individual who knows the property, understands the area and can respond flexibly when circumstances change. Neither model is automatically superior, and a healthy rental market should offer room for both.

Once the 104 Gleeson homes are completed, Lloyds Living will compete with local landlords offering similar properties. A family looking for a three-bedroom house may compare a newly built corporate property with an older home owned by an individual landlord. That is ordinary market competition and should encourage all providers to maintain good standards.

The more important distinction is that Lloyds Living is not directly replacing the full range of properties and locations served by the traditional sector. A group of new family houses on two developments cannot substitute for the enormous variety of established homes available across almost every community in the country.

The real policy risk

The risk is not that Lloyds Living or another institutional investor will become too successful. The risk is that government will use their growth as justification for ignoring the contraction of the wider private rented sector.

Corporate landlords can make a valuable contribution by financing additional supply, particularly when they support developments that can be built more quickly because a buyer has been secured in advance. They cannot, however, replace millions of dispersed homes through occasional acquisitions of 50, 100 or even 1,000 properties.

Nor is the institutional development pipeline guaranteed to expand quickly enough to meet expectations. Corporate investors face the same pressures affecting the wider housing market, including construction costs, planning delays, interest rates, land values and the need for rents to support investment returns. Their ability to build is substantial, but it is not unlimited.

A policy that allows established private landlords to leave while assuming institutional capital will eventually fill the gap would therefore be a considerable gamble. It would depend on corporate investors building enough homes, in enough locations, at rents local households can afford and at a pace greater than the loss of existing rental stock.

There is little evidence that this is happening. The corporate sector is adding useful supply, but its scale remains disproportionately small compared with both the existing private rented sector and the number of landlords considering sales.

Britain needs both forms of investment

Gleeson Homes and Lloyds Living should be credited for bringing another 104 rental homes forward. The properties will provide modern accommodation for families, support the development of two larger communities and demonstrate how institutional investment can work alongside conventional housebuilding.

The mistake would be to interpret this success as evidence that Britain no longer needs individual and family-run landlords. Institutional investors and private landlords are not interchangeable sources of housing.

Corporate landlords are well placed to acquire standardised homes in bulk and operate them efficiently across selected developments. Private landlords provide millions of varied properties throughout established communities, including areas where institutions are unlikely to invest.

Britain needs institutional capital to finance more construction, but it also needs a commercially sustainable environment in which existing landlords remain willing to invest, improve their properties and continue offering them for rent.

Encouraging one part of the market while allowing the other to contract is unlikely to produce the supply tenants need. It risks reducing housing choice, increasing competition for available properties and making it harder for workers to move to where jobs are available.

That would not simply be a problem for landlords. It would affect tenants, employers, public services and local economies throughout the country.