A better life for 'generation rent' in the age of the 'circular economy'?

This article has been republished with my permission by the Ellen MacArthur Foundation: https://circulatenews.org/2017/06/better-life-generation-rent-age-circular-economy/

What is the circular economy?

The circular economy is a concept advanced, in particular, by the Ellen MacArthur Foundation, and Ken Webster in his recent book: The Circular Economy - a wealth of flows. It represents an economic system that moves away from the linear "take, make and dispose" model which has traditionally dominated our economic activities, towards a "cradle to cradle" circular system. In a fully fledged circular economy, little or nothing is wasted, and products and their component parts are designed and valued for their integrity, longevity, ease of repair, and propensity for re-purposing.

In March this year the Crown Estate (one of the top 10 landowners in the UK) signed up to the Ellen MacArthur Foundation's Circular Economy 100 Programme (CE100) in support of their continued aim to significantly reduce the amount of waste sent to land-fill.

Other members of the CE100 include Arup, National Grid and Marks & Spencer each of whom are similarly taking meaningful steps to review and redesign their processes so that waste is eliminated or considerably reduced.

What is 'build to rent'?

'Build to rent' has been gaining traction over recent years as an alternative to the traditional "build for sale" model in the residential development sector.

Instead of building houses for sale as profitably as possible, with all responsibility for repair and maintenance handed over to the buyer at the point of sale, the 'build to rent' model turns the value proposition upside down. Instead, homes are built specifically to be rented, rather than sold. Suddenly, the developer - and importantly the institution(s) investing in the development - have a tangible and vested interest in the long term quality, energy efficiency and life cycle of the residential building.

The emergent build to rent developers are constructing often beautifully designed, high quality schemes with enduring appeal. Consider the 194 new homes for rent currently in the process of construction at Cubex Land's Finzels Reach scheme in Bristol:

This will be the largest build-to-rent residential scheme to get underway in the city and is part of the vision to develop high quality spaces and create a thriving, balanced community at Finzels Reach.

The British Property Federation's "build to rent map of Britain" gives us a useful picture of the full range of build to rent schemes in the UK.

Property as a "service" rather than an asset

A key principle of the circular economy is a move away from the provision and supply of "things," "assets" and "products" towards the provision of "services". This approach takes the focus away from the (sometimes) wasteful use of finite and scarce resources, and towards services that require the gainful employment of humans and technology (resources that are not currently scarce).

In the build to rent sector, occupiers of homes are referred to as customers rather than tenants in recognition of their emboldened consumer status. Instead of providing "space" to tenants for them to fill with "stuff", build to rent landlords are gearing up to focus on the provision of "services" such as high speed connectivity, cleaning and laundry services, access to gyms and recreational space, and tastefully planned "community" events.

Innovations in the emergent "PropTech" sector also help to improve the quality of service landlords are able to provide to their customers. Fixflo, for example, allows occupiers speedily to report any repair/maintenance issues to their landlord, and the landlord is able to coordinate and order repairs or replacement of parts conveniently and cost effectively.

There is significant scope here to steer landlords, through software like Fixflo, towards products, household items, and component parts that are - chiming with the circular economy - built to last and modular by design.

A focus on energy efficiency

For a build to rent residential scheme to remain attractive in the long term to our newly enfranchised "consumer" tenants, energy bills would need to be as low or lower than competitor schemes.

New build to rent schemes offer real opportunities for developers to adopt world leading energy efficient systems and design. The Edge in Amsterdam (comprising office space rather than residential dwellings) is dubbed the Smartest Building in the World and is a leading light in sustainable design. The building fractionally produces more energy than it consumes (even when occupied) which is largely unheard of.

Two groundwater sources are located 130 metres underground: one for cold water and one for warm water. These so-called aquifer thermal energy storage pumps, depending on the inner and outer climate, pump warm or cold water in to or out of the building. The installation pumps are driven by self-generated solar power

Imaginative design and 'place-making'

Residential schemes designed by the architect Bjarke Ingels are often described as big, bold and brave. What strikes me in Ingels' design, in particular, is the potential to "place-make" - i.e. create high density but well balanced communities and ecosystems in an otherwise barren landscape. Schemes such as these (without wanting to echo the slum-clearance mantras of 1960s London too heavily) move people and families out of overcrowded cities, reduce pressure on overburdened inner-city infrastructure, whilst creating a sustainable hub of activity and community that is unique, attractive and designed and built to last.

Renting versus home ownership

If you were given the opportunity to redesign entirely our economic model, would you definitely conclude that ownership of your home is the best way to save for your future? For most of us, the best we could hope for (if we are lucky) is to own our own home, and hope to be mortgage free by retirement. That arrangement, whilst taking rental pressures away later in life, does not bring in an income for as long as you live in your home. To release equity in your home upon retirement is also a clunky, fairly expensive process which is not necessarily entirely fit for purpose.

Imagine, instead, an economic model where, alongside the standard option for traditional home ownership, we could, if we so wished, elect to live in rented homes, and to apportion our monthly salaries towards:

1. Cost of rent - to live in professionally managed institutionally owned accommodation designed for enduring appeal, with built in modularity/flexibility to accommodate you through your various life stages (young professional years, family years, 'empty nest' and retirement);
2. Cost of living - costs of food and other essentials;
3. Cost of recreation - cost of entertainment, treats and holidays;
4. Pension contributions - to cover costs of rent, living and recreation upon retirement - the cash would be invested in a diverse portfolio of investments and so "hedged" rather than all tied up in one property which may go up or down in value;
5. Insurance contributions - to obtain fit for purpose insurance protection to assist with health or other needs later in life;
6. Tax efficient savings - if you are keen to leave something for your children

If (which is a big 'if'!) our salaries can sustain the outgoings described above, then the build to rent model certainly stacks up. Consider also that landlords could reduce rents during economic downturns and increase rents during boom periods. This brings a degree of flexibility and long term resilience to the model which is not necessarily present in the classic build for sale market.

The Circular Economy looks set to move into the mainstream

The concept of the circular economy has been sufficiently recognised in industry such that the British Standards Institution will shortly be publishing BS8001 - a new business standard dedicated to the ideology:

The move to a ‘circular economy’ has been identified as a significant opportunity for business. It will contribute towards a resource efficient and low-carbon economy, reducing costs and supply chain risks, while generating economic and social value. BS 8001 will enable organisations to take practical action to realise these benefits.

The 'build to rent' sector will no doubt be earmarked early on as an area ripe for the adoption of circular economy principles.

What's next?

Young professionals are eagerly awaiting further developments in this new model. Hopefully, funders and institutions will soon gain access to the data and insights they need to make accurate rental forecasts. Ideally the availability of this forecasting data would trigger even more well-designed build to rent development to complement the existing (but dominant) build for sale sector.

The re-calibration of the relationship between landlord and tenant, (or service provider and customer) is certainly welcome. Anything that moves us towards a more balanced economic model, where a person may have security and dignity whether they chose to rent or own their home, is to me, certainly worth supporting.

Above all, in a build to rent model, landlords and developers have a tangible vested interest in ensuring the long term energy efficiency, viability and sustainability of their schemes. Good quality design and sustainability, rather than luxury, would ideally drive the success of this new sector.

I shall be attending the Bisnow Private Rented Sector conference in London on Thursday 18 May and I look forward to reporting back on what I learn there.

I hope you have enjoyed this article. If you are interested in the build to rent sector, or the circular economy generally and would like to discuss or share ideas, please do get in touch any time.