The Build-to-Rent model: A new frontier for sustainable and inclusive living

The residential sector is undergoing a profound transformation. Worldwide, four major trends—affordability, demographics, labor markets, and sustainability—are influencing housing policies and the evolution of the real estate market. Homeownership has become increasingly difficult for about 30% of the population in OECD countries, with peaks of 37% in lower-income nations, due to reduced public spending on housing and the growing gap between supply and demand for quality homes. Moreover, population aging and professional mobility have created a specific demand for flexible housing solutions that allow people to live in different places without needing to buy a home.

The Build-to-Rent (BtR) model is emerging as a response to these challenges, offering a new housing paradigm that combines flexibility, sustainability, and quality. One of BtR's key features is the involvement of professional operators managing all phases of building development and management. This approach ensures high-quality buildings and services, with the adoption of advanced technological solutions and energy efficiency measures. BtR not only provides rental housing but also offers an ecosystem of services and facilities managed by professionals, with a long-term focus on the quality of life for tenants and local communities.

The research project carried out by SDA Bocconi's REInnovation Lab in partnership with Lendlease aimed to analyze the impact of BtR in Italy, examining two significant case studies to highlight the economic, social, and environmental benefits of this model.

Our research demonstrates that BtR represents a potential solution to the current problems in the housing market. Based on an analysis of two Italian case studies, the paper quantifies the positive externalities generated by new BtR developments, both for the users themselves and the surrounding communities. The impacts, divided into direct, indirect, and induced, show how the economic, environmental, and social value created by BtR grows in proportion to the increase in the share of BtR relative to other housing models.

Quantification of positive externalities:

• Economic impact: We estimated that every euro invested in the BtR model can generate up to 4.1 euros in positive externalities. About 60% of this value is attributable to direct economic effects, such as job creation and improvements in residents' productivity. In relative terms, the direct economic impact of BtR projects resulted in a 12% increase in property values in the surrounding areas, with a multiplier effect on local infrastructure investments and the local labor market.

• Environmental impact: From an environmental standpoint, the energy efficiency of BtR buildings contributed to an estimated 20% drop in CO2 emissions compared to traditional buildings. In the projects we analyzed, we also found lower air pollution (NOx, NH3, PM2.5, and PM10) – a goal reached by adopting sustainable solutions and promoting alternative mobility options such as bike sharing and electric car sharing. In terms of energy, BtR improved energy efficiency by 25% compared to traditional housing solutions, reducing energy consumption and operational costs for residents.

• Social impact: Social benefits include the creation of common spaces like gyms, shared kitchens, and green areas, which improved residents' quality of life, reduced social isolation, and promoted a healthier lifestyle. The professional management services provided by BtR allowed for a 15% savings in management costs for residents, providing access to high-quality services at lower costs than private ownership. In one of the case studies, BtR improved the quality of life for about 1,450 residents through professional service management and access to high-quality housing services.

Challenges in the current context

Despite being an innovative and promising solution, BtR faces challenges, especially in contexts like Italy, where there is no clear and favorable regulation for this type of real estate development. While BtR is already recognized as an asset class in Anglo-Saxon countries, attracting institutional investment funds, this process is still in its early stages in Italy.

One of the main obstacles is the fragmentation of the Italian real estate market, where most homes are privately owned, and rental agreements are not managed in a systematic way. However, creating a regulatory framework dedicated to BtR could encourage the widespread adoption of this model, benefiting both investors and citizens. In one of our case studies, in fact, we noted that implementing a specific regulatory framework for BtR could increase the overall value of positive externalities by four times compared to the current context.

Towards a new asset class

BtR has the potential to become a new asset class, attracting capital due to its stability and long-term ability to generate returns. The case studies we analyzed show how BtR can align the interests of developers, managers, and residents within a framework of economic, social, and environmental sustainability. This long-term alignment is made possible by professional operators who manage buildings and services for decades, with a direct interest in service quality and tenant satisfaction.

For the future of BtR in Italy, the key to success lies in creating a clear, stable regulatory framework that encourages investment and ensures the model's sustainability. This framework should include fiscal and regulatory incentives for developers committed to BtR construction, as well as long-term financing tools to facilitate access to capital by institutional investors.

Additionally, integrating BtR with urban regeneration policies will be essential to fully realize this model's potential in creating new, sustainable, people-centered neighborhoods. Successful examples of urban regeneration in Anglo-Saxon countries show that BtR can contribute to creating resilient communities, where quality of life is improved through careful, sustainable planning of residential and workspaces.

Andrea Beltratti, Alessia Bezzecchi, “La creazione di valore economico, sociale e ambientale del Build-to-Rent: due case study per l’Italia.” Bancaria, September  2024 – n. 9.