Senior property figures have gotten behind a number of ‘wants’ for Andrew Stanford, chairman of the government’s taskforce for the private rented sector.
While housebuilders visited Downing Street this week to expand the government’s controversial Help to Buy plans, many are also hoping large-scale rented developments, backed by institutional investors.
Stanford, a former residential specialist with Cluttons, the property agent, has been charged with helping ministers overcome barriers that have constantly prevented big investors from getting on board.
It will be just one talking point at RESI 13, the UK’s biggest property conference, held on 12-13 September at Celtic Manor in Newport, Wales.
Five captains of industry have outlined views on what needs to happen.
1. Promoting political commitment at all levels
Anthony Lee, Senior Director, Development and Residential Consulting, at BNP Paribas Real Estate, said:
“Build to rent, more than anything else, shows the commitment of the government to the rapid growth of the private rented sector. It is a clear indication that the government believes that the UK can no longer satisfy all newly arising housing demand by relying solely on the current model of house building.
“Whoever makes it on to the final list, the important point is that the government has shown its commitment to get Britain building.”
2. Building new rental homes outside of London
John Hitchcox, chairman of Yoo, said:
“While we’re all obsessed by London, housing is a national problem and ‘Generation Rent’ is not confined to the South East. Momentum is needed to kick-start regional PRS development, but while market fundamentals are what they are, local councils will need to get creative in order to make projects viable by contributing land and eyeing up long term returns as opposed to the usual short term gains.”
High prices the south mean rental doesn’t work due to low income yields of around 2.1 percent in the centre of London. But according to IPD, net income yields rise to 4.7% outside of the South East.
There are roughly 2million renters outside of London, and already local councils are striking innovative deals to shoulder some of the development risk. In Leeds this took the form of a PFI, in Manchester the city’s own pension fund is providing funding, while in Wolverhampton a deal was struck exchanging free land for housing.
3. Agreeing a ‘rental covenant’: homes locked into rent in return for reduced CIL
Darryl Flay, chief executive of Essential Living, said:
“Clarity on the rental covenant – where developers lock themselves in to just renting their homes for a set period in exchange for reduced section 106 levies – could be pivotal. There are 2 million renters in London alone, not through choice but by necessity, and by moving away from traditional notions of affordable housing to discounted rental offers, we could improve quality and choice for those renters, and make a serious dent in the housing crisis.”
The Montague Report suggested developers build units in a rental covenant alongside traditional units for sale –essentially guaranteeing they will be available to rent.
However, the industry reacted sceptically to this, as if you covenant a piece of land, it isn’t open to the market for sale and its value has to come down. To make the covenant work, section 106 requirements, or CIL’s, need to come down.
For the moment little has happened, and there remains no decision on whether section 106’s can be reduced, but industry experts, have already said that rental covenants will not work without other incentives, due to lower values of a non-vacant lot.
4. Unlock institutional money
Ben De Waal of Davis Langdon, an AECOM company, said:
“Institutional investors want to increase their exposure to “alternative” assets, of which residential is probably the foremost. It’s up to us as an industry to lay out viable business models and partnerships to show them that they can achieve the required returns to match their liabilities, without the risk.”
An array of foreign institutions who are familiar with mature rental markets at home have moved into the UK. They include Dutch giants APG and Canadians Apollo Global Management. Domestically, M&G, formally Prupim, is the first British based player now looking seriously at rental.
Essential Living is backed by $200m from M3 Capital Partners. While others are buying into existing stocks of homes, they are the only developer taking planning risk on rental-only sites, designing, developing and then holding a planned portfolio of 5,000 homes over 10 years.
Alongside this, local council pensions schemes (Islington & Manchester) are already proving that pension liabilities can be matched through the PRS, provided the right models can be devised.
5. Make the taskforce a success
Nick Jopling, executive director at Grainger, said:
“The taskforce understands development and investment, and the difficulty of aligning the two. This is the first time the sector has a dedicated ear to preach to, and we cannot waste that opportunity.“
For the first time, policy makers on all sides are coming out in support of the need for a professionally developed and managed rental sector. Private renting is the fastest growing tenure in the UK and the stakes will be high for whoever wins the next election to make renting work.