Massive growth and a sea-change in its structure lie ahead for the private rented sector, said housing minister Mark Prisk in a major speech.
Speaking at the Law Society, London, he emphasised just how transformational the new build-to-rent industry will be for the entire housing market.
He said: “For too long, our housing markets have been dysfunctional. For much of the past two decades, we have been consistently building half of what we needed, year on year.
“The result has been a serious imbalance between supply and demand, and while this has led to potential opportunities for investors, there are significant social consequences too.
“So as a government, we’ve had to step back and adopt a new, comprehensive approach to the problem. An approach which reaches across all tenures – owner-occupied, affordable, and private rented – understands the relationship between the three, and seeks to address the deep dysfunctionality in supply and demand.”
Prisk went on: “Over the last decade, the rented sector has become increasingly important in addressing people’s housing needs. The sector now houses 3.8 million households. Mobile patterns of work and reduced mortgage availability have made renting a more realistic choice for many more people, and the effect has been a strong rise in demand over the last decade.
“So far, this rising demand has been met principally by individual landlords, who have been responsible for adding approximately 1.5 million new homes to the sector over the past decade. But there is real potential to go further, and particularly to bring new players into the market.
“Put simply, we want a bigger and better private rented sector, a sector in which large scale and experienced institutional investors can help the market not simply grow, but also to mature.
“Small-scale individual landlords operate around the world, but in many countries, such as the US, Germany and Switzerland, institutional investment in the private rented sector is much stronger and more established than it is here. Evidence from those markets shows that where institutional investment is stronger, costs are driven down and the sector becomes more professional, with a longer-term perspective.
“That’s what we want to encourage here. It’s a change which has the potential to underpin sustained growth of the entire private rented sector, and offer beneficial changes to the market as a whole.”
Prisk also used his speech to announced a new private rented sector taskforce. This will be led by Andrew Stanford, former head of Cluttons Residential. Other members are Julian D’Arcy, a former chairman of Knight Frank, chartered surveyor Joanna Embley, Tacey Hartley of Grainger, and Dominic Martin of EC Harris.
Prisk said: “The role of the taskforce will be to connect investors with opportunities for long-term investment in the sector and help to break down actual and perceived barriers to entry. They will work with the sector to kickstart the delivery of innovative, high-quality and large-scale rented projects.
“And they will bring developers, management bodies and institutional investors together to help you get the most from both the private rented sector Housing Guarantees and the Build to Rent Fund.”
Prisk concluded: “We believe that the private rented sector is a vital part of a functioning housing market, and we want it to get bigger and better.
“A sector in which supply keeps pace with demand, large investors play an increasing role, and government policy is set for the long term.
“Only in this way will private rented housing fully realise its potential alongside other tenures. It’s why we’ve introduced Build to Rent and our Housing Guarantees.
“Our interventions are radical and significant. And that’s because this is a long-term commitment, not a short-term fix.
“Success will not be easy or quick. There will be further obstacles along the way. After all, this is an untested market.
“But working together, I believe we can rebalance our housing markets, and so provide the right type and quality of homes for the next generation.”
See also today’s blog.
Comments
Just over a week after Mark Prisk made this speech, Funding for Lending was extended by one year with a significant shift in focus towards SMEs.
But they want to create an institution-investment driven PRS, in which the small investor apparently does not figure overmuch.
Whom exactly do they want to help?
This is going to be interesting! I wonder if the promoters of this “Build to Rent” scheme have thought things through?
If, as is implied, the scheme will raise standards in the private rented sector and reduce the overall levels of rent, this suggests that private landlords’ costs will rise and returns on investment will fall. Current returns are modest by historic standards but are acceptable by comparison with the returns offered by other forms of investment, such as ISAs and high street lender savings accounts. A permanent fall in the returns achievable is likely to make private rented housing less attractive to the private investor and threatens the supply of such housing.
The second implication that flows from this scheme is that an increase in supply will have an reducing effect on the sale prices of residential accommodation, assuming little change in demand and the supply of money, which would thus adjust upwards the return on capital and restore the attraction of the private rented sector as a form of investment for the private individual. On this view, the effects of the scheme could end up neutral – but this is likely to prove an over-simplification!
The wider effects would be more profound. Much (too much) of the country’s economic model is bound into the housing market. Much of the vast pile of debt owed by us and held by the financial institutions is secured against the value of property. Trigger a slide in the value of property and you affect the institutional balance sheet, which in turn would put pressure on debtors and could conceivable lead to a rise in the dispossessed. Since this would increase the demand for social housing and its private equivalent, this could be seen as a GOOD THING for the Build to Rent plan, but it is hardly a desirable end in itself.
Personally, I think it would be desirable to reduce the price of UK housing across the board, long term, but such a thing needs to be achieved in a planned way over a long period and not as an unintended consequence of a half-baked political cake. Let’s hope Government sets the oven temperature correctly!
Does anyone need any more convincing that there is going to be a very big house price crash. The banks know it, the house builders know it and the Government know it, hence the enormous shoe in being given to huge Corporates in the housing sector. Governments continue to play the three card trick on the public by their continual manipulation of the housing market.
Does the commerical market function well. Are rents offerred realistic. Simlple asnwer no.
The idea that institutional investor will help could not be further from the truth. Small investor can and do react faster to market conditions.
Yes we need more properties built but to target institutional investor & old money to own all the new stock is a shocking. The goverment appears to be letting down the small business man & women who are the heart of this country and the only place that growth will come on.
Come on Mr Cameron stop the focus of Large corporates, they pay less tax, move money out of the country and have no other motive that profit.
Small buisness is where you should focus.
The New funding arrangement for new builds, just introduced does not work for small business and is again design for large corporates. It is the small developers that need assistant with funding not large build. Has anyone in the conserative party run a small business? Small Developers paid there staff more and keep the money in the local communities. Come on wake up.
SMALL BUSINESS is where it's at and not multinational & instituational investors, they have no investment in what they do.
I have to admit to getting a little frustrated at politicians. I consider that it is Party politics that is the root cause of the dysfunction.
Housing should be Apolitical [politically neutral; without political attitudes, content, or bias] and should not suffer consistent change from government to government with seemingly the only purpose and benefit to secure favour with one's voters and supporters.
Time and time again legislation has been rushed into place with little consideration given to understanding the root cause of the issue.
Labour opposition to Universal credit will scupper any attempt for Mr Prisk's scheme to address the gulf between Social demand and private supply. Building estates of new build will provide BTL investors with an opportunity to buy property but the un-workability of the Housing Benefits and Local Housing allowance systems mean that few of those properties will be targeted for Social provision. Many landlords and Agents find it difficult to account for a 13 part payment system that is processed 6 weeks in arrears with tenant top up. I recently tried to explain the complexity of a 12 month H.B tenant account to an MP; glazed confusion best described the understanding he has of the issue over 3.8 million tenants have to live with day in day out. Did he comprehend how difficult it is to explain to an assisted tenant how/why they have permanent arrears with their rent and by how much they are in arrears? I doubt it. Does he realise that is the reason many agents won’t touch social letting? Again, I doubt it and suspect it to be a factor that did not even register with him
Being completely apolitical, Universal Credit allows social tenants the dignity of paying their rent just like every private tenant. Removing the archaic methodology of paying benefits 4 weekly means that, all of a sudden, Government can deliver a system everyone is capable of understanding.
Universal Credit will not change the spectrum of social tenants but a if agents can be shown a workable way of letting to social tenants and a means to identify which end of the spectrum a tenant sits, then there is a chance that ‘Build to rent’ could help bridge the gap between Social demand and Private/ Corporate provision.
The task is not to cover the land with property funded by a short lived, knee jerk scheme that seemingly only favours wealthy investors but to sit down and devise a system that does not change on 8th May 2015* when the new government , whatever flavour, comes to power.
(* assumes the Social unrest does not force an early election)
Yet another case of our government being at the complete beck and call of the Housebuilders lobby.
When will someone in Central Government realise that non-stop housebuilding is not the answer