We’re clearing the hurdles, but now need local support
September 24, 2012
The summer of 2012 saw our nation gloriously indulging itself in the once-in-a-lifetime opportunity that is the Olympic Games. Life, however, returned to normal and the focus shifted to more domestic matters, such as how do we build enough homes to house our nation?
As the parent of a seven year-old I wanted to let our son sample some of the action and, along with judo and basketball, we’re fortunate enough to live close to what seems to be becoming the UK’s home of road cycling – rural Surrey. Through sun and showers, we were there, sampling the efforts of ‘Cav’, Lizzie Armitstead and ‘Wiggo’, sitting out on our garden chairs, ourselves bedecked in red, white and blue.
Seeing Team GB “bring home the booty” as Boris Johnson put it, certainly gave the country a lift, but the experience of sharing the joy and events with other local people, whether they be spectators or volunteers, has also been widely acknowledged to have made the games such a success.
If ever there was a hill to climb of ‘Box Hill’ proportions it is how do we build enough homes to house our nation. This, particularly against the backdrop of the tightest lending conditions for several generations. How we deliver more housing has steadily been rising up the political agenda, not only because our young folk need the homes, but because the lack of building is a key contributor to our double dip recession.
One possible solution, which successive governments have seen merit in, is encouraging institutional investment in the PRS; to get pension, life and other funds to invest in new rented homes. Not necessarily because governments want to support renting per se, but because building-to-let could contribute something towards those rather sickly looking housing supply numbers. Politicians rightly or wrongly reflect that whilst the private rented sector has expanded rapidly over the past decade, adding 1.3 million households since 2000, such growth has not added significantly to overall new homes built. There has therefore been a succession of policy initiatives aimed at the institutional investor.
Under Labour, some support from the Homes and Communities Agency’s Private Rented Sector Initiative (PRSI). Under the Coalition, support has further translated itself into changes to the Stamp Duty Land Tax (SDLT) rules on residential bulk purchases; the offer of public sector land, on a profit-sharing basis; and then some tweaks to the Real Estate Investment Trust (REIT) rules. There was also the review, headed by Sir Adrian Montague, that considered the barriers to Insititutional Investment and reported back with recommendations on how these might be tackled.
For some, encouraging institutional investment into the private rented sector has remained unfinished business, with how large-scale private rented developments are planned for, the missing piece of the jigsaw. Within government, planning is the preserve of the Department for Communities and Local Government and, whereas most of the policy support thus far has been within HM Treasury’s remit, it is important that this review reports to DCLG, which has responsibility for planning.
The Montague Review has therefore had planning at its forefront, as it has considered the two primary barriers to greater investment. The first, the yield derived from residential investment needs to be attractive to institutional investors more used to investing in commercial property. Whilst the gap between commercial and residential yields has narrowed, it has not yet been broached.
Second, if an investor wants to invest in scale at present there are very few opportunities to acquire stock in sufficient scale. Some headlines have been written about build-to-let perhaps being treated differently for affordable housing purposes. Also, of such developments having planning conditions that require some long-term period of renting, which would stop build-to-let being flipped for sale simply to avoid affordable housing requirements, but have the added advantage of creating an asset valued for its income stream, rather than vacant possession.
Like most policy making, the Montague Review was not isolated from what else is happening in the policy world but took place against the backdrop of a government that has just engaged in one of the most major reforms of our planning system and also a government that is fervent about localism. Headlines that therefore give the impression that this government is going to dictate that build-to-let developments will be sprouting up and down the country devoid of affordable housing requirements are seriously wide of the mark.
For this government is not about dictating, but about guiding and allowing decisions of that kind to be taken at a local level, and therefore, like the Olympics it will be local people, or at least their representatives, who will be in the box seat. Whatever the Government ultimately decides to do to encourage build-to-let it will need the support of local authorities.
Whilst central government can give clearer guidelines, and that will help, ultimately it will be local councils who plan for rented developments, waive affordable housing requirements, place planning conditions on them remaining rental property, or indeed invest their own not inconsiderable land holdings.
Some are tremendously supportive. The likes of Manchester, Hull and Birmingham councils have already embraced the need to support market rented developments. Outside the main city authorities, however, in smaller district councils there is a lack of capacity, rather than necessarily a lack of interest to deal with such developments, which will need addressing.
As with a lot of private rented sector issues there is also a wider PR issue. Both to explain what an institutional PRS looks like and can offer, but also to help local councillors understand this is not going to lead to the problem PRS cases that sometimes end up in their postbags. It is perhaps natural that some councillors will flinch when faced with the prospect of several hundred market-rented homes; and not unnaturally reassurance will be needed that such developments will be well managed.
Build-to-let in its true-form, developments designed and built for renting, I think will create something different and exciting in the rental market. Many of the existing larger investors already embrace good standards, support initiatives such as SafeAgent, and membership of an Ombudsman scheme. Taking the best of what exists and encapsulating it into some sort of formal best practice or kitemark may help get local authorities further on-side.
Returning to the Olympics, one my favourite moments was seeing Jessica Ennis, with the weight of the nation on her shoulders, win the heptathlon gold on Super Saturday. Rather like Ennis, there is weight being placed on build-to-let. If the Government supports Montague, we will have undoubtedly cleared many of the hurdles, but not quite got build-to-let across the finishing line.