Are Housing Associations ready to tackle the Private Rented Sector?
March 25, 2013
In recent years the larger Housing Associations have expanded their housing activity into the delivery of homes for the Private Rented Sector (PRS). This market activity has been undertaken to help subsidise further affordable housing provisions. Through this activity they have developed the appreciation of risk, finance and commerciality.
Most associations are well capitalised so they are able to borrow in order to build a PRS portfolio and the larger organisations also have the development expertise needed to undertake build-to-let. As an established provider of homes for rent, Housing Associations would be able to provide investors with comfort in regards to their ability to manage their properties and tenants.
Housing Associations can start to move into this market by adapting sites already in their development pipeline – converting homes for sale to homes for rent. They are also well placed to design new developments with the PRS market in mind. As registered providers of social housing, they would be able to create developments with a mixture of tenure types, including properties to let at market rates and affordable homes. They would then be able to undertake the management of both elements and retain control of the housing standards across their tenure types.
Whilst the market for private rental housing is important, landlords also need to be responsive to tenants’ needs. Large Housing Associations are very customer focused and report levels of satisfaction with their accommodation and property management that are similar to those in the PRS market. They do have to be conscious that the level of service demanded by private tenants may differ from that demanded by social tenants.
Housing Associations have the potential to create a product which is particularly suited to renting. They can design a model that might include enhanced durability to lower the need for in-tenancy maintenance and minimize the disturbance to tenants when repairs are required; properties that are easy to redecorate, for when properties need to be refreshed between tenancies; and properties that are created for ease of moving in and out. Adopting these principles should help to increase the net yield achieved from the development, make the properties more attractive to tenants, shorten void periods, reduce property management time and lower maintenance costs.
Tailoring the tenancy terms of rental accommodation to the target market segment is an important part of meeting customer requirements. Housing Associations are in a position to offer tenancies that provide a greater security of tenure. As portfolios grow, Housing Associations should also be able to give tenants the freedom to move between properties within the organisation as the tenants’ needs change.
There are a number of benefits to Housing Associations entering the PRS market, most directly the construction of homes for rent will contribute towards addressing the chronic undersupply of housing that exists in the UK.
Investment in private rented housing could generate surpluses that the Housing Associations could then use for social purposes and profit can be used to increase and improve social housing stock. This is even more important in light of government cuts to subsidies. Furthermore, refinancing much of the value of completed build-to-let homes with institutional investment would not increase borrowing.
Housing Associations will be able to capitalise on, and expand, the key skills available in their organisations, such as property management, helping to achieve greater economies of scale. By being involved in the development of new properties Housing Associations will be able to retain, and extend, their construction arms.
The delivery of new homes for rent will contribute positively towards the Housing Associations’ social purposes as surplus generated would allow them to increase their investment in social housing and the local communities. It is well established that construction can contribute significantly to economic growth, with 1.5 jobs created for every home built and £2.84 generated for every £1 invested in housing.
Housing Associations have the capability and capacity to help increase PRS stock and are well placed to be able to develop and manage rented accommodation on a large scale.