The government is unlocking growth in the Private Rented Sector
April 30, 2013 1 Comment
For at least fifteen years this country has been building roughly half the homes it needs – whether for sale or rent. The situation got so bad under the previous administration that we saw the rate of housebuilding drop to its lowest peacetime level since the 1920’s. It’s why this Government is prioritising reform of the planning system and channelling new investment into housebuilding.
That means £19.5bn of public and private investment to deliver 170,000 new affordable homes by 2015, and spending over £1.5bn to unlock housing delivery on sites across the country.
But demand for rented housing is growing. The facts speak for themselves: 3.7 million households in England now live in private rented homes, equivalent to 17% of the total housing stock.
The sector has seized the initiative in responding to the extra demand, with 1.5 million homes added in the eight years before the last election, a 55% increase.
However, much of this growth has been driven by individual landlords with small portfolios, and a lack of large scale investment has constrained further market expansion. At the same time the huge growth of the sector has not resulted in a significant increase in the overall supply of new housing.
In the past there have been debates within Government and the housing industry about whether to focus investment on owner occupied homes, affordable housing, or the Private Rented Sector (PRS), and often these debates have concluded with the private sector losing out.
It means that building homes specifically for private rent has remained a relatively immature market in the UK, and investors and lenders continue to be cautious about supporting new build projects.
We want this to change so the sector expands and tenants are given more choice and quality. It’s why, as part of our Housing Strategy, we asked Sir Adrian Montague to carry out an independent review into the sector.
Our response to his excellent report has been swift: a commitment to provide a £10bn debt guarantee and a £200m Build-to-Rent fund to deliver more new homes for private rent.
We published the latest details of our ambitious guarantee programme on February 1st. It’s designed to address the underlying problem that investors and lenders can be cautious about supporting large scale investment in the sector.
So the guarantees will support a variety of options to invest in new homes for private rent, from new build to converting existing commercial spaces into rental properties.
The scheme will make finance available for projects that have a minimum value of £10m, with new homes remaining in the PRS until the money is paid back.
Under this new approach the Government will reduce risk for lenders by guaranteeing to repay the money in the event of default from borrowers. This should enable housing providers to borrow at well below current rates, and encourage more investment in the private rented market.
At the same time our new £200m Build-to-Rent fund will also boost the construction of new homes specifically for private rent. The fund will cut the risk for developers more traditionally used to building homes for sale by financing the construction of rental homes until they are built, let out and managed.
Like the guarantees, Build-to-Rent will enable developers to build homes specifically for the rental market with confidence. Management companies will have the chance to invest in these new rental developments, and developers will then repay the investment from the government.
So what are the next steps?
The eligibility requirements for the guarantees and details about how they will be structured have been published by the Home & Communities Agency (HCA). An invitation to tender for the running of the schemes was also published and, at the time of writing, we are starting to assess the responses.
The £200m Build-to-Rent Fund was open for bids from December 2012 to early February 2013. Submissions are currently undergoing a due diligence process before shortlisted schemes are announced.
Underpinning both these programmes will be an expert taskforce. They will boost investor awareness of both schemes, and offer practical support to those interested in this new market.
There is vast untapped potential for growth in the PRS and our ground breaking measures have the potential to bring thousands of new homes into the market.
These schemes will help to get spades in the ground, create jobs and establish new business models. So I would encourage investors to investigate how they can get involved and benefit from the growth in this vital sector.