In Conversation With… John Coles
June 20, 2014
We are regularly in conversation with a plethora of leading figures in the property, investment, finance and charity sectors, many of whom are guest authors for PRSupdate. The purpose of this feature is to get them to discuss the topics and issues that are currently affecting the Private Rented Sector.
If you would like to take part in an In Conversation piece then please do get in touch with us.
Today we are in conversation with John Coles, Director at Evenbrook.
John, can you tell us a little about your background?
I have worked in the Private Rented Sector (PRS) for 40 years. In the 70s I was a practicing chartered surveyor and worked on behalf of investors buying unbroken residential investments from institutions who were selling as a consequence of legislation in the late 60s that restricted rents and created security of tenure. The portfolios were sold in the late 80s and I became involved in residential investments in Holland where I witnessed how residential market rent-yield driven investments operated.
In the early 90s I, and my business partner Chris Butterfield, set up Evenbrook after the Thatcher led Conservative Government brought in the Housing Act 1988 that made the PRS a more viable investment option. I am pleased to say that Evenbrook has grown to become a leading investor and operator in the Private Rented Sector. To date we have over 2000 customers (tenants), half in the PRS and the other half students.
For those who may not know, can you briefly explain your role?
I am the Director, and 50% shareholder, of Evenbrook and I spend the majority of my time helping to run the property side of the business. But one man can not run a whole company and, as Evenbrook manages all of our own stock (collecting rent, carrying out repairs etc.), I’m happy to say I work alongside some great people. My business partner, Chris Butterfield, runs the finance side of the operation while Mike Poole, our MD, is in charge of our day to day operations in West Midlands. They, along with the rest of the Evenbrook staff, are invaluable when it comes to making Evenbrook the success it is.
What are the major challenges faced by the Private Rented Sector?
The PRS needs to remain stable and that means avoiding legislation that could restrict investment in Build-to-Rent products. I believe all the main political parties are aware of this fact and I believe it is unlikely that there will be any legislation that could destabilise the PRS.
Also, Institutional investors may be cautious about entering the PRS given the reputational risk they face. Currently 90% of the PRS is made up of buy-to-let investors who would consider themselves “amateur landlords” and may not realize the full scope of their responsibilities. Thus they may not be providing the level of service that tenants would expect and this is negatively impacting the public’s perception of landlords and the PRS. The situation is also being exacerbated by a small number of ruthless lettings agents and landlords who feel they can charge unreasonable costs. This has led to our industry receiving a fair amount of negative press where even the good agencies and landlords (95% of investors) are tarred with the same brush as the rogue elements.
What can the government do to open the PRS to more investors?
The government can help drive PRS growth by making some changes to planning conditions. They need to reduce Section 106 responsibilities as well as having CILs set aside for Build-to-Rent developments.
At Evenbrook we avoided heavy planning conditions with a recent development of a 150 flats as 40 were set aside to be let for 20 years at 80% of market rent. This has reduced the 106 responsibilities and made sure there are no CIL payments. Without this option building the development would have been unviable and shows that local councils need to allow developers to be creative in order to boost building in their area.
What are your thoughts on the current level of land availability?
This is a serious issue as I don’t believe there is an adequate level of land availability to meet demands. It’s all well and good for the government to make the PRS look like an attractive investment but if there is no land availability at an economical cost then little in the way of building to let will occur.
Those who own land are waiting so that they can get the best possible price and this will stall development in key areas across the country. Institutional investors set out terms in regards to what they expect in return on the capital invested and if the land price is too high, along with increasing build costs, it won’t work. On Local Authority and government land this does not have to be the case as there are options that can make the figures work.
The government needs to step in and talk to institutional investors to start building PRS stock on land owned by government authorities. I believe the best option would be for the authorities to grant a long lease, say 150 years, and retain the freehold so that they are able to foreclose if there are any major issues down the line. The developer would then offer some of the properties at an Intermediate rent level before, after 20 years, switching to a market rent level. From that point on they would also then start to pay ground rent, which would increase every 5 to 10 years. This plan would provide the developer with a solid investment vehicle, a source of income for Local Authorities and housing in high-demand areas without the investor having to pay for the land.
What are your thoughts on the current level of regulation in the Private Rented Sector?
In my opinion scrapping lettings agent fees and having rental increase caps are not insurmountable policies. If they are implemented correctly, after sufficient research, then they should not destabilize the market. Institutional investors have shown that they would not be averse to some form of rent index but, obviously, only if it was at a sensible level. Longer tenancies are not an issue save as to lending conditions and landlords having the right to regain possession under certain conditions.
The issue with Miliband’s recent comments is that they agitated the investment market as they smacked of being ill thought-out and could possibly impact on returns. Compared to Labour the current government seems averse to pushing through more legislation for the PRS. They have taken a more measured approach by releasing their “How to rent guide”. I thought it was very well put together and, more importantly, much needed. Tenants and landlords need to be made aware of current legislation, how it affects them and how they can use it to help clean up the market. It’s always best to educate not legislate.
Is there anything you would like to mention that we’ve not already covered?
I find that the talk about house prices and PRS investment seems to focus solely on London and the South East, neglecting the rest of the UK. This is unfortunate as the regions can provide stronger rental income. The Evenbrook portfolio, which is all in the regions, has witnessed solid rental growth throughout the whole of this recession.
I’d like to finish by saying that I believe that too few operators in the PRS realise that we are in a service industry. This means the customer (tenant) is so important that we should be doing all we can to make the industry work for them.
Why not take a dip into our In Conversation archives, we have been In Conversation with:
- Jasper Goodford, Relationship Director – Real Estate Finance at Santander
- Susan Fitz-Gibbon, President of ARLA
- Liz Peace, Chief Executive, British Property Federation