Attracting a higher volume of institutional investment into the private rented sector may depend on relaxing or even doing away with current affordable housing requirements on new builds, says a new Government-commissioned report.
The report, Review of the barriers to institutional investment in private rented homes, was commissioned by the Department for Communities and Local Government in an attempt to find ways to encourage institutional investors to take a greater interest in the housing construction sector.
The author of the report, Adrian Montague, chairman of private equity group 3i, says local authorities should consider waiving affordable housing requirements entirely where local authorities deem it appropriate. Quotas for affordable housing are currently negotiated between local authorities and developers on a case-by-case basis.
The report says: “Whilst desirability of affordable housing should not be ruled out, it should be weighed against the benefits already built into market rent developments, in the context of an accurate assessment of the economics of building homes to rent. In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner occupier component.”
Montague says: “My review shows that the rental housing sector offers potential investment opportunities of interest to institutional investors. But real momentum has been inhibited by constraints affecting the supply of stock, the treatment of rented housing schemes under the planning system and the need to create confidence among investors.
Housing minister Grant Shapps says: “We are determined to encourage greater investment in the build-to-let market and boost the country’s private rented sector, which plays an integral role in meeting the nation’s housing needs and aspirations. A major part of this is to attract and encourage new players to the market, while at the same time avoiding the excessive regulation that would force up rents and reduce choice for tenants.”
The proposals have met with some opposition, from both opposition MPs and housebuilders, who say unfavourable mortgage market conditions are presenting enough of a problem without reducing the number of affordable homes available.
Shadow Housing Minister Jack Dromey says: “While many of the measures recommended in this report are sensible, for instance on the use of public land, on attracting investment and on standards in the private rented sector, we are not convinced that the answer to the crisis created by this Government is to further water down affordable housing requirements that councils place on developers.”
But although the report recommends the Government give local authorities a “strong steer” towards the private rental sector, local authorities are not necessarily obliged to do away with these requirements.
Persimmon Home’s group partnership director Ashley Lane says: “We have got two million households on social housing waiting lists. Local authorities are going to be pretty loathe to give up these requirements. I presume the final say will rest with the local authority and they need to service their waiting lists.”
However, CHL Mortgages managing director Bob Young says something must be done to stimulate house building. He says: “I think this is really good news, the institutional involvement in the private sector is long overdue in this country and the simple reason is that nobody could think of a way to do it with sufficient scale and return.
“It will be seen as an attack on the working class by doing away with council accommodation and actually it is hiding the true story here which is that something positive is being done to get housebuilding going and to bring in investors. The important thing is to increase supply and if we do this, it must bring down the price.”