Local authorities should waive affordable social housing requirements for some private rental developments if it provides a greater chance of attracting institutional investment, suggests a Government-commissioned report.
The Department for Communities and Local Government commissioned Adrian Montague, chairman of private equity group 3i, to write the report, Review of the barriers to institutional investment in private rented homes, in an effort to find ways to encourage institutional investors to take a greater interest in the housing construction sector.
It was anticipated the report would contain some revision of the current requirements for local authorities to include affordable housing in developments. The report suggests these requirements should not be adhered to if there is an appropriate opportunity to expand the private rental sector.
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.”
The report suggests the Government should provide “a strong steer” with regards to the inclusion of private rental expansion projects in their strategic housing market assessments. It adds the Government should, in partnership with local authorities and the Greater London Authority, specify a number of sites in locations where there is a good demand for rental housing and make them available to developers for buy-to-let development.
New homes built specifically for rental should remain that way for between 10 and 20 years, says the report.
In March, Labour MP for Isling ton North Jeremy Corbin raised the possibility of private sector rent controls in the House of Commons. It was met with opposition from housing minister Grant Shapps, who argued it would restrict the market and increase costs.
The report warns that rent controls or enhanced restrictions on gaining vacant possession could easily undermine investor interest in the sector and calls on the Government to continue to support the current framework.
It adds the Government should consider seeding institutional funds and look at the possibility of launching equity or debt funding to support schemes that can be sold into the institutional market once completed to incentivise investors. It says Government guarantees of any kind should not be offered as it could distort the market.
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.”
Shadow housing minister Jack Dromey says the proposals will only worsen an existing shortage of affordable housing. He says: “As rents hit a record high in July, many families are already paying the price of the Tory-led Government’s failure to build enough affordable homes. The Government should be acting to address this problem, not looking for ways to water down existing legislation which could make the problem worse.”