1st May 2015
Developers, pension funds and housing associations have launched a campaign for the next government to create the right environment to encourage home building for long term renters with £30bn of new private finance on offer.
The group says this is enough to build more than 150,000 homes potentially housing around 350,000 people.
In an open letter to the next government, backed by major funders such as Hermes, Legal & General, Grosvenor and M3 Capital Partners as well as developers including British Land, Grosvenor, Essential Living, Fizzy Living and Grainger, together with the British Property Federation, the Better Renting for Britain campaign argues that the Build to Rent sector could play a crucial role in solving the housing crisis, improving the quality of housing and financing more development through additional, institutional capital.
The campaign warns that housing targets will go unmet without additional private sector funding. It says an American-style rental market – where single companies own large portfolios of homes – could bolster standards offering better value and greater transparency. “We want to create more professionally managed rented housing, purposefully designed and built with the long term occupier in mind,” the letter says.
The campaign says the approach will enable individuals and families to rent for years, not months if they wish. It says the offer of longer-term tenancies, inflation linked rents and shared amenity spaces would be made possible because the investors are doing so to earn income – rather than speculating on house prices going up.
Rental schemes generate profits over a long period, while traditional housing is sold off, netting the developer a capital receipt rather than a drip-feed of income. This affects the amount of development taxes – known as section 106 payments – which can be levied before the whole scheme becomes unviable.
The campaign wants the government to make councils set out the quantity of rental housing needed locally and then partner with developers to build some of it on public land. It says this could create income for local authorities. It also wants planning rules modernised to reflect the fact that building for rent is wholly different from building to sell.
The group also wants a commitment to market economics to ensure vital new investment isn’t put at risk.
The letter has made five requests to the future government:
1. Councils should identify how much rented housing they need and allocate land to it. It can ensure that housing is rented and not sold by agreeing covenants with developers.
2. Idle public land should be used to generate income for councils by developing rental blocks.
3. A modernised approach to affordable housing which recognises the wholly different funding structures relating to build to rent compared with housing for sale.
4. The sector to continue operating as a free market, which is vital to securing investment.
5. Work with us to promote best practice, better inform the public and help improve the perception of the entire rented sector.
Nick Jopling, executive director for Property at Grainger plc, the UK’s largest listed residential landlord, said: “Not only do we need to build many more homes, but we need to make sure renters get a better deal. As a business that’s been around since 1912, we want to see a rental market that provides long term options as well as good value for money and customer service. By supporting ‘build to rent’, the future British government can encourage companies like ourselves to help increase housing supply and improve standards of living in the rental market.”
Andrew Brentnall, Head of Funding & Development, Residential Capital Markets, at Savills, said: “Build to Rent could offer a large quantum of capital for additional homes across the UK which will further help to service the needs of an increasing number of renters in the locations that we need it most. Private renting has increased by 79% since 2003 and institutional investment is vital for its continued growth. If the considerable demand from new tenants is not met by new stock, rents will rise due to lack of supply. It is therefore very important to attract, and retain, new investment into the sector. Our forecast is that rental demand will rise by a further 1.2 million households by the end of 2019”.