The Future of the Private Rented Sector: Policy Landscape

The Future of the Private Rented Sector Policy Overview Event November 2012

Agenda 08.00

Arrivals – breakfast served

08.25

Welcome – Ben Harrison, Director, Future of London

08.30

Chair’s introduction – Richard Parker, PWC

08.40

Speaker panel: Terrie Alafat, Director of Housing Growth and Affordable Housing, DCLG Richard Hill, Deputy Chief Executive and Executive Director – Programmes, HCA Professor Christine Whitehead, Professor of Housing, LSE Jamie Ratcliff, Area Manager, Housing and Land Directorate, GLA

09.25

Questions to panel and discussion

09.55

Chair’s summing up

10.00

Coffee and networking

10.15

Close.

The Future of the Private Rented Sector PwC

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Terrie Alafat Director of Housing Growth and Affordable Housing, DCLG

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The Future of the Private Rented Sector Richard Hill HCA Deputy Chief Executive

Contents

 PRS – the fundamentals  Institutional investment  Options for PRS development

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PRS – The fundamentals

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Underlying demand: household formation estimated at 230,000 to 2033

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Current tenure mix: 66% owner occupier, 17.5% social rented sector, 16.5% PRS “A basket of measures, covering all tenures of housing, is needed if enough finance is to be made available to tackle the country’s housing crisis.”

(DCLG Select Committee 7 May 2012)

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OECD estimates a 60% increase in single person households by 2025-30

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Trends in tenure A growing private rented sector‌

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Source: English Housing Survey Headline Report, 2010-11

Rents: Private rental market Rental levels (£ pcm) 1000 900 800 700 600

TDPG

500

VOA

400

EHS

300 200 100 0 2009

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2010

2011

2012

Sources: The Digital Property Group (TDPG), Valuation Office Agency (VOA), DCLG’s English Housing Survey (EHS)

Rent levels across England

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Sources: RSR statistical Return 2011(TSA), Valuation Office Agency (VOA)

What’s holding institutional PRS back?  Fundamentals strong but..  Reputation and risk, relatively untested asset class  Argument much of the return is based on capital appreciation as opposed to rental yield  Management costs of dispersed property requires ‘build to let’ models  Portfolio assembly and transaction costs

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What’s holding institutional PRS back?  Fundamentals strong but..  Reputation and risk, relatively untested asset class  Argument much of the return is based on capital appreciation as opposed to rental yield  Management costs of dispersed property requires ‘build to let’ models  Portfolio assembly and transaction costs

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Options for PRS delivery

HCA involvement  Ongoing £20m stake in Berkeley Residential fund, 354 units across 13 sites in London  PRS encouraged on sites in the HCA Land Development and Disposal plan  Use of public sector land to encourage PRS: e.g. working with Manchester City Council to identify public land for development as PRS  Use of £200m to create PRS demonstration projects

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PRS in a wider development / delivery context

Affordable rent  HCA NAHP and affordable rent programme: set to contribute to government target of 170,000 affordable homes by 2015 Flexible tenure  Examples of build for a mix of PRS, LCHO, intermediate and affordable rent – Highbury Gardens Larger sites  Build out rates determined by sales rates – can PRS help us accelerate?

Housing supply

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The Future of the Private Rented Sector – Policy Overview

Christine Whitehead, LSE Thursday, 8th November, 2012 PWC, London

Trends in Housing in London

London’s household/dwelling balance has been worsening - 4% more dwellings than households in 1991; 2% in 2001; 7% fewer in 2008?

Large differences in tenure structure between London and the rest of the country Massive changes in the role of private renting in London CCHPR report for Shelter /Resolution Foundation 2012 PwC

Tenure Trends in London (dwellings – 00s and %) 1991

2001

2011

1691 58%

1814 59%

1656 50%

Private 369 rented sector 13%

475 15%

880 27%

Housing Associations

148 5%

271 9%

365 11%

Local Authorities

703 24%

530 17%

418 13%

TOTAL

2912 100%

3090 (+6%) 100%

3318 (+7%) 100%

Owneroccupation

Figure 1: Housing tenure, England

Figure 2: Housing tenure, London

Note: for both figures, the survey results for 2009/10 look out of line with past trends, especially in relation to buying with a mortgage.

This in part reflects the smaller sample.

Figure 4: Household projections by tenure (%): London (Scenario: weak; social rented stock: constant; excess SR demand: all to PR)

Figure 5: Housing tenure of lower quartile income households, London

Figure 4: Household projections by tenure (%): Families with dependent children; London (Scenario: weak; social rented stock: constant; excess SR demand: all to PR)

Issues

Rents Types of dwellings available – increasing quality – but what about the bottom of the market?

Quality of management /standards of repair Security of tenure Increasing density of occupation Impact on housing benefits bill – 40% eligible for LHA? Impact on new build – does private renting generate demand for investment?

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Policies Impact of local housing allowance – 30% rule and welfare cap – differential spatial effects Impact of single room rent Types of new build – need for up-front funding/risks of flatted development Institutional investment – past lack of interest. Potential for new build; possible role of Housing Associations But should we forget Buy to Let? – and indeed owner-occupation International experience -on regulation; on investors; on private renting playing social role

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References

Whitehead et al (2012) The Private Rented Sector in the New Century - a Comparative Approach, Copenhagen, Realdania

Williams et al (2012) Housing in Transition: Understanding the dynamics of tenure change, Report of Resolution Foundation and Shelter, Cambridge, CCHPR

Both available on CCHPR website: ww.cchpr.landecon.cam.ac.uk

Contact: c.m.e.whitehead@lse.ac.uk

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Jamie Ratcliff Area Manager, Housing and Land Directorate, GLA

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