Supplementary Memorandum by the British
Property Federation
Further to the evidence we gave at last week's
Select Committee hearing, you and your colleagues requested that
we submit supplementary written evidence on how the rental market
could be expanded. We understood this to be with particular reference
to CLG providing clarification and best practice guidance with
regard to the interpretation of PPS 3 and its companion document
Delivering Affordable Housing.
To set our evidence in context we believe there
is interest from financial institutions in large scale investment
in the Private Rented Sector (PRS) and Affordable Housing Sector.
This interest comes about because the cashflow from such an investment
matches the liability profile of pension funds in providing a
long term relatively stable income.
The main barriers to entry by the institutions
are:
1. Lack of product on a large scale.
2. Risk to reputation by poor management.
3. Lack of clarity on Government policy /
regulation.
4. Lower returns than commercial property.
Dealing with these in turn, our suggested responses
are as follows:
1. All parties need to encourage a "Build
to Let" sector where institutions can negotiate direct with
developers. This should underpin developments financially and
see sites brought forward faster. We would suggest that REITs
should be allowed to grow by taking on developers' units over
a 5 year period to reach the 85% let rule, not one year as at
present. This would encourage institutions to deal with developers
on the large scale regeneration schemes such as those in the Thames
Gateway. Encouragement should also be given to other financial
models such as Affordable Property Trusts, Temp to Perm etc all
of which have potential for providing large scale investments.
Our suggestion on averaging Stamp Duty would assist here.
2. DCLG should encourage RSLs to work with
private landlords to manage stock on their behalf. Private Sector
Managers could become Approved Managers under the Housing Corporation
scheme, however most are put off by the bureaucratic requirements.
BPF offers to work with Communities England to define a simpler
code of conduct and registration for Approved Private Sector Managers.
3. The perception by the private sector
is that Government has over regulated rented housing which in
reality may not be the case. However implementation of regulation
such as HMO licensing is very variable across the country and
local authorities need to coordinate their efforts better.
The issue of vacant properties with regard to
new build we see as only anecdotal and may be resolved by recent
increases in interest rates which will make it harder for speculators
to service debt. The idea put forward at the committee of tax
on vacant property would only act as a disincentive to institutional
investors who are already concerned about void rates reducing
returns.
A more serious concern we have on large high-density
sites is the quality of management provided by buy-to-let investors,
which individually can be patchy and collectively lack co-ordination.
To overcome this requires no new additional tax or regulatory
policies, but simply responsible developers who take a long-term
view, and insert covenants into sale contracts which insist that
any investors on the development use the developer's property
manager. At Grainger Trust's Newlands development at West Waterlooville,
it is forming a joint management company with Hyde Housing Association.
Similarly, at Wembley, one of our members is insisting through
covenants that private investors' property is managed by the same
housing association manager as the social rented provision.
One of our members has created a set of criteria
(Annex B) which could be used to select managers in accordance
with PPS3.
The ambiguities in PPS3 are addressed below
and in Annex A.
4. A strong PRS and Affordable Housing sector
have to compete with commercial property for capital. Initial
yields in residential can be as low as 4-4.5%. Over a normal investment
period of say 20 years, this can rise to 8-9%, however commercial
property can achieve 13%+.
To improve this position and encourage institutional
investment we propose three measures:
(a) Introduction of a new longer lease (say
7 years) with pre-emption rights for the tenant to convert to
shared ownership and onwards to ownership.
(b) Clarification to local authorities that
where PPS3 calls for recycling of "subsidy", this applies
on public subsidy in the form of Grant from the Housing Corporation,
local authorities or other public bodies (see Appendix A).
(c) Best practice guidance in implementing
PPS3 that local authorities seeking to create mixed and balanced
communities should include an appropriate level of intermediate
rented or shared equity housing which matches their strategic
housing market assessment, rather than just seeking a majority
of social housing.
Implementation of the above measures would give
financial institutions confidence in the private rented and affordable
housing market place, and will see long term yields rise by virtue
of some staircasing receipts being returned to investors. The
committee and indeed local authorities should not be concerned
that such measures will see a reduction in social renting and
PRS stock, because historical data shows that social tenants only
take up RTA / RTB at a rate of 0.2-0.5% per annum, and shared
ownership tenants staircase at a rate of 2.5% per annum. Increasing
investment should see more than enough replacement stock being
built and let.
We trust the above gives you the additional
information you require. We have a suite of other documentation
that one of our members has produced, flexible tenure leases and
agreements, guidance for prospective shared owners, etc., but
these have some commercial value and we could therefore only provide
to the Committee in confidence on request.
Rupert Dickinson
Chair
Andy Leahy
Member
| 
