Examination of Witnesses (Questions 331
- 339)
MONDAY 5 FEBRUARY 2007
MR RUPERT
DICKINSON AND
MR ANDY
LEAHY
Q331 Chair: Can
I announce to all and sundry, in case they were expecting to see
Mr Bailey joining the two witnesses we have got from the British
Property Federation, that he has had to send his apologies because
he is unwell, but we are grateful that the British Property Federation
is in good health. Would you introduce yourselves and then we
will start with the questions?
Mr Dickinson: My name is Rupert
Dickinson. I run a company called Grainger Trust as a private
sector landlord quoted on the Stock Exchange and I am also Chairman
of the Residential Committee at the British Property Federation.
Mr Leahy: My name is Andy Leahy,
I am the Managing Director of the Bespoke Property Group, which
is an affordable housing consultancy. We are advisers to the Housing
Corporation and joint author of their Housing Viability Tool.
I am also Deputy Group Chair of A2 Housing Group, which is an
RSL.
Q332 David Wright:
In the written evidence that you have submitted you said, "BPF
members, with far less support from government, could be expanding
the intermediate market through investment in shared equity products
and expansion of the immediate market for rent." I suppose
that is the Holy Grail, is it not, in terms of building new accommodation
using little or no public subsidy? Could you flesh out how we
could achieve more shared equity schemes with little or no public
support?
Mr Leahy: The first thing to say
is that the viability of all schemes is the key, and that is what
the Housing Corporation tool is there to do, to judge the viability
of a scheme. The Property Federation has put forward a suggestion
with regard to intermediate market renting and shared ownership.
The key issue is, through the lifetime of these investments, what
happens to any receipts from staircasing. In effect, PPS3, and
the companion that goes with it, has unfortunately brought about
some ambiguity on this subject, and the main issue is that, within
the guidance notes that go with it, there is discussion about
the use of public subsidy and then there is discussion about recycling
subsidy. The reason it is ambiguous is because, on the one hand,
it talks about public grant provided by a housing corporation
and, on the other hand, it generalises the term "subsidy"
and returning that to local authorities should staircasing take
place. There is a huge appetite in the investment market place
for investments in housing and, in particular, intermediate stock,
the reason being that they kick off with relatively low yields
but, through staircasing and assumptions one makes about house
price inflation over the years, the investors will see a decent
return; but if at the outset one is tied in to handing back (and
this an interpretation issue by local authorities through the
106 arrangements) everything that is effectively deemed subsidy,
then you are in a position where the returns to investors will
not be sufficient to encourage them in. My point is that there
should be clarity, or a letter written to local authorities explaining
to them that the subsidy, the grant, mentioned in PPS3, to be
recycled is the public subsidy only, it is the grant provided
by the Housing Corporation. Then, if the staircasing receipts
exceed that (and one has to accept the fact that you are trying
to encourage investors at risk into this market place), that gets
returned to investors as part of their yield profile over the
period. It is possible to do it without grant, as long as you
are in areas where the open market sale prices on the site will
subsidise (using a generic term) across enough to make the whole
thing work, but there has to be some flexibility given by local
authorities as to the mix of tenures that you have on site to
create that value.
Q333 David Wright:
It would be interesting if you could provide what you think would
be specifically needed in those terms so that we could run that
past the department in terms of their approach?
Mr Leahy: Yes.
Q334 David Wright:
Presumably though, you still require some tax incentive, you still
require some front end support, in order to deliver this model?
Mr Leahy: At the end of the day,
for example, if you had a situation where local authorities prioritised
this market place, because it is quite huge (it is within the
evidence which you have received), then you could have a situation
where the REIT legislation could be made more flexible, i.e. longer
than a year to get from the development phase into the investment
phase. You could have a situation where the Stamp Duty, as is
suggested in the note, is taken at a level where it is dealt with
on the average basis of the unit cost rather than the outlook
basis of the portfolio, and that is a key differential between
the buy-to-let situation and encouraging investors into this particular
market, the build-to-let, because buy-to-let investors buy individual
properties and get charged stamp duty on the individual property,
not on the aggregate sum of the portfolio.
Q335 David Wright:
So it is wider than looking at PPS3?
Mr Leahy: It is, yes. Along with
my comments on PPS3 there are clearly a number of issues that
have been raised within the written submission.
Q336 Chair: Maybe
I am missing the point here, but the point of shared equity as
administered through housing associations is that they make sure
that the people who buy into them are people who need to buy into
them.
Mr Leahy: Indeed.
Q337 Chair: The
difficulty, as we have been previously discovering on all the
buy-to-let stuff and my experience in my constituency with a private
developer who built so-called affordable housing, was that it
was not people who needed it who bought it, it was another investor
who bought it at a knock-down price and made a killing. What mechanism
are you proposing to ensure that if you build shared equity the
people who benefit from it are the people on incomes who cannot
afford market properties and not another developer who just comes
in and buys it?
Mr Leahy: I fully understand.
The issue here is the section 106 agreement itself. Local authorities
spend far too long trying to govern the capital value of the product
and not enough time looking at what the product is going to be
used for, ie who is the tenant and what is their housing need?
In my view, and this is the advice we have given to the Housing
Corporation, it is that end that should be looked at within section
106. The capping of capital values is not an issue; that is a
private matter between the funders, the RSL and the developer.
What is key to making this work, and to ensure that the situation
that you have described does not arise, is that the section 106
should contain restrictions with regard to the first letting,
that they should be nominated through the local authority, and
subsequent lettings on a cascade mechanism, and then the people
who have moved into them, if their financial circumstances improve,
will then be in a position to take advantage of staircasing, buying
more property without having to move, but the message has to be
sent to local authorities that they should concentrate on the
tenant and the rent and the affordability.
Q338 Mr Betts:
Staying with the regulation and tenancy arrangements in the private
rented sector, I think generally you have been supportive of a
change of arrangements, probably along the Law Commission's suggested
lines, and have said words to the effect that you think that tenants
need to be protected from unscrupulous landlords, and you probably
think that most are the smaller landlords with a few properties
rather than the large institutions which you probably tend to
have more sympathy with. Can you give us a flavour as to what
your thinking is on this?
Mr Dickinson: I have been working
in the private rented sector for nearly 20 years since the 1989
Act came in and assured shorthold tenancies came in, and they
were the big change, as the previous witnesses have said. Working
in the sector for a large company and working in a sector where
we are trying to encourage institutional ownership back into the
sector (and we have got to remember that the private rented sector
in the 1950/1960s was owned by institutions or industrial companies
who were housing their workforce) since then it seems that the
private rented sector was diminished by regulation and by rent
control, and then it was opened up by the assured shorthold tenancy
and since then, rather than encouraging good landlords and large
landlords and trying to create a framework in which they could
provide a sufficient supply of good accommodation at various rent
levels, it has been a carrot and stick situation, and there are
lots of sticks with lots of regulations, new Acts trying to get
at the worst landlords, rather than actually saying, "We
can improve this by creating a good supply of institutional stock",
so that the tenants, at whichever wage level, have choice and
then they can choose against the bad landlords; but all of the
regulations that are coming in are just more disincentive to a
good institutional landlord entering the sector.
Q339 Mr Betts:
Basically what are the key issues coming in that you think have
to be addressed to release this outlet for landlords that currently
they are not putting into practice?
Mr Dickinson: There are certain
things that are coming in. The REIT legislation may help, but
I think it will help for the next 20 or 30 years rather than the
next five or 10 years. The Law Commission's proposals regarding
tenancies are sensible, but the assured shorthold tenancy and
the shorter tenancy in the private sector I think are probably
sufficient at the moment. It is things like the disaggregation
of Stamp Duty for portfolios; it is things like the VAT that private
sector landlords are paying on repairs and maintenance. There
are a whole number of aspects that I think can encourage greater
institutional investment into the sector, but what really turns
the institutions off is new regulations coming in the whole time,
such as the HMO regulations. The previous witnesses were talking
about this. The HMO regulations are being dealt with by local
authorities. If you are a large landlord and you are dealing in
a number of local authorities, you have to register in each of
those local authorities and, for instance, the fees for registering
in local authorities can vary from, for instance, £100 in
Wigan and £1,750 in Dartford. This makes it very confusing
and difficult for large landlords to get involved in the market.
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