Written evidence from the Residential
Landlords Association (RLA) (ARSS 64)
ABOUT THE
RESIDENTIAL LANDLORDS
ASSOCIATION
1. The RLA is a direct membership national landlords
association representing landlords in the private rented sector
("PRS") throughout England and Wales. We have some 8,000
subscribers representing a membership of 15,000. Along with the
British Property Federation and the National Landlords Association
we are one of the three national representative bodies for landlords.
Our members rent out in all the sub-sectors of the PRS including
families, working people, students, the elderly and benefit customers.
Members acquire new properties to rent out and specialise in providing
new accommodation by way of conversions.
INTRODUCTION
2. This submission sets out the RLA's views on
the abolition of regional spatial strategies, and the possible
successors, in relation to housing provision. We start from the
view point of there being a series of shortage of housing in England
and Wales.
UNDER PROVISION
OF HOUSING
3. Since the implementation of the Housing Act
1988 PRS has grown from 9% of overall housing provision to just
over 14% (source CLG English Survey of Housing). The social sector
which has contracted (particularly due to buy to let sales) now
represents around 18% with some 68% being owner occupied. The
last Government set an ambitious target to increase the number
of new units built each year to 240,000 up to 2,020. Not least
because of the recession/credit crunch there are no prospects
of this objective being achieved any time soon.
4. The social sector faces waiting lists of 4.5
million, although not all of these are active. At the moment there
seems no realistic prospect of significant extra funding being
available for new social housing.
5. So far as owner occupation is concerned difficulties
in accessing mortgage funding coupled with the need for greater
deposits means that more and more people struggle to get on to
the property ladder. Often properties are out of the reach of
first time buyers, even if they could find the funding. More are
choosing to rent but because of this situation and also because
it is a lifestyle choice.
6. Historically, average house prices have been
at around four times average earnings. They went as high as over
six times at the height of the boom before the credit crunch impacted.
We are still down at around 5%. First time buyers cannot generally
afford a purchase price of more than £130,000 but with average
house prices at around £150,000 one can immediately see why
we need more housing. Rents in the PRS have gone up by around
63% over the last 10 years or so whereas average earnings have
bone up by around 47% over the same period. Complaints are made
against landlords regarding supposedly high rents. However, the
cost of housing provision has escalated and this inevitably reflects
through in higher rents, exacerbated by the shortage of water.
7. The result is that there is more and more
pressure on the expanding PRS. PRS landlords, in turn, are finding
it much harder to raise the necessary funding. There are now only
260 or so buy to let products available (Source Northern Rock).
There were two to three thousand before the credit crunch. Nevertheless,
there are signs of improvement in that loan to value ratios as
required by lenders are coming down. Historically, as the Rugg
Review shows the PRS is relatively lowly geared. Obviously, if
funding could be raised there is a huge opportunity out there
for PRS landlords to buy new build/newly converted properties.
Over time the available stock needs to be increased. In the UK
we face a rising population with the population projected to grow
to around 70 million. At the same time households are becoming
smaller. There is therefore huge demographic pressure to increase
the housing supply. This is needed also for economic reasons to
try to smooth out the problem of inflated house prices followed
by busts that we have been experiencing since owner/occupation
became so popular after the Second World War. Housing boom and
bust is a significant factor in the economic downturns we have
experienced and tends to be the trigger for these.
8. Attached in Appendix 1 is an analysis for
three northern regions undertaken by King Sturge. We believe that
this is representative nationally and demonstrates the pressing
need for increased housing provision. Whilst, at this stage of
the economic cycle, we are "bumping along the bottom"
as the economy improves over time it is of fundamental importance
that we increase the supply of housing including additional provision
for the PRS as it is an expanding sector. We believe that the
PRS has an increasingly important role to play to provide "intermediate"
housing for those who cannot access social housing and who cannot
afford/choose not to purchase their own properties.
CONSTRAINTS ON
HOUSING SUPPLY
9. The National House Builders Federation has
estimated that the regulatory costs attached to providing a new
unit of housing are in the order of £40-£45,000 per
unit. A key element making up this figure is the time trouble
and cost associated with obtaining planning permission and related
regulatory approvals. Complex submissions are required including
design and access statements, plans, models, traffic analysis
and so on. The list is endless, particularly for larger developments.
Even smaller scale conversions have to be accompanied by detailed
design and access statements. Significant fees are payable.
OPPOSITION TO
DEVELOPMENT
10. It is, however, not just a matter of the
regulatory cost and the effort involved. Invariably, there are
objections from neighbours to any development, even small scale
development. The UK is a nation of Nimbys. No one seems to want
change in their neighbourhood. This is even more so when a green
field site is involved.
11. The RLA does wonder if sometimes objectors
even pause and think for a moment. Once upon a time their own
house was a green field site. If their neighbours objected at
the time (and they probably did) had this objection been upheld
they would not be living where they were now so as to be in a
position to object!
12. Unfortunately this pattern of wholesale objection
adds up on a site by site basis. One of the major victims of the
current recession has been the construction industry. Our manufacturing
base has been decimated so where do these objectors think the
jobs are going to come from. The construction industry has traditionally
of late provided a large number of jobs including those for young
people, especially apprentices and trainees. If objections to
new developments are to prevail then there will be no construction
industry jobs and in turn even more unemployment.
ENSURING QUALITY
DEVELOPMENT
13. One of the consequences of recent policies
has been the drive for higher densities. This has been target
driven and is clearly one of the downsides of the target culture.
In particular, there have been too many flat developments. This
is an area where private landlords have tended to concentrate
their investment activities. It is well recognised that the PRS
has helped fund these developments through off plan purchases.
Landlord investors were happy to provide deposits and to buy in
bulk which has helped ensure the necessary funding was in place.
At least for the time being and probably for a long time to come
this phenomenon is at an end. It is, however, indicative of the
importance of the PRS's role in facilitating new development.
14. Whilst the RLA wants to see quality development,
as already pointed out in the regulatory context, there are significant
costs which mean that new development is not financially worthwhile.
Increased building standards e.g. heat and noise insulation, Section
106 payments and the provision of affordable housing mean that
a huge financial burden is placed on the developer over and above
the cost of land, the cost of services and the cost of building
(as well as leaving a profit for the developer).
15. One of the particular niches for the PRS
has been conversions. However, the yardstick at the moment for
the cost of a conversion taking into account much increased regulatory
requirements and retro fitting is £100 per square foot. Increasingly,
members who have undertaken conversions are telling us that this
is simply no longer economically viable. The fear now is that
more and more new building will also cease to be economically
viable because of all of these various costs.
TARGETS
16. Like many others, the RLA has been concerned
about the growth of the use of targets. We have already mentioned
the adverse consequences of targets in terms of densities. Nevertheless,
we do believe that targets can have a role to play in certain
circumstances. Planning of any kind means that you do have to
set objectives. Clearly, for all the reasons we have already outlined
increasing the number of new housing (including conversions) must
be a high national priority. We need more housing even to stand
still as the population grows and households become smaller. The
proposed substitution of agreement and co-operation between neighbouring
authorities will not, in our view, work effectively. They will
frequently be different perspectives from different local authorities
which will make agreement difficult if not impossible.
17. The Coalition Government have decided to
embark on a programme of "localism". This includes returning
decision making closer to local communities. The abolition of
regional spatial strategies is seen as a part of this process.
Alongside this is the intention to take away the power of the
planning inspectorate when examining Local Development Framework
Plans to override local decision making.
18. This means that the strategic power to determine
the number of new dwelling units will ultimately be in the hands
of the local planning authority and local politicians. As one
would expect, local politicians react to the views of their local
electorates; no bad thing one might way. Unfortunately, whilst
there is a wish to return power to local communities what is meant
by community? Is it the narrow neighbourhood which is opposing
a local housing development or is it the wider city or town which
needs to promote economic growth, create jobs, provide housing
which supports employment and so on. With a local politician with
an election around the corner will he or she see the bigger picture
or listen to the objectors. It is also common experience that
frequently the local objectors are articulate members of the middle
class who have time and ability to mount protests which can talk
down the wider longer term interests of the wider community.
19. Landlords in the PRS have been particular
targets of Nimbyism. The recent changes to the Use Classes Order
introduced by the previous Government, although now mitigated
to a limited extent by the new measures introduced by the Coalition
Government from 1st October, is an example of this.
Young people such as students, young working people and young
professionals need accommodation usually in shared houses. Much
of the enormous educational expansion over the last three or four
decades has taken place without any provision for where students
are to live. The private sector has stepped into the breach and
provided the necessary accommodation. This is not something the
social sector provides for in any case. In an increasingly globally
competitive world it is vital that we have an educated workforce.
Our economy has become much more knowledge based. Notwithstanding,
articulate campaigning groups such as the HMO Lobby have protested
vigorously and it is the narrow interests of local residents,
who simply do not want students on their doorsteps, against the
wider interest.
20. Even if local authorities can be persuaded
to review matters strategically and provide the necessary new
housing units, whether locally or in co-operation with neighbouring
authorities, there is then the problem of opposition on a case
by case basis as individual planning applications are made subsequently.
These can delay and change proposals.
21. The fundamental problem that we face is how
micro decision making (which will frequently be against development)
influences the macro/strategic approach which clearly demands
new development. As an analogy, if we were to allow such a process
of plan making to determine where new power stations, particularly
nuclear power stations were built, the lights would start going
out around 2017.
22. The RLA has strong reservation about the
abolition of regional spatial strategies. Whilst we share widespread
concerns about top down targets imposed from above and the target
culture that has permeated Government over the last 10 years or
so, we do not believe leaving matters to local planning authorities
and hoping that incentives based on Council Tax will suffice.
Unfortunately, we face deep rooted objections at local level to
housing development generally. Objectors do not seem to make any
connection between the success of their objections and the fact
that their children are having to stay at home much longer and
cannot afford to move out and buy a property, if they want to.
23. It is useful sometimes to look at the lessons
of history. Since the end of the First World War we have essentially
had three perhaps visionary movements to expand housing. In the
inter war years there was the pressing need to replace appalling
slums and we had widespread municipal housing built by local authorities.
This movement was assisted by funding being made available by
Central Government at the time particularly through the Public
Works Loans Board. In the aftermath of the Second World War the
then Government under Harold Macmillan, as Minister of Housing
and Local Government responded to the overwhelming need of new
housing as a result of bombing by adopting a targeted approach,
primarily providing municipal housing. Alongside this in the 50s
and 60s we saw the implementation of the new towns policy, with
a mixture of private and public housing.
24. Subsequently, essentially demand led rather
than planned, we have had the explosion of owner/occupation fuelled
by greater prosperity and we have also had this peculiar British
attitude that a house or a flat is not just one's home but an
investment. The three movements we have identified took place
in times when local authorities assisted and encouraged by national
government had a rather more visionary approach. We might not
always have liked the results and the architectural design and
quality of the building in the 1960s is an example of this. On
the other hand, it did produce the necessary increase in the number
of dwelling units. At the moment we seemed to lack this vision
and resources to implement it, even though for rather different
reasons, the need is precisely the same.
25. The RLA believes that without setting objectives
for housing provision even though this is urgently required it
is not going to be met. We need the carrot and stick approach.
We also need sensible planning policies in relation to densities.
However, we are running out of brown field sites that are viable.
You can only squeeze so much of a quart into a pint pot. The reality
is that with a growing population and greater affluence we do
have to look more and more at green field sites. Surveys have
shown that England in particular is one of the, if not the most,
densely populated countries in the world but we still have to
remember that only six or 7% of the land area is urbanised, to
put it into context.
26. We are not sure what impact the new National
Planning Framework referred to in the Coalition Agreement will
have and how far this will address this particular issue. However,
in our view housing needs to be planned at least in general terms
at a regional and sub-regional level to ensure that there is adequate
provision going forward.
27. The problem at the moment with finding meaningful
financial incentives to local authorities is the need to reduce
the deficit and get the public finances back into order. The current
proposal to give local authorities a sum equivalent to six years
Council Tax for newly provided housing stock is, we feel, an insufficient
carrot.
28. In our view individual local authorities
have to be given a positive mission to find the necessary land,
to determine locations, to shape design, to shape house types,
densities and so on. They have to respond to local demand for
particular types of housing, for example. At the same time, it
has to be remembered that the providers, be they house builders,
landlords in the PRS or whoever have to make economic decisions
in the interests of their business. We consider that this has
to be done strategically in line with the national need for housing
but planned on a regional and sub-regional basis. We consider
that local authorities have to be given a mission in terms of
overall numbers required in their area in the national interest.
29. We are coming out of a period where there
has been excessive targeting. The danger is that when a new policy
is introduced such as localism it is that we swing far too much
in the opposite direction. Rather, we should be looking at a middle
ground to mix the best of both approaches and housing provision
is a key example where this kind of approach is needed. There
also needs to be rewards/extra revenue to local authorities for
implementing what is needed from them is a welcome approach and
experience shows that it usually works.
30. Local planning can play a very important
part in the overall process. For example, one of the current needs
is more bungalow provision to meet the needs of an increasingly
elderly population. This is something that definitely does need
to be dealt with at a local level. However, the RLA still feels
that the overall plan needs to be set on a regional/sub-regional
basis and a national level. This is important to ensure that overall
we have an adequate number of houses/flats provided to meet the
ongoing increasing demand.
CONCLUSION
31. Landlords in the PRS have a vital interest
in ensuring that there is a sufficient supply of housing. The
current problems being experienced by owner/occupiers more as
a result of the credit crunch and the recession mean that there
is likely to be little growth in this sector in real terms in
the short to medium term. We believe that with the relatively
low gearing of the PRS there is significant opportunity for landlords
in the PRS to invest and expand their portfolios to meet the increasing
need. This is likely to happen more rapidly than a revival of
the owner/occupier sector. However, by leaving matters simply
to local authorities because of the strength of local opposition
we believe that so far as housing provision is concerned the abolition
of the regional spatial strategies will in time be seen to have
been a mistake.
September 2010
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