6 Increasing supply |
132. While it was not our intention to focus
upon supply in this inquiry, we cannot leave it as the elephant
in the room. We heard from a number of witnesses that increasing
supply was an important way to raise standards and tackle issues
of affordability in the sector.
The landlord, Grainger plc, said that "many of the
problems in the PRS are a result of the significant lack of supply
and therefore lack of choice for the consumer".
In this final chapter, we will consider the Government's
current proposals to boost supply in the sector, notably its work
to attract large scale institutional investment. In doing so,
we will revisit some of the issues raised in our 2012 report on
the Financing of New Housing Supply.
133. Historically, the private rented sector
has not played a major role in increasing the supply of new housing.
Indeed, although the sector has seen substantial growth over the
past decade, this growth has not made a significant contribution
to new build.
In recent years, however, a focus has been placed on the
potential for institutional investment in new large-scale developments
of market rented housing, and we commented on the potential of
this "build-to-let" development in our earlier report:
Increased investment from large financial institutions
and pension funds may not be a panacea, but could make a significant
contribution to the building of new homes in both the private
and social rented sectors.
134. We also heard about the contribution housing
associations could make to new build, market rented housing. The
National Housing Federation stated:
Housing associations [...] as established developers
and managers of rental housing, are well placed to move into market
rental and many are already doing so, especially in student housing
but increasingly in other areas. A key aim for them in doing so
is to make prospective tenants a better offer than is currently
available, thereby raising standards. Moreover, they are likely
to develop new housing for the purpose, in contrast to some other
investors who might prefer simply to acquire existing stock and
thus not increase overall housing supply.
135. In November 2011, the Government published
Laying the foundations: a housing strategy for England.
This strategy included a commitment to put in place "an independent
review of the barriers to investment in private homes for rent".
This review, chaired by Sir Adrian Montague, published its
report in August 2012. The report's recommendations included:
making use of flexibilities in the planning system; the establishment
of a task force to support build-to-let development; the allocation
of public sector land for build-to-let; and the use of targeted
incentives to encourage the development of build-to-let business
models. The Government
told us that it had taken up the key recommendations in Sir Adrian's
report: it referred in particular to a new equity fund, a housing
guarantee scheme and the creation of an investment task force.
We now consider each of the measures.
BUILD TO RENT FUND
136. The Government explained that the Build
to Rent fund was
A new £200 million fund providing equity finance
to house builders and developers. It will support the building
of large demonstration projects of purpose-built private rented
housing, showing the viability of the build-to-rent market and
increasing investor confidence.
In the 2013 Budget, the Government announced that
it would expand the Build to Rent Fund from £200 million
to £1 billion.
137. One question arising from the introduction
of the fund is whether it will lead to additional homes being
built or merely speed up the delivery of those already in the
pipeline. Richard Blakeway, Deputy Mayor of London for Housing,
Land and Property, said that the fund would "certainly help
to contribute to overall housing numbers, and I think we can be
very confident that these homes would have been built far slower
if they had not benefited from the fund".
Neil Hadden, Chief Executive of Genesis Housing Association, one
of the successful bidders for resources from the fund, said that,
while development would have gone ahead anyway, the fund had influenced
decisions about tenure mix:
we already own the sites and we were going to develop
them anyway. The issue was what tenure mix we would deliver on
those sites. This fund came along, so we said, "Okay, we
might as well see whether it works for us".
Mark Prisk, the Minister, said that amongst the successful
bidders was a good spread of new providers and locations.
138. We welcome the introduction
and expansion of the Build to Rent Fund. The Government should
take steps to ensure that the fund makes a net addition to new
housing, as well as speeding up the delivery of those homes already
in the pipeline.
139. The Government evidence also referred to
the introduction of a
£10 billion debt guarantee scheme to support
the delivery of i) new homes purpose built for private rent and
ii) up to 15,000 additional affordable homes. The scheme will
use the Government's fiscal credibility to reduce the cost of
borrowing for housing providers, while attracting investment from
fixed income investors seeking a stable, long term return on their
investment without exposure to residential rental property risk.
We are currently seeking input from organisations suitably qualified
and experienced to help set up and deliver the scheme.
140. Neil Hadden, Chief Executive of Genesis
Housing Association, said that guarantee would not necessarily
affect his commercial investment decisions
because we can borrow money quite cheaply anyway.
There will be a fee that goes to the [Homes and Communities Agency],
and there will be a fee that goes to the aggregator. By the time
you have totted all that up, with the guaranteed low cost of borrowing
it will perhaps not be much different from what we can borrow
He said that it was difficult to say whether the
guarantee would be of interest "because all the details of
the scheme are not yet known".
141. We asked Mark Prisk about the likely impact
of the guarantee. He said that it was "unclear sometimes
as to whether, simply by announcing your intention to do something,
you affect the market without having done it yet".
Following his oral evidence, the Minister made a Written Statement
about the outcome of the procurement process for delivering the
private rented sector guarantee scheme:
The response to our invitation to tender for delivery
of the scheme indicated a demand from larger investors for individual
direct debt guarantees and that Government should take the first
steps in developing this new market. We are in conversation with
the sector and committed to exploring all of the market-led options,
which will lead to guarantees becoming available as soon as possible.
[...] Some potential borrowers are already discussing applications
with my officials and others are invited to do the same. A formal
application process will open shortly.
This statement followed reports in the press that
no private company had formally expressed an interest in running
142. It remains to be seen how
much impact the guarantee scheme for the private rented sector
will have in delivering additional new homes. The policy may be
well-intentioned in its aim to encourage organisations to have
more confidence to invest in the sector, but the Government needs
to measure results. We invite the Government in its response to
our report to update us on the number of applications it has received
for the private rented sector guarantee scheme, and to provide
an estimate for the number of additional homes it expects the
scheme to deliver. If there is any doubt that the scheme is going
to deliver the homes required, we recommend that the Government
rapidly explore other options for the use of the resources identified.
143. The Government said that, in response to
the Montague review, it was establishing a
new, expert PRS investment taskforce to facilitate
deals and support the delivery of rented homes through bringing
together developers, management bodies and institutional investors.
This taskforce will address barriers around the relative unfamiliarity
of large scale private rented schemes.
We asked Sir Adrian whether the task force was needed
because the Government lacked the capacity to carry out such a
If you look at the skills you or I would expect a
task force to have, I think it is institutional investment, development
finance, land-use planning, property management, and the ability
to broker deals. Now, I know that civil servants are renaissance
men, but they do not necessarily have training in these areas.
He did not think this was "a quango, because
it is intended to be a task force with a limited life of two years"
and said that it was aimed at kick starting the process.
A number of task force members have now taken up post.
144. We welcome the establishment
of the task force to promote and broker investment in build-to-let
development, and are pleased that the task force is already in
operation. It is important that this task force does not become
another quango but quickly delivers on its objectives. We invite
the Government, in its response, to set out the progress made
by the task force in its first few months of operation. This update
should quantify the amount of additional investment brokered,
and the number of additional homes it would deliver.
IMPACT ON THE SECTOR AS A WHOLE
145. While it is hoped that the focus on build-to-let
will lead to the development of additional, new homes, it is also
important to consider its impact on the wider private rented sector.
As we have seen, one of the main arguments in favour of boosting
supply is that it will lead to improvements in quality and affordability.
The focus of the Montague Review, however, was very much on the
"higher end" private rented markets. While Sir Adrian
said that that increasing the supply of a higher quality accommodation
would "have beneficial knock-on effects on the low quality
stock at the lower end of the private sector", he did not
see this as a particular area of focus for his review:
We were concerned more to try to raise the average
level of stock by commissioning new units of an undoubtedly high
character, so we did not focus on improvements at the lower end
146. It appears, then, that the impact of institutional
investment in new supply on other parts of the private rented
market relies on a trickle-down effect. Nigel Terrington, Chief
Executive of the buy-to-let lender Paragon Group warned that large
scale build to let development could lead to "the creation
of what may be almost rented ghettoes when you perhaps wanted
a more integrated housing market".
Dr Tim Brown of De Montfort University, himself a member of the
Montague Review group, suggested that the focus on institutional
investment had diverted attention from other parts of the market:
There has, of course, been considerable debate and
discussion on the potential of institutional investment for build
to let as evidenced by the Montague Review findings and the subsequent
actions of the Government. This has, to some extent, diverted
attention away from the issues of quality of the existing private
rented stock and its regulation.
147. When we asked Mr Prisk whether the focus
of the Build to Rent scheme was on the development of new housing
for the middle class, he replied that
this is a sector that needs an injection of investment,
further to what it has already had. If you do that, not only do
you get the additional dwellings themselves, but that then starts
to open up the market more and give tenants genuinely better choice,
both overall but also, most importantly, in the locality they
are seeking. If you like, by growing the market it will give all
tenants greater choice. [...] I have certainly been to see a number
of schemes, one or two of them in the east end, where they have
quite a range of steps, as it were, in terms of the tenancy and
the rental package, for those who are young people not looking
to spend a fortune through to a more serviced facility, as it
148. Efforts to promote
high-quality build-to-let development have commanded significant
amounts of government attention and resources. One of the main
arguments in favour of this approach is that it will lead to improved
choice, quality and affordability across the whole of the private
rented sector. It is too early to assess the impact, but a key
part of the evaluation of these measures must be the impact they
have on the sector as a whole. If, in a year's time, there is
no evidence of this broader effect, the Government must reconsider
its strategy and look to other measures to boost supply across
the sector as a whole.
149. In addition, the focus on new supply has
to consider other tenures. Increasing the supply of affordable
housing and building more homes for owner occupation will also
alleviate pressures on the private rented sector. In our report
on the Financing of New Housing Supply, we set out a number
of measures the Government could take to boost housing across
all tenures. These measures included:
- an expansion of the Green Investment
Bank to cover housing;
- clarifying plans for delivery of affordable housing
- consulting on arrangements for the future financing
of housing associations;
- lifting the local authority borrowing cap and
enabling the sharing of borrowing power between local authorities;
- the establishment of pilot schemes to support
large volume self-build.
150. Given that our report highlighted the extent
of the housing shortfall and the need for urgent action to build
more homes, we were disappointed that the Government rejected
a number of our key recommendations. There
is an urgent need to boost supply across all tenures of housing.
We recommend that the Government revisit the Committee's report
on the Financing of New Housing Supply, and set out proposals
to implement those recommendations it initially rejected.
272 See, for example, Ev 298 [Department for Communities
and Local Government], Ev 153, para 3.12 [Residential Landlords
Association], Ev 274, para 14 [National Union of Students], Ev
w274, para 2.5 [Crisis]. Back
Ev 221, para 1.6 Back
HC (2010-12) 1652 Back
Ev 298-299, introduction Back
Financing of New Housing Supply, summary, p 3 Back
Ev w266, para 1.8 Back
Department for Communities and Local Government, Laying the
Foundations: A Housing Strategy for England, November 2011,
p 33 Back
Department for Communities and Local Government, Review of
the Barriers to Institutional Investment in Private Rented Homes,
August 2012; see also "Montague Plan offers boost to private
rented sector", DCLG press release, 23 August 2012. Back
Ev 298-99 Back
Ev 298 Back
HM Treasury, Budget 2013, March 2013, para 2.26 Back
Q 407 Back
Q 402 Back
Ev 298 Back
Q 409 Back
Q 408 Back
Q 689 Back
HC Deb, 20 June 2013, col 38WS Back
"'Build to let' plans fall flat after investors show scant
interest", Financial Times, 10 June 2013 Back
Ev 298 Back
Q 138 Back
Q 139 Back
"Improving the rented housing sector", 20 June 2013,
Q 117 Back
Q 477 Back
Ev 126 Back
Q 688 Back
HC (2010-12) 1652, para 41 Back
HC (2010-12) 1652, para 60 Back
HC (2010-12) 1652, para 87 Back
HC (2010-12) 1652, paras 93-96 Back
` HC (2010-12) 1652, para 155 Back