The private rented sector is likely to benefit from the Montague review but it can’t be the only answer, argues Bill Randall
Time to go private
Successive governments have tried and failed to persuade large financial institutions to dig deep to support private rented sector housing on a large scale. As a result of their failure and the better returns offered by other investments, large institutions own just 1 per cent of residential rental stock in the UK - a drop in the housing ocean compared with the 10 to 15 per cent found in most European countries.
Now it’s the turn of the coalition, which has a natural preference for private sector solutions in all areas, to look at the PRS. Mindful that 90 per cent of UK landlords own fewer than 10 properties, the government asked private finance initiative mastermind Sir Adrian Montague to look at ways in which big investors could be convinced to invest their millions into the sector.
The Montague review
The review comes at a time of general financial uncertainty when long-term investment in the PRS has a more powerful attraction. Sir Adrian is expected to publish the findings of his review before parliament shuts down for its summer vacation, and a response is expected when government returns refreshed from the beach in the autumn.
In the government’s eyes, the PRS is perceived as the answer to the housing crisis, offering homes to those who can’t afford to buy and are too wealthy to qualify for social housing, which is oversubscribed, in short supply and now on the market near you in a discounted fire sale.
I understand three major strands are emerging from the Montague review. First, changes should be made to the planning system to alter the balance between housing tenures in favour of the PRS. While it should remain a local decision, the government should encourage councils to amend their housing strategies to promote new PRS developments, waive affordable housing requirements and adopt a presumption in favour of private rented housing.
Second, pressure should be put on government departments and local authorities to release land. A specialist housing task force, with a private sector director, should be established to unblock the flow of public land for PRS initiatives, working with named representatives in all government departments. Best value rules should be recast in favour of PRS. The task force would also hold the hands of local authorities, particularly the smaller variety, and help them to assemble and release land.
Third, carefully targeted and time-limited financial incentives should be made available, something not offered by previous governments. It would take the form of kick-start loans, rather than grants, to support large-scale new-build PRS schemes.
In a perfect private sector world the schemes would be produced by developers and sold on to institutional investors with well-oiled management arrangements in place. At this point the government loan would be repaid. Institutional investors, it seems, are risk averse, have a preference for ready-made schemes and are reluctant to dirty their hands with development. For their part, developers will be interested only if they can produce schemes on a large scale that are concentrated on large sites to offer them economies of scale. Such an approach would be a marked change in the market from the pepper-potted build-to-let phenomenon that has lacked any cohesion.
Would it all work? Any initiative that increases the supply of new homes at a time of acute housing need is helpful, and government loans would be extremely useful in developing large mixed-tenure schemes, in particular. Any proposal to unlock government land, so notoriously difficult to prise from departmental hands, could make a significant difference.
A better use of land
I wish any land task force well. I remember the problems faced by housing professionals seconded in the 1980s to find ways of filling the many empty homes owned by government departments. Even with the backing of ministers, co-operation was in short supply, not least from the armed services. The Ministry of Defence, for example, sits on 238,000 hectares of land and remains one of the largest landowners in the UK with substantial urban holdings. Why does it need so much office space in London that could be put to better use housing Londoners?
Large-scale institutional involvement could offer the opportunity to introduce better management and accommodation standards into an industry with a chequered history on both fronts. The proposal for a national kitemark scheme covering both quality and management in an expanded PRS is gaining currency. Extended across the whole sector, it could have enormous benefits for all tenants.
And what about rent controls? Some investors have argued the case for a guarantee in return for their commitment in the shape of rents linked to the retail price index. That’s an unforeseen consequence that could have the effect of regulating rents across the sector, but it is hardly one that would appeal to the coalition.
I support the expansion of the PRS, but not at the price of cutting social housing subsidies. In London and the south east, as well as other hot spots, it is impossible to supply affordable homes without a subsidy. The alternative is higher private rents followed by a never-ending subsidy of housing benefit to make the new homes affordable. Better always to put the money into bricks and mortar than open-ended benefits.
The proposals to boost the PRS are welcome, and I hope this isn’t another false dawn for the sector. However, PRS should always be a high-quality and well-managed supplement to social housing, not a substitute.
Bill Randall is a Green Party councillor, mayor of Brighton & Hove Council, and a housing journalist