Private pain

Gloom pervades the high-powered residential committee of the British Property Federation on Budget day – and not only among those who are now in a 50 per cent tax bracket.

The assembled landlords and developers had lobbied hard for tax concessions they said were necessary to tempt institutional investors into the private rented sector. They thought they had made their case.

The fund managers were sitting on hundreds of millions of pounds that could provide a major shot in the arm to the ailing house building industry. Public finances were tight. The government’s housing quango, the Homes and Communities Agency, was poised to canvass expressions of interest from potential institutional investors in private rented housing.

But chancellor Alistair Darling’s Budget contained no mention of the private rented sector. The BPF’s major demands – changes to the stamp duty on bulk purchases of homes and to charges levied on possible vehicles for institutional investment known as real estate investment trusts – were not forthcoming.

Vice chair Alan Collett, a residential investment and development partner at Allsop, sums up the mood: ‘We told them what needed to happen. And they’ve given us none of [it]. So I think you can draw your own conclusions from that.

‘If you ask the question, ‘what do you need to do [to entice institutional investment]?’ and then you don’t do any of those things, it’s fairly likely that nothing will happen.

‘We do have to wait for the HCA’s announcement inviting an expression of interest. But an expression of interest in what? An expression of interest in a system we told them wasn’t good enough.’

Richard Donnell, director of research at Hometrack, adds: ‘Nearly 80 per cent of private tenants could not afford to buy a home on the open market. So private renting is part of the affordable housing sector, and I just don’t think government has got that… That’s why, potentially, you’re not starting to see some of the policy initiatives you need to drive investment forward.’

Huge demands

The committee was not the only group in the housing world to have a disappointing Budget day. But given the extraordinary demands made by the credit-crunched sector, and the ugly state of public finances, disappointment was not unforeseeable.

The 2020 group, a coalition of housing organisations, had called for £6.35 billion to build 100,000 new homes. The National Housing Federation wanted £3 billion for retrofitting eco-improvements to existing stock. In response, the chancellor mustered a housing market support package worth just under £1 billion.

Out of that sum, £400 million will provide a fund for the HCA to kickstart stalled private sector developments; £100 million will be offered to local authorities to build around 900 eco-friendly social homes; £85 million will go towards insulating around 150,000 existing social homes; £25 million towards renewable energy infrastructure on major developments; and £100 million will be added to the mortgage rescue scheme unveiled last year, which will be extended to homeowners in negative equity. There will also be an extension until December this year of the current stamp duty holiday on home purchases under £175,000.

Unlike the government’s previous efforts to rescue the housing market, none of this money will be brought forward from existing allocations. It will all be funded by new Treasury borrowing, except the mortgage rescue cash, which will come from a previous Communities and Local Government department under-spend.

One person who professed unequivocal pleasure at the measures was Margaret Beckett. The housing minister told journalists at a post- Budget briefing her priorities had been to get funds to unblock stalled private sector developments, help councils build homes and improve energy efficiency in existing housing. She also wanted greater flexibility for the mortgage rescue scheme.

‘I’m delighted to say that we were able to convince the chancellor, on the basis of the evidence we put before him, that these were all areas he could address,’ she said.

The biggest win in this process was for private sector house builders. The £400 million kick-start fund will be used by the HCA to help unlock private sector developments that are stalled because the upfront infrastructure costs and sales risks are too great in the current market.

‘This is above and beyond the funding we already have, and it will work very specifically on those sites that have got planning permission, and are ready to go, but can’t,’ HCA chief executive Sir Bob Kerslake said at the same briefing.

The agency would use the kick-start fund to remove risk from these developments for builders by taking equity stakes or providing upfront infrastructure funding, he explained. It also includes £80 million for the government’s private sector shared ownership scheme, homebuy direct. The HCA will call for bids in early May. The government expects the fund to trigger 9,000 starts in this financial year, including 5,000 homes for firsttime buyers and up to 1,000 social homes.

Ashley Lane, head of public sector business at house builder Persimmon, says it is ‘very pleased to see this level of help in the budget’. In January, Persimmon gave the HCA a list of 86 sites and 10,000 plots owned by the firm that could potentially be unlocked with kick-start funding.

‘[The] £400 million is a good start and the HCA is proving quite flexible with their budgets,’ he says, when asked if the fund is sufficient. ‘If they see a real uptake of this fund, it’s possible that money from the national affordable housing programme could be used to bolster that.’

Rent revisal

The group with second-biggest cause to cheer the Budget was local authorities. Alongside the new £100 million fund for council housing, the Treasury is considering changes to allow local authorities to keep the rents collected on any properties they build. Milan Radulovic, cabinet member for housing at Broxstowe Council, says it is ready to submit a bid for around £1 million of grants to build 14 homes.

Mr Radulovic, whose authority chairs the Association of Retained Council Housing, adds: ‘I’m delighted this recognition has come at last. When you’ve had nothing for more than a decade, anything is a big bonus.’

The £100 million would not go ‘anywhere near’ replacing the council stock that ‘needs to be replaced’, he says, but would provide the chance to ‘demonstrate to government that stock retaining councils are the best vehicle to deliver new social housing’.

Some housing associations are sceptical. ‘If they want to do it and there’s a bit of money, why not?’ asks Kate Davies, chief executive of Notting Hill Housing Trust.

‘But if you think all the housing need in this country can be met by getting councils to build six houses each, you’ve got another thing coming. That’s why the private rented sector is so essential.’

Part of the reason Ms Davies and her colleagues on the BPF’s residential committee felt so aggrieved on Budget day was that they believed their proposals to boost the private rented sector would not have cost the government money.

They had asked for the stamp duty paid upon buying portfolios of residential property to be calculated on the individual values of homes, rather than the aggregate value of portfolios.

This would typically mean a charge of 1 per cent, rather than 4 per cent, making yields more attractive for institutional investors in rented homes. As no one is currently buying large portfolios of homes, the government is not collecting any stamp duty on such transactions, they argued.

‘They’ve actually ignored the opportunity to do things that wouldn’t have cost them a penny, but might well have made a difference,’ says Allsop’s Mr Collett.

Sir Bob says the HCA is planning to announce the next stage of its work on the private rented sector within a fortnight. But he insists there is a distinction between ‘what might come forward from the industry about things that they would find helpful’ and the agency’s approach, which was to explore with institutional investors what sort of conditions would allow them to ‘see the benefit of investing’.

And what about the CLG? Did Mrs Beckett ask the chancellor for any of the changes private landlords say are necessary to bring institutional investment into their sector? The minister won’t be drawn.

‘I’m sorry,’ she says. ‘There are various boring conventions that I know journalists deeply dislike, and one of them is that you don’t discuss the things that you asked the Treasury for and didn’t get.’

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