The private rented sector initiative being launched today by the Homes and Communities Agency (HCA) sounds like the most significant news on new homes since the start of the credit crunch.
The idea is to give investors like pension funds the chance to enter the private rented sector on a large scale for the first time. According to the British Property Federation (BPF), eight organisations including two institutions, two investors and one of two ‘big name pension funds’ have been in talks with the HCA about building new rented accommodation.
It predicts the project could see thousands of new homes built for long-term rent.The timing certainly seems right. From an investor point of view, the fall in house and land prices has made the potential yields much more attractive. According to BPF director for finance Peter Cosemetatos: ‘There is a rare opportunity at this point in the cycle for institutional investors to invest in an asset class that provides an excellent hedge against inflation at a good price.’
The initiative also addresses what Sir Bob Kerslake believes has been one of the main barriers to institutional investment: scale. More details are expected later on the HCA website.
From a housebuilder point of view, it offers a potentially reliable source of pre-sales to replace the reliance on buy to let that led to the building of thousands of unsaleable flats.
From an HCA and government point of view, in the short term anything that can add to plummeting housing starts is good news. In the longer term the initiative will help housing face up to cuts in public investment - although is there also a danger that a future government could use it as an excuse to cut that investment even more?
Curious then that the government did not address one of investors’ main gripes in the Budget. According to the BPF, changes to stamp duty that would have allowed large investors to pay stamp duty at a marginal, ‘per unit’ cost were removed at the last minute.
Also curious is that the initiative will apparently form a key part of the government’s response to the Rugg Review of the private rented sector. Published six months ago, the review came out against the fiscal incentives and planning changes that the property industry had lobbied for as part of its build to let initiative.
One other thing the government could do is take a close look at one of the recommendations made today by the Treasury select committee on the future of the bank industry. It points out that the government controls at least 20% of the buy-to-let market through its ownership of Bradford & Bingley’s mortgage book and recommends that it assess ‘the impact on the buy-to- let mortgage market of its share of that market, and how it proposes to use the influence it has’.
The fate of Bradford & Bingley should be a permanent reminder of what happens when extra lending and the greed of speculative investors inflates a housing bubble. The whole point of build to let is that it adds to the housing stock rather than driving up demand for what’s already there - and that the investment is for the long term.
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