Thousands of new homes could be built in London and the South East for private rental, as a result of a scheme launched by a government agency. The initiative would be a major boost for the troubled construction sector.
Pension fund investments
The Homes and Communities Agency (HCA) is asking pension funds, insurers and overseas funds to put hundreds of millions of pounds into a new Private Rented Sector Initiative (PRSI). This is the first time a programme has been devised for major institutional investors to put money into homes for private rental on a widespread scale.
Sir Bob Kerslake, chief executive of the HCA, says that currently low property prices and the weak pound offer a unique opportunity, in particular for overseas investors. There is the potential for investors to earn strong long-term yields from rental, plus capital appreciation and, for those outside the UK, to benefit if the pound strengthens compared to other currencies.
Achieving scale
"To date, achieving scale has been one of the main barriers to attracting institutional investors into the housing sector," says Kerslake. "We believe there is an opportunity now for the HCA to work with developers and housebuilders to offer a pipeline of projects for the PRSI, which could result in a positive outcome for all stakeholders."
Kerslake says that even before the current property market crisis, long-term trends had seen growth in demand for private rental accommodation. People are now tending to wait until they are older before they buy a home for the first time, he says. Kerslake expects most of the new homes will be built in London, the South East and the university cities, where demand from potential tenants will be strongest and market rents the highest.
Labour market flexibility
At present, points out the HCA, the private rental market in the UK is much weaker than in much of Europe, acting as a barrier to labour market flexibility, mobility and industrial growth. Homes built under the PRSI will be focused across a range of rental markets, including for very high earners. The PRSI is not intended to be used for social housing.
As well as investing in new schemes, it is also hoped that institutional investors will be persuaded to resuscitate projects that have been put onto hold because of lack of funds. Legal & General and Norwich Union are seen as the most likely institutions to put money into PRSI, though neither is committing themselves as yet. The first step, now underway, is seeking bids for schemes, which will be given backing and guarantees from the HCA.
The HCA says that if the initiative works on the scale envisaged it will increase choice for consumers and relieve pressure within the housing market. It would also go some way towards meeting government targets of building 240,000 new homes a year – which are at present nowhere near being met.
'A new kind of renting'
The British Property Federation is strongly supporting the initiative. Chief executive Liz Peace says: "This paves the way for a new kind of private renting that could support new development as the housing market recovers and offer the public real quality and choice in private renting, at little or no cost to the taxpayer.
"The task now is to stimulate interest in the HCA's proposals, encourage some innovative bids and ensure that we create some attractive proposals that provide solid returns for investors and, more importantly, tenants. To make this work, we do need to reflect on the different financial structures of private rented housing, ensuring that we do anything we can to draw in this vital new funding."
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even before the current property market crisis, long-term trends had seen growth in demand for private rental accommodation. People are now tending to wait until they are older before they buy a home for the first time
