The House of Commons library has issued a briefing paper on its intentions for the private rented sector.
Titled “Building the new private rented sector: issues and prospects (England)” and published 12 June 2015, the briefing guide talks about building more private rented sector homes and looks at measures by Government and policy proposals from those within the sector to increase the supply of privately rented properties in England.
Acknowledging the importance of the private rented sector as “the second largest housing tenure in England behind owner occupation, overtaking social housing”, it says “successive Governments have increasingly looked to the private rented sector (PRS) to play a greater role in providing more new build housing.”
It’s easy to see the main thrust of Government thinking on the PRS through this report as more than three-quarters of it is taken up by the Government’s emphasised on “the importance of increasing institutional investment” into the PRS to fund large-scale, professionally managed developments.
In August 2012 the Montague review, a Review of the barriers to institutional investment in private rented homes, was published. The Government accepted a number of its recommendations, which were announced in its Housing Stimulus Package in September 2012. These included a £200m Build-to-Rent fund (later increased to £1bn), a £3.5bn PRS housing guarantee and the establishment of a PRS taskforce to attract investment and share information on best practice.
Institutional PRS investors have called for additional measures to increase the attractiveness of investing in the sector. These range from reducing the requirements to provide affordable housing requirements in planning obligations, improving access to and affordability of land and a stable regulatory framework within which to operate.
The Government thrust on encouraging institutions and developers into the PRS has met with some success but the report acknowledges that as the economy improves the attractiveness of build-to-sell is somewhat eclipsing the idea of build-to-let, especially in light of the fact that large scale management of private rentals in the UK is as yet no proven record of economic viability
On small-scale buy-to-let landlords the report has to say that, “Despite the Government’s focus on institutional investment, the majority of PRS properties in England are currently built, acquired and managed by individual, buy-to-let landlords. This note sets out the Government’s response to policy proposals from smaller landlords to help them boost the national supply of private rented housing, such as reform of Capital Gains Tax and Value Added Tax.
Some interesting facts from the report about the PRS for small-scale landlords include:
- The private rented sector (PRS) has 4 million PRS properties
- The PRS is housing 9.1 million people in England in 2012-13, 18% of the population.
- In 2011-12, the sector overtook social renting as the second largest tenure behind owner occupation.
- There has been fairly consistent growth in the sector since the late 1980s. The Smith Institute and Centre for Cities argued this is largely a result of the Housing Act 1988, which introduced the assured shorthold tenancy, and by the introduction of buy-to-let mortgages in 1996.
- Other frequently cited explanations the PRS growth include price and availability constraints on the other two main tenure types, owner occupation and social housing respectively, and the requirement of an increasingly mobile workforce for a more flexible tenure.
- Consecutive governments have highlighted the flexibility offered by the sector and its benefit for young professionals and a mobile labour market.
- The Rugg and Rhodes Report (2008) identified a number of different renter types, from students to migrants to families priced out of owner occupation, creating a complex picture of the PRS in England.
- There is ongoing debate about whether private rented sector growth has simply replaced developments that had previously been predominantly for owner occupation.
- The sector also remains a cottage industry. The Department for Communities and Local Government’s (DCLG) “Private Landlords Survey 2010” showed that 89% of landlords in England are private individuals rather than companies or organisations, 92% of landlords are part-time, and just 2% of landlords have a portfolio of more than 10 properties.
- The nature of the industry can therefore make it difficult to regulate and to disseminate information, such as on legal duties around property maintenance.
- The combination of aging [housing] stock and the cottage nature of the private rented sector, have prompted criticisms of parts of the sector.
- A 2013 Communities and Local Government (CLG) Select Committee report highlighted particular concerns about security of tenure, property standards and regulation of letting agencies.
Growth of the PRS via institutional investment and professional management would solve many of the Government housing issues: a major new-build effort with large numbers involved, professional management with fewer legal issues and a general improvement in rental housing stock as small-scale landlords strive to compete. However, it’s doubtful this would drive out all those rogue landlords as they operate mainly in a sector of the market the institutions would not be interested in.
Still, the UK has a long way to go before institutional investment has any serious impact on the PRS and small-scale landlords as it does in other countries, as this chart from the report shows:
Read the full Briefing Report here
Main Image: House of Common Library