Private rental sector must be 'talked up' for growth

Private rental sector must be 'talked up' for growth


The residential sector has welcomed a Government report addressing the challenges it faces in supplying the growing demand for rental property, but some have suggested that its proposals do not go far enough.


The report, by Sir Adrian Montague, aims to tackle the UK’s housing shortage by aiding developers to build large scale developments and facilitating institutional investment.


Specifically, the report aims to give investors Government-backed assurance in the sector in order to sustain long term residential funding for stable and guaranteed returns; it also sets out plans for an expert task-force to ensure development plans are viable. 

In a conference held last week – at the RESI 2012 event – a panel of key figures within the residential sector questioned Peter Schofield, Treasury representative and Director General at Neighbourhoods Group, to voice the industry’s concerns.


The owner occupied sector has long been considered the more stable facet of the residential market in terms of investor return and consumer security. Many believe changes need to be made to bring the private rented sector – the seemingly less stable - on to a level playing field.


Yet, the conference highlighted that the Government should be addressing ways for the two sectors not to compete but instead distinguish each sector so that renting is equally attractive to investors – a 30 per cent lower purchase price for buyers was even suggested.


The challenges – ventured by Christopher Down, Chief Executive of Hearthstone Investments – facing investors are four-fold, including; supply barriers (such as land), expertise barriers (are property managers robust enough?), data barriers (there is currently no resi property price index) and a lack of FSA-authorised funds (more liquidity amounts to greater diversity).


Whilst Hearthstone Investments welcomes the report, it took the view that more emphasis needs to be placed on the above concerns; until these are addressed investors are likely to remain primarily focused upon the owner occupied sector.

Plans for the expert task-force were also scrutinised; is the Government passing the buck to this proposed body, absolving itself from involvement in the proposals?


Peter responded by underlining the importance of this special body set up to administer the plans, explaining how the task-force will be catalytic in sparking growth.


The task-force’s expertise will enable communication between the parties involved in building and renting to be much smoother and effective, he stressed.


Panellists suggested that in order for the task-force to add real benefit, it needs to work closely with local property management firms with specific area knowledge – further communication with Local Authorities will enable developers to overcome planning issues they so often face.


Tax changes were also highlighted as a concern amongst the sector; the Government cannot guarantee that it will not increase the associated costs of house-building in future years, contributing to hesitation from investors.


The cost of renting, which often matches mortgage repayments, further fuelled concerns that the sector faces significant challenges; why rent when you can buy?


Panellists ascertained that rental costs cannot be lowered as landlords burden all risks and maintenance responsibilities when letting their properties – without healthy returns, very few would be willing to let.


Consequently, concerns surfaced about the report lacking sufficient support for investors, echoed by Andrew Cunningham, Chief Executive of Grainger Plc, who believes that investors need to be incentivised by making renting just as profitable as selling.


Summarising the much wider challenges the private rental sector faces, Liz Peace, Chief Executive of the British Property Federation, pertinently said that an underlying cultural barrier exists; “We need to ‘talk up’ the renting sector, so that it is considered equal to buying”, she explained.


With the growing realisation that buying is not a viable option to a large proportion of the population, even those who are financially sound, attitudes need to shift so that homeownership is no longer idealised as the ‘better’ option.


A key concern is that house-building and related Government policy has long focused upon the build-to-buy sector rather than build-to-let. Whilst the sector welcomes the report, responses to the Montague report suggest much more is needed not only in terms of policy change but instead in the form of tax allowances, relationships with Local Authorities and importantly cultural shifts to really help drive the sector forward.




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