New opportunities are surfacing in the housing market – nowhere more so than the private rental sector, which is increasingly attracting interest from the government, investors and developers alike.
In the run-up to the Budget on March 20, a string of announcements on PRS has drummed up expectations and industry sources say Whitehall is in discussions with a broad range of housebuilders and registered providers on how to boost the sector.
The housing crisis has increasingly come under the national spotlight, with rising prices, wary banks and stifled supply driving home ownership far out of reach for many would-be buyers.
The knock-on effects have seen housebuilders struggle to keep volumes up, while many smaller outfits are pushed out of the market altogether.
A hotly anticipated £200 million government fund for rental schemes is due to reach the shortlist stage by the end of this month, with several heavyweight housing associations in the running (see box).
But some of the biggest firms are making bold strides into PRS without any government help – and they’re looking for contractors to help them deliver.
Thames Valley Housing development director Mark Allnut says changing market conditions have made housing associations more commercial, with affordable grants having been cut in half in the 2010 spending review.
TVH has now set up a commercial arm, Fizzy Living, which has already seen a £70m investment and hopes to attract hundreds of millions more, partnering with contractors and entering joint ventures to build a new generation of accommodation for rent across the UK.
Opportunities for contractors with or without housebuilding arms on schemes such as this will be plentiful, as the new-build phase has no existing supply chain – in Mr Allnutt’s words: “It’s all up for the taking.”
He added that there was “a lot of activity” in the market, saying that TVH wouldn’t be bidding for the £200m funding pot and that the private sector needs to “step up”.
“There needs to be a private sector solution – if there’s too much long-term government support it becomes like a crutch, and people start relying on it.”
Fizzy Living chief executive Harry Downes suggests that “the private rental sector has huge demand and it’ll be a long time before that demand is used up”.
He adds: “We’re hoping those institutions will see that they can now invest in the UK market. Anyone would agree that it is an attractive asset.”
Fizzy Living is currently seeking out sites of around 100 units with its £40m investment war chest and is designing rental-specific apartments with a view to starting up bespoke PRS sites.
“What we need to do is to start putting specialist properties into that market,” Mr Downes says. “Nobody’s building this at the moment.”
Housing association London & Quadrant, meanwhile, has poured in more than £160m to create a 1,000-home rental portfolio, with almost £100m more in the pipeline and the potential for further expansion if institutions are attracted to invest.
London & Quadrant manages about 68,000 homes and says market rent will become part of its “core offer.”
L&Q group director for neighbourhoods Diane Hart says there had been some “inevitability” about the move, which is targeting 20 to 25 sites, mostly freehold, on completed or under development sites in London and the South-east.
She adds that L&Q would also consider joint venture partners and is open to discussions with developer partners with ideas about market rent.
So far deals have been struck to purchase developments from Bellway, Lakehouse, Taylor Wimpey and the L&Q pipeline. L&Q is also looking at converting some of its existing stock as the scheme continues over the next two years.
Builders expand presence
As a spate of housebuilders post increasingly healthy growth and profit figures, some are making their own forays into the build-for-rent market.
Crest Nicholson has ambitions for a four-year scheme to build 1,000 units of its own, partly in partnership with A2Dominion. Crest envisages a minimum of 20 urban housing sites, each featuring upward of 30 units.
However, others in the sector are more cautious about PRS. Redrow chairman Steve Morgan says requirements for social housing mean that “the arithmetic doesn’t work” when building for rent. “We would have an interest, but only if it makes commercial sense, and at the moment it doesn’t,” he says.
Mr Morgan says he wants the Budget to create a separate use class for rental in the planning system, and to allow PRS schemes to go ahead without social housing requirements. “If that happens I think you’ll see the private rental sector really start to take off,” he predicts.
Bovis Homes chief executive David Ritchie echoes the sentiment, saying the equation had “not worked so far” outside of London. However, he adds that institutional funds are starting to believe that PRS could have a “very credible return”.
Build to Rent Fund attracts bidders
A number of top housing associations are understood to be bidding for funding under the government’s Build to Rent Fund, worth £200m.
Notting Hill Housing Trust is bidding for a £33m slice to finance 423 new private rented homes, while London and Quadrant is “actively looking” at the investment fund.
L&Q added that although it was “early days” for the fund, they were interested.
Crest Nicholson, meanwhile, has teamed up with A2Dominion to bid for funding under the scheme, with a target of delivering 1,000 homes.
Chairman of regeneration Chris Tinker said the build-to-rent programme had the potential to underpin “a meaningful increase in housing delivery at a time when the need to stimulate growth and meet housing need is at an all time high”.
Thames Valley Housing Association say they aren’t bidding for the fund, on the grounds that they already have commercial operations set up.
The £200m fund is a commercial investment aimed at bridging finance for schemes, allowing them to be built out and let.
Funds won under the scheme can be used to cover the cost of land, construction or management.
The Homes and Communities Agency say the sector response had been “excellent”, adding that they are currently assessing expressions of interest.