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Pickles: build for rental investors

Communities secretary Eric Pickles has called for institutional investment in the private rented sector to help drive housebuilding numbers.

Speaking to developers at a conference in Wales last week, he said the government had brought forward a number of measures to aid institutional investment but housebuilders needed to target the sector with large-scale developments.

Mr Pickles said: “If institutional investment in homes to rent supports growth and creates jobs, anybody in their right mind will be in favour.
“Canny housebuilders will be thinking hard about the potential of the private rented sector.

“But few [developers] commission, design and build for longer term, large-scale investment and management. And perhaps there is some scope for this in the future.”

Grainger executive director Nick Jopling backed the communities secretary but said government and industry should work together to “get the message out that it’s OK to rent”.

Mr Jopling said the UK had a historic lack of investment compared with countries such as Germany and the US.

But he said the announcement by developers Qatari Diar and Delancey to make the Olympic Village a rented community had “caught a lot of institutional attention”.

“It was disappointing we didn’t have our own pension funds looking at it,” he added.

Mr Pickles also called for more innovation in the mortgage market. He said he had seen “encouraging signs” from lenders but wanted more innovation.

He said: “Some lenders and investors are thinking about shared equity mortgages backed by social capital.”

Home Builders Federation director of economic affairs John Stewart said housebuilders had already sold around 30,000 homes under shared equity schemes.

But he said such deals involved locking up funds “and that means less development”.

Directing more planning gain to infrastructure rather than social Housing was a better way to bring forward development, said John Charcol senior technical manager Ray Boulger.

 

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Readers' comments (5)

  • Mark Oliver H+H UK Ltd

    I could see this happening in the future, but it is not going to solve the housing shortage in the short term. At the moment, private sector rental is not an attractive business model to institutional investors because the yields available in the market, which are set by the buy-to-let homes owned by private investors, are too low. Private investors with a small number of properties, charge a rent big enough to cover mortgage payments, but rely on the capital growth of the house value to bring a return in the long run. Rents are therefore fixed at the covering-mortgage rate which is not high enough to offer a good return to a larger investor.

    However if house prices continue to stagnate, then the capital-growth model ceases to be attractive to individuals and the buy-to-let market stops being the major driver of private sector rental. At that point, developing houses for rent becomes a more attractive commercial proposition as rents can rise to offer a reasonable return on investment.
    @markoliver_

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  • Jack Sidders

    According to Grosvenor chief exec Peter Vernon the average yield for equities is just above three per cent while the yield for private rented is nearer four. He suggested the problem might be the amount of available stock

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  • Mark Oliver H+H UK Ltd

    Jack,
    That sounds promising. Can we look forward to Grosvenor doing deals where they commit to buying new homes from housebuilders that have schemes not being developed becuause they are not currently not viable on a for sale basis because potential buyers cannot get mortgages?

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  • Jack Sidders

    I will ask but I'm guessing they would be inclined to provided they could get investors' backing.

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  • Mark Oliver H+H UK Ltd

    British Property Federation Policy Director Ian Fletcher says in the Financial Times that strong capital returns on UK residential property have pushed down yields and they are not competitive. I think this is the same point I am making, so the lack of stock could be a red herring.

    I am sure many of my housebuilder customers would be very happy to agree to sell big proportions of the homes they build to institutions if the prices were attractive. And I would expect that they would bring schemes forward, build more homes and use more Celcon Blocks too...

    I am hopeful though, if house prices continue to stagnate and rental yields increase, developing houses for rent becomes a more attractive commercial proposition, so we could indeed see more homes being built for rent, provided that renting doesn't become as unaffordable as buying a new home is at the moment...

    @markoliver_

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