Help to Buy has reduced housebuilder interest in a £1bn government fund for the private rented sector, Construction News has learned, with 26 developers having abandoned the Build to Rent scheme.
Housebuilders including Countryside Properties, Keepmoat, Lovell Partnerships and Persimmon are among the companies that have dropped out of the first phase.
Build to Rent offers loans to developers to cover costs for land, construction or management.
Speaking to Construction News, a developer that has withdrawn from the scheme but asked not to be named said: “The Build to Rent fund was just another vehicle [for] bringing more availability and more supply to the market… but most listed housebuilders and developers build for sale because that is their business model.”
As the scheme developed, housebuilders “realised it wasn’t a direction of travel they wanted to go in”, he said. At the same time the housing market became more buoyant.
The Build to Rent fund, managed by the Homes and Communities Agency, was set up to help fund the construction of between 8,000 and 10,000 homes in 2012.
There were originally 43 developers on the first phase shortlist, announced in April 2013. This week, the HCA published a fresh shortlist for round one that included just 18 developers for 20 housing schemes.
The amount available under the Build to Rent fund was initially set at £200m, but was increased to £1bn in the 2013 Budget after the HCA said it had been oversubscribed.
The money had been split into a two-phase process, with the first round originally due to receive £700m and the second round to receive the remaining funding.
The first round applicants will now share £300m, with the remainder of the pot to go to schemes in the second phase.
The 18 shortlisted developers, including housebuilders Crest Nicholson and Bovis Mill Group (see box) as well as contractors Bouygues and Kier, are in the process of proceeding to contract or have already started construction.
The development by Bovis Mill Group was not on the original shortlist. The scheme was one of two that Bovis had originally intended to build using Build to Rent.
However, Bovis Homes chief executive David Ritchie said it would fund the second scheme with a separate investor rather than through Build to Rent.
EC Harris head of private residential Mark Farmer said as the homeownership market started to recover, some housebuilders and developers involved in Build to Rent had diverted back to their core business, which was homes for sale.
“In the run-up to the election, the government will be looking to play the card around enabling people to access homeownership. The danger here is that the Build to Rent fund and some of the other initiatives brought in to get PRS to take off might start to play second fiddle.”
Keepmoat exited Build to Rent round one after it had difficulties with the application timeline, including finding suitable plots of land and financial backing.
Group chief executive Dave Sheridan said that, at the time the first round was launched, the team did not have the right land available for PRS developments and it was an “initiative overload” after the launch of Help to Buy.
He agreed that Help to Buy had played a role in dampening the success of the Build to Rent Fund as “more liquidity entered the market”.
Mr Sheridan said the group was keen to be involved in PRS schemes but Build to Rent had not been “the right investment model”.
KPMG head of housing Jan Crosby said future PRS schemes would be more successful if they involved regeneration and affordable housing projects.
He said there was a role for PRS in larger sites with more capital employed and where developers could have a mix of PRS, private sale and affordable housing.
Build to Rent was announced by former housing minister and PRS advocate Mark Prisk in December 2012.
Mr Prisk told Construction News this week: “Help to Buy has been a success and I can understand that, looking at revived confidence in the market, developers will now be better able to access funding than when the Build to Rent fund was [first] announced.”
But he said it was a “good sign” that the market could now support development for sale and the private rented sector.
The 26 developers that have exited Build to Rent are:
- A2 Dominion Housing
- Broomleigh Regeneration
- Carillion Igloo
- Chestnut Homes
- Climate Energy Homes
- Evenbrook Capital
- Housing Solutions
- Hurst Street
- Lend Lease
- Lovell Partnerships
- LPC Living
- Mill Group
- Mount Anvil
- Network Housing Group
- Orbit Homes 2020
- Persimmon Homes
- Plus Dane
- South Yorkshire Housing Association
- Taylor Wimpey
- YH Residential
Bovis signs 510-home PRS deals
Bovis Homes has signed two separate private rented sector deals to build 510 homes across sites in the North and South of England and the Midlands.
The housebuilder aims to build 250 of the homes in 2014, with the remaining 260 delivered in 2015.
Bovis Mill Group scheme will access funding through the government’s Build to Rent fund.
This scheme includes building 190 homes in the South on Bovis Homes’ larger sites, where PRS would deliver stronger returns, instead of the group selling plots to increase its capital turnover (sales/working capital), it said.
Bovis Homes has partnered with investment fund Mill Group for the deal and has provided around £1m for a 27 per cent equity as well as a £4m additional loan.
The second deal involves 320 new homes on sites mainly in the Midlands and North, allowing Bovis Homes to increase trading on some of its older sites.