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Interest in private rented schemes will bring opportunities for contractors

Following the Montague Review, and no doubt accelerated by recent government policy initiatives, a multitude of parties are now vying for position to try to steal a march in the private rented market.

When the Homes and Communities Agency announces the shortlisted applicants for the government’s £200 million Build to Rent fund, it will be a good barometer of the types of industry participants looking to either come together in consortia or offer single-source solutions for the private rented sector. No doubt housing associations will feature here in some way.

From a registered provider sector perspective, some well-publicised moves already indicate a desire to diversify current business models. No doubt this has been further driven by continued grant funding reductions and a need to source cross-subsidy opportunities back into core social housing business.

One of these strategies, alongside straight open market sale development, is to enter the private rented market. On paper, this enables a registered provider to leverage its residential and asset management expertise from the social housing sector.

Transferrable skills?

The question is, how readily do these skills translate into the private sector? One only has to look at Thames Valley Housing funding, or the standalone Fizzy Living brand, to recognise that this strategy may in part be led by a realisation that there is a potential barrier to how social housing landlords are perceived by private tenants.

The US multi-family housing model is driven by strong reputational brand positioning and loyalty for housing operators akin to the hotels and hospitality sector.

The need to have a user-friendly, internet-led, landlord management platform, which can collect deposits and rents, manage voids, control market pricing and offer added-value services, is not necessarily something borne from the social sector.

Places for People’s recent acquisition of the residential management business Touchstone is another strong indicator that housing associations will need to be innovative in how they build off their core skills to realistically exploit the private rented sector as another tenure option for their customers.

Some of the largest housing associations have already built a private sector management capability and mindset. These will no doubt be first into the private rented market in their own right. This also assumes that they have leveraged their balance sheets in order to be able to fund what can be a capital-intensive venture.

Contractor opportunities

It is likely that, with increasing interest in the private rented sector from investors, developers and operators, there will be greater opportunities for the contracting market.

One area that some contractors are exploring is that of the developer/contractor route. To enable the financial model to work, build costs have to be as low as possible with minimum scope for profit and risk.

If a contractor is sharing in the longer-term investment performance or development exit value, then it can offer a “net build cost” approach with the ability to drive the best purchasing from a larger volume of work. The same applies to housebuilders who might want to offer their delivery skills.

Those contractors who have actively innovated in product standardisation, prefabrication and process efficiency, and who also have vertically integrated property maintenance businesses, will find themselves better placed to access this market.

The ability to drive capital costs down and also offer cost-efficient planned preventative maintenance regimes post-completion will be a real point of difference for contractors.

Mark Farmer is head of private residential at EC Harris

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