News broke recently of a new financing agreement between the Government and PRS Operations Ltd (a subsidiary of Venn Partners LLP) – £3.5bn (yes, that’s billion) worth of government-backed loans is to be made available for landlords looking to invest at least £10 million for new homes for private rent.
Naturally, the deal has been met with approval by the British Property Federation (BPF) – to quote its director of policy (finance), Ian Fletcher: “We are pleased to see…that the sector can now more easily benefit from the guarantee scheme the Government has introduced. This is another important building block in the story of build-to-rent…”
Contrary to Mr Fletcher I was less pleased with the deal, as was noted #ukhousing commentator Rob Gershon (aka @Simplicitly), and we subsequently engaged in a short Twitter-rant about our concerns and objections to the agreement.
This was, however, insufficient to fully vent my disapproval. As such, I have chosen to escalate the expression of my discord by means of a blog – I know; I’m edgy, right? – so that I can further elucidate why this agreement (and, by extension, the Government) are, to employ a phonetic pun, taking the PRS.
Taking The PRS
Housing minister Brandon Lewis has said that the agreement is an important part of the Government’s efforts to create a “bigger, better private rented sector”. Bigger, maybe, but I have yet to see details how the agreement will make the private rented sector better.
Paul House, head of real estate and managing partner of Venn Partners, has said institutional investment in the private rented sector was pivotal in underpinning its expansion and improving standards, so we might assume that growing in size and increasing standards are to be the markers of making the private rented sector better…but I don’t see how the agreement will necessarily facilitate better standards – remember, it was only earlier this year that the Chartered Institute of Housing found only 33% of privately-rented homes would have failed the government’s Decent Homes standard in 2012. With no initiative to enshrine a decent standard of asset management in the private rented sector there is no guarantee that new homes have to be built to a standard beyond that which private rented sector tenants are willing to tolerate, which given the insecure nature of private rented sector tenancies, not to mention the continued risk and reality of revenge evictions (you can thank Christopher Chope and Philip Davies for filibustering a proposed safety net away…) is not an especially high standard to begin with.
There is, perhaps, surer footing beneath the claim regarding expansion: more money should mean more houses. But the shortage of homes is not the only crisis facing the UK housing sector…
The Need To Meet Need
“Unlocking £3.5bn of funding for the private rented sector will ensure that we continue to deliver the homes that people across the country need” – Danny Alexander, Chief Secretary to the Treasurer
The scheme will supposedly ensure the delivery of 275,000 affordable homes over the next five years. Ah, but there’s that increasingly vernacular misnomer – affordable. Even if these new homes were ‘affordable’ in the same sense as ‘affordable rent’ in social housing they would not be truly affordable – as many housing commentators will testify, and as I’ve discussed previously on Our Castle’s Strength, at up to 80% of the market rent ‘affordable’ housing really isn’t that affordable at all. But having read the press releases, I don’t believe that this guarantee scheme is for ‘affordable rent’ homes – just “new homes available for private rent”…which means that landlords will be able to charge, well, whatever they like. (Indeed, 40% of private rented sector landlords are looking to raise rents in 2015.)
The UK’s housing crisis isn’t just one of supply, but affordability. Without proper rent controls, there is nothing to ensure that new homes generated as a result of this scheme will be affordable for the growing number of tenants in the private rented sector. Instead, the guarantee risks being a Government-funded cash cow for existing large-scale private rented sector landlords, helping them build more homes – and, subsequently, turn more profit – without any social obligation to consider the capacity of many customers in need to be able to realistically afford to live in these homes.
Yes, the private rented sector is growing and yes, there is an increasing requirement for new homes of this type, but without a safeguard to ensure that the homes are appropriately let, at rates that are genuinely affordable, this guarantee can hardly be said to be ‘meeting need’…save, perhaps, the ‘need’ for very big landlords to get even bigger. When only 1% of private rented sector landlords own more than 10 properties, and the agreement only extends to those landlords looking to invest at least £10 million in new homes for private rent, it looks like the agreement will only benefit existing private rented sector giants.
A Sure Bet
In the ‘Twitter-rant’ I mentioned at the start of this blog, Rob Gerson wondered – in response to Mr Fletcher’s aforementioned comments – “if there might be a more cost effective ‘institutional investment in rented homes’ lying around somewhere.”
It was a pointed remark; we both know there is – it’s called social housing.
Not only is there great need for social housing – as Helena Partnership tenant Pat points out in a simple blog for Housing Day 2014, if social housing is not needed why are so many people bidding on properties – but social housing brings with it a generally acceptable standard of living thanks to historical Decent Homes investment and rents that, until ‘affordable rent’ erodes the shores of this housing bulwark, are genuinely affordable.
There is financial sense in investing in social housing too – when rents increase or are uncontrolled, there is a correspondingly high housing benefit bill to meet the shortfall between tenants ability to pay and landlord’s demands. Without rent controls, vast numbers of new private rented sector housing could increase this bill, as more people are forced to move into costly, unregulated, and insecure private rented sector housing rather than badly needed social housing.
Let me be clear: I’m not saying we don’t need more homes – we do, and it would be churlish to dismiss any effort by the Government to support or invest in projects that facilitate new build. Nor am I an enemy of the private rented sector: I have lived in rented accommodation most of my adult life, and have only very recently stepped on the home ownership ladder.
What annoys me about this agreement is that it seems to me to be a wasted opportunity, and at £3.5bn an expensive one at that. Social housing offers a good standard of living at genuinely affordable prices, without the rise in the housing benefit bill that the unregulated private rented sector is capable of producing – given these advantages, why are the Government investing in private rather than social rent?
The Government press release regarding this agreement looks to pre-emptively defend the scheme by citing the findings of the Montague Review (more formerly, Review of the barriers to institutional investment in private rented homes), which states how the private rented sector is growing rapidly – 3.6 million private rented sector homes now as opposed to 2 million in the early 1980s – and, in light of constraints on mortgage finance, looks to see how large-scale institutional investment can be brought to bear to increase the number of homes for private rent…but if there were large-scale institutional investment in social housing there might not be rapidly growing private rented sector – people would already have good quality, affordable housing to live in.
Most painfully, the agreement exposes the clear and unfortunate bias of the present Government against social housing. Put plainly, if £3.5bn can be ‘gambled’ on boosting the private rented sector, the Government cannot reasonably argue there is ‘no money’ for investment in social housing. Further, if the Government are willing to bring large-scale institutional investment into private rented housing, there is no valid reason not to condone the same for social rented housing…at least, not if the government are genuinely concerned about meeting UK housing need.
I hope some good comes of this agreement. I hope that any new properties built as a consequence of this agreement are good quality, affordable, and provide much needed shelter for private rented sector tenants looking for a home…but I can’t help thinking that, in overlooking a similar £3.5bn investment in social housing, the Government are letting dogmatic, political, and personal bias dictate their reaction to the UK housing crisis.
When there are so many benefits and so much clear need for social housing, such an approach really is taking the PRS.
Affordable, Flourishing, Fair – A Manifesto to Save and Extend Social Rented Housing, SHOUT, June 2014, Available: https://onedrive.live.com/view.aspx?cid=D36D6C8B249EE19C&resid=D36D6C8B249EE19C%21146&app=WordPdf
Review of the barriers to institutional investment in private rented homes, DCLG, August 2012, Available: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15547/montague_review.pdf
40% of PRS landlords to raise rents in 2015, 24Dash, Online: http://www.24dash.com/news/housing/2014-12-22-40-of-PRS-landlords-to-raise-rents-in-2015?utm_source=dlvr.it&utm_medium=twitter, Available: December 2014
Financial deal will release cash to speed up the building of new homes for private rent, Gov.uk, Online: https://www.gov.uk/government/news/35-billion-funding-boost-for-new-rented-homes, Available: December 2014
Government to gamble £3.5bn public cash on a scheme to boost private rented sector, Housing Excellence, Online, http://www.housingexcellence.co.uk/news/government-gamble-%C2%A335bn-public-cash-scheme-boost-private-rented-sector, Available: December 2014
Number of bidders shows housing demand, Helena Partnerships – Housing Day, Online: https://helenahomes.wordpress.com/2014/11/12/180/, Available December 2014
Tory backbenchers talk of ‘revenge evictions’ bill, The Spectator, Online: http://blogs.spectator.co.uk/coffeehouse/2014/11/tory-backbenchers-talk-out-revenge-evictions-bill/, Available: December 2014