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Growth Demanded of UK Private Rental Sector

August 29, 2012 | Landlord News  

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A review of the private rented sector has been conducted by Sir Adrian Montague, chairman of private equity firm 3i, has been published in what is being called the Montague Report. In it, he has recommended that requirements for builders to include a quota for affordable homes in new housing developments ought to be waived by councils in order to allow developers to create more properties for let to boost the private rental market.

But this recommendation is not without critics; many have expressed concern that this change would come at the expense of low-income earners who are struggling to get a foot on the property ladder. Many of these critics were also critical of a right wing think-tank’s suggestion that councils should sell off expensive houses to fund new building developments, which came out just a few days earlier. The suggestion was met with the charge that adopting such a strategy would push the poor out of wealthy areas.

The report says: “Whilst desirability of affordable housing should not be ruled out, it should be weighed against the benefits already built into market rent developments, in the context of an accurate assessment of the economics of building homes to rent.

“In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupier component.”

Commenting on his report, Sir Adrian Montague said, “It’s clear we must encourage investment in the private rented sector, which has gone through a period of rapid growth and is now relied upon by millions of people.

“My review shows that the rental housing sector offers potential investment opportunities of interest to institutional investors.

“But real momentum has been inhibited by constraints affecting the supply of stock, the treatment of rented housing schemes under the planning system and the need to create confidence among investors.

“The recommendations in today’s report are designed to challenge this, and remove the barriers that prevent the kind of investment that our private rented sector needs.”

Housing Minister Grant Shapps offered his take on the matter, saying, “We’re determined to encourage greater investment in the build-to-let market and boost the country’s private rented sector, which plays an integral role in meeting the nation’s housing needs and aspirations.

“In the past it’s often been seen as the Cinderella of the housing market, but when over three million people rely on this sector for their home, this is clearly no longer the case.

“A major part of this is to attract and encourage new players to the market, while at the same time avoiding the excessive regulation that would force up rents and reduce choice for tenants.

“Sir Adrian Montague’s findings offer both a blueprint for achieving this goal, and for setting the standards of accommodation that people should expect. I will be considering his recommendations very carefully.”

Shelter, a homelessness charity, were less positive in their analysis. Their chief executive, Campbell Robb said, “[The report] offers nothing for the millions of people already in the sector, paying sky-high rents and living under constant threat of eviction or further rent rises.

“Despite the increase in the number of people renting, the long term aspiration for many remains to be a homeowner.

“While more rented housing could help ease pressure on this over-heated market, it’s vital that this does not come at the expense of building affordable homes for people across the country already struggling to get on the property ladder in their local area.

“Young people who are working hard and saving towards a secure and affordable home need to know that the Government is on their side.”

David Orr, chief executive of National Housing Federation, also voiced doubts: “While we agree that there needs to be more private market rented housing, this should not be at the expense of affordable homes.

“The one doesn’t replace the other as both are needed for a fully functional housing market.

“Therefore we don’t think private rental developments should normally be exempt from affordable housing contributions.”

Labour were also vocal in their disapproval, making their opinion known via their shadow Housing Minister, Jack Dromney, who said, “While many of the measures recommended in this report are sensible, for instance on the use of public land, on attracting investment and on standards in the private rented sector, we are not convinced that the answer to the crisis created by this Government is to further water down affordable housing requirements that councils place on developers.

“As rents hit a record high in July, many families are already paying the price of the Tory-led Government’s failure to build enough affordable homes – the Government should be acting to address this problem, not looking for ways to water down existing legislation which could make the problem worse.

“Huge cuts to Government investment in housing, a lack of liquidity in the finance markets, the failure of banks to lend to homebuyers, and stagnating demand are the real hurdles to viability, not the cost of providing much needed affordable housing.”

Mike Jones, chairman of the Local Government Association’s environment and housing board, said, “Any strategy to boost the number of new rental homes should not come at the expense of new affordable housing, and councils will in consultation with their residents always seek to ensure a suitable balance between the need for private rental property and new affordable homes.”

But, Liz Peace, chief executive of the British Property Federation (BPF), was far more supportive, saying that the Montague recommendations “could unleash unprecedented investment in house building from pension funds, insurance companies and REITs [real estate investment trusts].

“Encouraging institutions into building homes for rent has for some time been seen as the holy grail in enabling a long-term, private rented sector which is designed and built to let and offers renters something a bit different in the marketplace.”


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