As highlighted in Chapter 1 and reinforced by evidence to the review there is considerable potential for the market rented sector to have a positive impact on the housing market by providing additional homes, creating jobs, improving choice, and driving up quality and standards. However, if renting is to be a tenure of choice not a last resort, affordability in higher demand areas will have to be better, and standards of property and management will have to improve. A bigger market rented sector will help improve quality and drive down the cost of supply by counteracting the shortage of rented accommodation, particularly in London and other vigorous labour market areas, which has forced up rents very quickly.
The potential for growth in the number of homes for private rent is significant if institutional investment can be corralled. As figure 24 shows, it is a model of investment that is much more prevalent in other countries.
Numerous reports in recent years have recognised the potential for greater institutional investment in developing market rented homes at scale180, yet to date a significant flow of investment has not yet been achieved. There is evidence of growing interest by potential investors and developers181as highlighted by evidence to the review and illustrated by the following examples.
180 Most notably, Adrian Montague: Review of the barriers to institutional investment in private rented homes, August 2012
181 Savills, spotlight investing in rental Britain, 2013; Savills Residential Investment Intentions Survey; British Property Federation Submission to the Lyons Housing Review, 2014. Research from Molior estimates that in London build to rent accounted for 8% of housing delivery with significant development in the pipeline
Figure 24 – Institutional Investment Allocation to Residential
45% 50% 30% 35% 40% 20% 25% 10% 5% 15% 0% Belgium Ireland Italy Portugal Spain Norway UK
Sweden Germany Denmark France Finland Austria
Switzerland Netherlands
Percent of real estate investment portfolio in residential
property by value
Market Rented Investment Activity
Willmott Dixon: has created a new company called be:here to provide a new alternative to young professionals looking for accommodation in the market rent sector. Underlining the growing
recognition among institutional funds of the investment potential, last year be:here reached agreement with M&G Investments’ Secured Property Income Fund to invest in its first scheme, consisting of 233 apartments, a mix of market rent and affordable units adjacent to East India Dock DLR station in East London. The apartments will be owned by M&G and the market rent element managed by Housing Association Poplar HARCA under the be:here brand. be:here has the ambition to create 5,000 homes through this method and is in the process of acquiring further sites across London and at central locations in Manchester, Birmingham, Bristol and Leeds that are each capable of accommodating single developments of 100–400 apartments.
Thames Valley Housing Association and Fizzy Living: Thames Valley Housing has put £30 million into Fizzy Living, its joint-venture subsidiary, which aims to have 1000 market rent units by 2015. Profits from TVHA’s share of Fizzy Living are paid back to TVHA, cross-subsidising its social and affordable housing. Finance will also come from banks and institutional investment including Macquarie Capital (investment bankers) Silver Arrow, an investment entity owned by the Abu Dhabi Investment Authority Student Accommodation
Evidence to the review also pointed to the experience of student housing as a precedent for boosting the role of market rented housing, particularly in “build-to-rent”. Student housing provision has grown significantly in recent years into an established property investment class that behaves more like commercial property182. Over the last 18 months, there have been two student accommodation REITs listed on the London Stock Exchange.
Over 150,000 purpose-built student bedrooms have been developed by the private sector as a commercial response to an investment opportunity183. For instance the UNITE group is the UK’s largest developer and manager of purpose-built student accommodation. UNITE’s business model encompasses the entire development process through land and planning, financing, construction, and long-term management. Now that the model has been proven funding is drawn from an investment fund in which institutional investors now invest.
Investment in student accommodation was boosted in its early stages by tax relief under the Business Expansion Scheme. Research showed that 39% of BES companies letting residential property on assured tenancies intended to house students. Universities also used the scheme to obtain capital at a discount to commercial rates in order to fund new student accommodation or to refinance existing properties 184.
The Building and Social Housing Foundation identified three core reasons for success: development of properties that are designed to be managed; capacity to generate a strong and reliable income return; and a clearly defined customer who positively wants to rent.
182183184
182 Savills Spotlight of Student Housing 2013 183 GVA Who owns student housing 2013