issues and prospects (England) ( PDF, 24 pages

Building the new private rented sector: issues
and prospects (England)
Standard Note:
Last updated:
2 February 2015
Alex Bate
Social Policy Section
This note sets out measures taken by the current Coalition Government, and policy
proposals from those within the private rented sector, to increase the supply of privately
rented properties in England.
Since 2012-13 private rental has been the second largest housing tenure in England behind
owner occupation, overtaking social housing. In the context of this growth over the last
20 years, and in the context of a national shortage of housing stock, successive
Governments have increasingly looked to the private rented sector (PRS) to play a greater
role in providing more new build housing.
The Coalition Government has emphasised the importance of increasing institutional
investment into the PRS to fund large-scale, professionally managed developments. In
August 2012 the Montague review, Review of the barriers to institutional investment in
private rented homes, was published. The Government accepted a number of its
recommendations, which were announced in its Housing Stimulus Package in September
Despite the Government’s focus on institutional investment, the majority of PRS properties in
England are currently built, acquired and managed by individual, buy-to-let landlords. This
note also sets out the Government’s response to policy proposals from smaller landlords to
help them boost the national supply of private rented housing.
This information is provided to Members of Parliament in support of their parliamentary duties
and is not intended to address the specific circumstances of any particular individual. It should
not be relied upon as being up to date; the law or policies may have changed since it was last
updated; and it should not be relied upon as legal or professional advice or as a substitute for
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The state of the private rented sector
Government initiatives to encourage increased supply
Build to Rent
The PRS Housing Guarantee
PRS Taskforce
National Planning Policy Framework
Institutional Investment – progress & issues
Economic viability of the private rented sector
Additional investor initiatives to attract further investment
Section 106 obligations
Regulatory stability
Land availability
Individual landlords
The buy-to-let market
Initiatives to attract further individual investment
Land supply and rent controls
Taxation reform
Houses in multiple occupation regulations
A sector growing in importance
Social landlords’ PRS initiatives
Housing associations
Local authorities
Prospects for future growth
The state of the private rented sector
The private rented sector (PRS) has expanded rapidly in recent years, with 4 million PRS
properties housing 9.1 million people in England in 2012-13, 18% of the population. In
2011-12, the sector overtook social renting as the second largest tenure behind owner
There has been fairly consistent growth in the sector since the late 1980s. The Smith
Institute and Centre for Cities argued this is largely a result of the Housing Act 1988, which
introduced the assured shorthold tenancy regime1, and by the introduction of buy-to-let
mortgages in 1996.2 Other frequently cited explanations include price and availability
constraints on the other two main tenure types, owner occupation and social housing
respectively, and the requirement of an increasingly mobile workforce for a more flexible
Both the Coalition Government and previous Labour Government have highlighted the
flexibility offered by the sector and its benefit for young professionals and a mobile labour
This vision of a high-end and flexible PRS market captures some of the benefits of the
sector, however it is not a complete picture. Rugg and Rhodes (2008) identified a number of
different renter types, from students to migrants to families priced out of owner occupation,
creating a complex picture of the PRS in England.3
Trends in Tenure
Owner Occupiers (%)
Social Renters (%)
Private renters (%)
Source: DCLG
Despite this recent growth in numbers, there is debate as to whether this has led to an
increase in overall housing stock, or whether the growth in the PRS has simply replaced
developments that had previously been predominantly for owner occupation (see section
The sector also remains a cottage industry. The Department for Communities and Local
Government’s (DCLG) Private Landlords Survey 2010 showed that 89% of landlords in
England are private individuals rather than companies or organisations, 92% of landlords are
part-time, and just 2% of landlords have a portfolio of more than 10 properties. The nature of
the industry can therefore make it difficult to regulate and to disseminate information, such as
on legal duties around property maintenance.
The combination of aging stock and the cottage nature of the private rented sector, have
prompted criticisms of parts of the sector. A 2013 Communities and Local Government (CLG)
These tenancies are not subject to rent control and offer no long-term security of tenure.
Centre for Cities/ the Smith Institute, The future of the private rented sector, 2008, p24.
Centre for Housing Policy, The private rented sector: its contribution and potential, 2008, p15-28.
Select Committee report highlighted particular concerns about security of tenure, property
standards and regulation of letting agencies.4
A sector growing in importance
In the context of a crisis in housing supply, there is increased focus on the role the PRS can
play in housing people who cannot access social housing and who cannot afford to buy a
property. Historically, the PRS has not been a ‘tenure of choice’ for most people. Concerns,
including those around security of tenure and property conditions, as well as the cultural
significance put on property ownership in comparison to other European countries, are all
factors that have resulted in only 3% of the population choosing to live in the PRS.5
However, this may be changing.
The PRS is viewed as an essential part of a strong housing market; successive
Governments have tried to create and promote a more professional PRS that is more
attractive to tenants, developers and investors.
The previous Labour Government launched a consultation exercise in 2010 on measures to
increase investment in the PRS, identifying it as a key component in solving the national
housing shortage:
The Private Rented Sector (PRS) plays a critical role within the housing system,
helping to meet growing demand and providing a flexible tenure choice. It has also
played a disproportionate role in funding new-build supply in recent years. It is
important that the sector continues to grow and develop to help meet the housing
challenge, and that it is able to respond effectively to changing demand.6
The exercise requested submissions on how to stimulate interest in and increase lending for
buy-to-let mortgages, which had been impacted by the economic downturn, to boost
individual investment in the sector.
With regards to institutional investment, the exercise called for evidence to justify that this
was a viable or desirable way to stimulate the sector:
6.21 It has been suggested that institutional investment will be beneficial, not only in
helping to meet growing housing demand, and increase new-build housing supply, but
also in encouraging the development of a more ‘professional’ PRS.
6.22 However, the position is not clear-cut. New institutional investment might simply
substitute for supply that would otherwise have been delivered through individuals.
Additional investment, particularly if geographically concentrated, and/or directed into
the existing stock, could be expected to have some impact on house prices. In
addition, the previous chapter explained that surveys of tenant satisfaction rates do not
appear to support the argument that larger, more professional, landlords will
necessarily provide a better service to tenants than individual landlords. The
Government is therefore interested in any evidence of the net benefits institutional
investment might bring to the housing market.7
Before a consultation response was published, the 2010 General Election saw Labour
replaced by the new Coalition Government. In its response to the consultation, the new
Communities and Local Government Select Committee, HC 50, First report of 2013-14, The private rented
sector, 8 July 2013
Million Homes, Millions Lives, Nation Rent, 2014
HM Treasury, Investment in the UK private rented sector, February 2010, p3.
Ibid., p28.
Government argued that significant tax incentives would be necessary to guarantee
substantial institutional investment in the PRS. In light of budgetary constraints, the
Government in effect ruled out additional financial support to increase the supply of new
private sector homes to rent:
3.21 The Government is committed to creating the best possible environment for a
sustainable private sector led economic recovery, though the financial position means
that priority must be given to maintaining the fiscal base. However, the Government will
continue to keep all taxes under review and considers proposals for new reliefs
3.22 In this context the Government will be considering further the case for changes to
the UKREITs regime in order to reduce barriers to entry to the regime and changes to
the threshold for rent-a-room relief to encourage better use of the existing housing
stock. To the extent that any such changes are likely to carry a cost to the Exchequer
at a time when deficit reduction remains the Government’s main priority, these
measures will need to be considered in the round, alongside other policy priorities, with
any announcement made as part of the 2011 Budget. 8
The issue of institutional investment in the PRS was raised again in February 2012 when
Communities and Local Government (CLG) published a call for evidence for a review into
removing barriers to institutional investment in the sector.
The findings of the Montague review, Review of the barriers to institutional investment in
private rented homes, were published in August 2012. The review suggested that an
increase in institutional investment could tackle some of the perceived historic weaknesses
of the PRS, such as:
The potential to offer longer-term rented homes;
A better service to tenants;
Purpose-built accommodation to a high standard of construction. 9
The review also argued that given the current demand for PRS over home ownership,
increased institutional investment could help to unlock stalled sites and therefore increase
overall housing stock.
The then Housing Minister, Grant Shapps, described it as a “blueprint” for reform of the
PRS.10 The Government subsequently adopted a number of recommendations made by the
Government initiatives to encourage increased supply
The Government response to the Montague review saw the acceptance of
Sir Adrian Montague’s recommendations of a Build to Rent fund, a debt guarantee scheme,
and a PRS taskforce:
HM Treasury, Government response to the consultation on investment in the private rented sector, September
2010, p13.
Department for Communities and Local Government, Review of the barriers to institutional investment in
private rented homes, August 2012.
Inside Housing, ‘Shapps: Montague is blueprint for PRS reform’, 23 August 2012.
Dr Offord: To ask the Secretary of State for Communities and Local Government what
steps his Department is taking to encourage the delivery of more private rented sector
Kris Hopkins: This Government are committed to a bigger and better private rented
sector, which is why, following the Montague review, we have put in place the £1 billion
Build to Rent fund, the £10 billion Housing Guarantees schemes, and the private
rented sector taskforce.11
Build to Rent
One of the recommendations for effective intervention in the Montague review was a fund to
support new larger-scale developments:
Recognising that institutional interest is likely to be mainly focussed on the take-out of
completed and stabilised developments, Government should also consider seeding
institutional funds in order to leverage in other private capital. This funding should be
on the same terms as private investment, without any element of subsidy, and should
be seen as a demonstration, through the power of example, of the Government’s
determination to trigger a significant expansion of institutional interest in the sector. 12
The Government’s Housing Stimulus Package, announced in September 2012, included a
commitment to build an “additional 5,000 homes for rent at market rates in line with
proposals outlined in Sir Adrian Montague’s report to Government on boosting the private
rented sector.”13 These would be funded by a £200m Build to Rent investment fund.
The Build to Rent prospectus indicated that bids should include at least 100 private rented
units and that the fund would not cover more that 50% of costs. These conditions could only
realistically be met by large-scale institutional investors.
Budget 2013 contained an announcement of additional funding for the Build to Rent scheme:
1.108 The £200 million Build to Rent fund announced at Autumn Statement 2012 was
significantly oversubscribed. Budget 2013 announces that this fund will be expanded to
£1 billion to support the development of more homes in England. The fund will provide
equity or loan finance to support the development finance stage of building new homes
for private rent.14
The £1bn fund was intended to build 10,000 new homes for rent. The first round of bidding
was significantly oversubscribed, with the Homes and Communities Agency (HCA)
announcing £1.4bn of bids received.15 On 16 April 2013 the Housing Minister announced that
£700m would be set aside for 45 first round bids.16
It was subsequently reported that a large number of developers had withdrawn from the
bidding process.17 The final allocation for round one was just under £150m, with eleven
PQ 176101 [Private rented housing], 25 November 2013.
DCLG, Barriers to institutional investment, para 53.
Prime Minister’s Office, ’Plans to boost UK housebuilding, jobs and the economy’, 6 September 2012.
HM Treasury, Budget 2013, HC 1033, March 2013.
Homes and Communities Agency, ‘Build to rent round 1’, (last accessed 23 January 2015).
DCLG, ‘Up to 10,000 new homes will improve the rental market’, 16 April 2013.
The Independent, ‘Build to Rent scheme falls far short of target’, 20 April 2014.
contracts awarded to ten developers.18 The first contract, for 102 private rental units at
Centenary Quay in Southampton, was signed in July 2013.19
Mark Farmer of EC Harris argued that this withdrawal was a result of a recovering
homeownership market, which saw many developers involved in Build to Rent divert back to
their core business area.20
One of the developers to withdraw was Keepmoat. The group chief executive Dave Sheridan
blamed “initiative overload,” with Build to Rent affected by the increased liquidity in the
homeownership market as a result of Help to Buy, launched in October 2013.21
A second round of Build to Rent was launched in September 2013, with a shortlist of
36 developers announced in March 2014 bidding for the remaining £850m.22
Despite this reduction in initial interest, James Coghill of Savills said the fund had been a
catalyst for new PRS builds:
It got a bit of momentum into the market but institutional equity was heading that way
anyway, so investors’ demand has probably overtaken [the fund] to some degree, 23
In his evidence to the CLG Select Committee report on the PRS, Neil Hadden of Genesis
Housing Association, one of the successful bidders, argued that Build to Rent had not
affected the number of properties they were building, but did impact on how many of these
became private rental units:
We already own the sites and we were going to develop them anyway. The issue was
what tenure mix we would deliver on those sites. This fund came along, so we said,
“Okay, we might as well see whether it works for us”.24
The Committee concluded that the Build to Rent fund should be welcomed, but that the
Government should ensure it made “a net addition to new housing, as well as speeding up
the delivery of those homes already in the pipeline.”25
The PRS Housing Guarantee
In addition to an investment fund, Montague also recommended:
Equity or debt funding to support schemes that can be sold into the institutional market
once completed and which would act as demonstrations of possible viability,
particularly around yields.26
As a result, the Government also announced in its Housing Stimulus Package, that it would
be providing £3.5bn in housing guarantees to support the building of new homes for the
private rented sector:
HCA, Build to Rent: round 1 signed contracts, 27 February 2014.
DCLG, ‘First rental deal yields hundreds of new homes’, 24 July 2013.
Construction News, ‘Housebuilders abandon Build to Rent as Help to Buy drives market’, 27 March 2014.
HCA, Build to rent: round 2 shortlist, 5 March 2014 (last accessed 23 January 2015).
Financial Times, ‘UK rental homes stimulus labelled a failure’, 28 July 2014.
CLG Committee, private rented sector, p53.
Ibid., p54.
DCLG, Barriers to institutional investment, para 53.
The private rented sector housing debt guarantee scheme supports the building of new
homes for the private rented sector across the UK, offering housing providers a
Government guarantee on debt they raise to invest in new privately rented homes. This
will help to reduce their borrowing costs, increasing the number of homes they can
afford to provide.
The debt guarantee is designed specifically to attract investment into the private rented
sector from fixed-income investors who want a stable, long-term return on investment
without exposure to residential property risk. The scheme rules for the private rented
sector housing guarantee scheme were published in February 2013. 27
On 20 June 2013 the Minister announced that the full application process would “open
shortly.”28 This announcement followed press reports stating that no private company had
formally expressed an interest in running the scheme.29
Housing Minister Brandon Lewis announced on 11 December 2014 that PRS Operations, a
subsidiary of Venn Partners LLP, would be managing the scheme.30 Following this
announcement the scheme rules were published again. They stipulated that a project must
have a minimum value of £10m, with the loan covering up to 80% of the project’s value.31
In his evidence to the Committee, Sir Adrian Montague indicated the amount set aside for the
guarantee had gone beyond what he had anticipated in his report:
Q114 Chair: I understand why you have given qualified support to the £200 million
build-to-let fund, which is about trying to stimulate a market—trying to get examples
going that others can then follow. However, you were absolutely categorical in your
review when you talked about being urged to get the Government to provide
guarantees of different kinds as a way of stimulating the market. You said, “We do not
advocate guarantees of any of these descriptions as they tend to distort the market.”
That is pretty categorical, yet £10 billion is hardly a kick-start, is it? It is a massive great
wodge of money, and you are quite happy for that to act as a guarantee.
Sir Adrian Montague: I was not concerned with the policy decision to implement the
housing guarantee scheme. I conducted the review; I have not had the responsibility of
implementing it. I think that was motivated by the desire to stimulate the flow of funding
into the sector, beyond what might be achieved by the build-to-let scheme. I think
reasonable men can differ on the desirability of guarantees.
Q115 Chair: Right. So you would rather it was done another way?
Sir Adrian Montague: I think it is a step in the right direction; it may be a bound in the
right direction rather than the modest step I was envisaging. 32
As the scheme had not been launched before the publication of the CLG Committee report
on the PRS, it was not able to assess its effectiveness. The Committee requested that the
Government’s response provide details on the number of applications received and the
number of new homes it anticipated the scheme would produce.
DCLG, Improving the rented housing sector, (last accessed 23 January 2015).
DCLG, ‘£10 billion housing guarantee opens for business’, 20 June 2013.
Financial Times, ‘Build to let plans fall flat after investors show scant interest’, 10 June 2013.
DCLG, ‘£3.5 billion funding boost for new rented homes’, 11 December 2014.
DCLG, Private rented sector housing guarantee scheme, December 2014.
CLG Committee, HC 50-II, First report of 2013-14 – Volume II: Oral and written evidence, The private rented
sector, 8 July 2013
The Government’s response in October 2013 did not provide this information.33 The response
did however confirm that in addition to the £3.5bn, £3bn extra would be held in reserve either
for this scheme or the affordable housing guarantee scheme, depending on demand.
Concerns were raised in the CLG Committee report about likely uptake of the scheme.
Neil Hadden told the Committee:
There will be a fee that goes to the [Homes and Communities Agency], and there will
be a fee that goes to the aggregator. By the time you have totted all that up, with the
guaranteed low cost of borrowing it will perhaps not be much different from what we
can borrow at anyway.34
Additionally, Savills’ James Coghill said that “the market didn’t really respond to the
aggregator role [the Government] wanted to put in place.”35
The then Housing Minister, Mark Prisk, told the Committee that even before the scheme was
launched, by simply announcing its intentions the Government could have affected the PRS
market.36 One of the first agreements with Venn, for a £20m debt facility, was with
Essential Living, an institutionally-backed PRS developer established in late 2012.37
PRS Taskforce
In order to support developers in utilising these new initiatives, Montague recommended that
a PRS taskforce be set up to act as “an enabler.”38 The taskforce was established in
April 2013.
A DCLG press release stated that the taskforce had helped to identify aspirations to invest
over £10bn of equity in the private rented sector.39 In his response to a PQ on the housing
guarantee scheme, the then Housing Minister Kris Hopkins drew attention to the taskforce’s
involvement even before the scheme had been officially launched:
In relation to the Private Rented Sector Guarantee, we are currently in direct
commercial negotiations with a number of borrowers with large enough projects to
raise their own finance. The Private Rented Sector Taskforce is supporting this, and
the separate Build to Rent fund, by engaging with the market and encouraging key
players to invest to kick-start the new private rented sector.40
The term ‘kick-starting’ came up again in the
CLG Committee’s report on the PRS:
Government’s response to the
The core mission of the Taskforce is to kick-start the new private rented sector in the
UK. This will provide an abundance of good, small scale private landlords but it will be
characterised by a growing number of large scale, professionally managed
HM Government, Government Response to the Communities and Local Government Select Committee
Report: The Private Rented Sector, October 2013.
CLG Committee, private rented sector, p54.
Financial Times, ‘UK rental homes stimulus labelled a failure’, 28 July 2014.
CLG Committee, private rented sector, p54.
Inside Housing, ‘Residential landlord signs £20m loan with Venn’, 19 December 2014.
DCLG, Barriers to institutional investment, para 54.
DCLG, ‘£3.5 billion funding boost for new rented homes’, 11 December 2014.
PQ 184930 [Housing bond guarantee scheme], 27 February 2014.
developments, owned and managed by institutional investors and private sector
This clearly set out the Government’s interpretation of the ‘new private rented sector’, defined
largely by a significant increase in institutional investment.
National Planning Policy Framework
In March 2012 the Government published the National Planning Policy Framework (NPPF)
with the intention of streamlining the planning process and speeding up developments. As
the then Planning Minister Greg Clark said in his ministerial foreword:
Development that is sustainable should go ahead, without delay – a presumption in
favour of sustainable development that is the basis for every plan, and every
Sir Adrian Montague commended the “flexible and permissive approach”43 to planning in the
NPPF, although he noted that it needed to specifically recognise the role of the private rented
Although the role of the PRS was not specifically focused upon, the major changes to
planning regulations will impact upon any new private rented sector development. The
House of Commons Library has produced a standard note with further information on the
Specific changes to section 106 obligations are discussed further in section 3.2.
Institutional Investment – progress & issues
% of institutional real estate investment allocated
to residential property
Source: IPD/KTI 201145
HM Government, Government response, para 41.
CLG, National Planning Policy Framework, March 2012.
DCLG, Barriers to institutional investment, para 49.
House of Commons Library, National Planning Policy Framework, SN/SC/06066, 30 March 2012.
Resolution Foundation, Making a rented house a home: housing solutions for ‘generation rent’, August 2011.
The Government’s vision of a new private rented sector characterised by a growing number
of large-scale, institutionally-backed developments emerged out of a position of weakness
compared to a number of other European countries. The graph above shows over 47% of the
Netherlands’ institutional real estate investment is held in the residential market compared to
less than 1% in the UK.
This comparative lack of institutional investment was highlighted in 2004 in the Barker review
of housing supply, which proposed US-style Real Estate Investment Trusts (REITs).46 These
were introduced by the previous Government in 2007, however by April 2011, only 1 of 23
listed REITs was investing in residential property.47
The current Government has put a major focus on securing institutional investment to
increase the quantity and quality of PRS housing stock and commissioned the Review of
barriers to institutional investment in private rented homes (the Montague review), the
recommendations and outcomes of which are discussed in sections 2.1-2.4 and 3.2 of this
Economic viability of the private rented sector
There are a number of reasons for the lack of large-scale, institutionally backed
developments in England. Of significant importance is the historic demand for owner
occupied properties over PRS homes. In addition, the investment model of the PRS, which is
one of long-term financial yields rather than the short-term capital value from sale of owner
occupier properties, creates an investment opportunity that presents greater risks for
As Mark Hafner of US PRS investor Greystar argues:
The answer is very simple and very obvious; the reason PRS hasn’t flourished in the
UK to date is because the for-sale market is so robust here.
For virtually any piece of land you are going to achieve a higher return faster from a
for-sale strategy than you are with rental. 48
Particularly with new-build PRS developments, which require a significant investment of
capital up front, the issue of yields that are susceptible to changes in the market rent rates
are significant for institutional investors. The Montague review identified this concern from
potential investors:
We were given a range of figures for yields that would be acceptable to investors.
Much of the information given to us was commercially confidential. But there seemed
to be a reasonable consensus that the base historic net yield of 3.5% p.a. would be too
low to prompt much investor appetite, without the boost to total returns from capital
appreciation (which implies sale to owner occupation within a reasonable period after
HM Treasury, Barker review of housing supply, March 2004, p95.
LSE (ed. Kath Scanlon & Ben Kochan), Towards a sustainable private rented sector: the lessons from other
countries, 2011, p27.
Social Housing, ‘Overseas investors target London PRS as UK groups focus on market sale’, 12 September
DCLG, Barriers to institutional investment, para 33.
The review noted that given the novelty of the large-scale PRS market, yields would have to
be particularly high to tempt investors into being the “first movers” in the sector, as well as
highlighting necessary changes to increase yields:
A change of paradigm to a long-term residential investment market dependent only on
income returns is therefore likely to require higher rents, or lower land, construction
and management costs, or some combination of all of these.50
The Government’s initiatives are aimed at removing the concerns of “first movers” by
providing financial support, as well as a taskforce to promote best practice and therefore
lower construction and management costs.51
Whilst there has been demonstrable interest in the Government’s Build to Rent initiative
(section 2.1), the improving owner occupier market, in part as a result of Help to Buy, has
attracted some risk averse investors away from PRS, particularly as the market’s recovery is
likely to impact on rental yields. A 23% drop in gross yields between 2009 and 2013 has
been directly attributed by commentators to a recovery in the housing market.52
A report by EC Harris on the viability of the build to rent model calculated that reducing
capital delivery costs such as construction or marketing by 5% (when combined with smaller
unit sizes), would make some form of PRS viable in 74% of English local authorities. This
compares to 53% of local authorities with neither reduced capital delivery costs nor reduced
unit sizes.53
The report argues that, unlike owner occupation, the PRS model is not viable across the
country, and that geographical variations do exist.
Source: EC Harris
The prospectus for round 2 of the Build to Rent fund spelled out this hope: “the Government welcomes bids
that include innovative design and construction techniques including, but not limited to, off site construction.”
Inside Housing, ‘Rental yields drop as housing market rebounds’, 7 March 2014.
EC Harris, Build to rent: pushing the boundaries, 2013.
The EC Harris report identified the highest residual land values in areas with high
employment, rental affordability and a high 25-35 year old demographic (Warwick was the
only authority deemed to have all three characteristics). It follows that the most attractive
areas for profitable PRS developments were identified as major cities, ‘satellite towns’
commutable to centres of employment and some university locations.
In areas without these characteristics, there appears to be little market appetite for new build
PRS given the yields involved. Derwentside Homes in County Durham (a local authority
EC Harris calculated no build-to-rent viability for in any of its models), received funding from
round 1 of the Build to Rent fund. This was however on a rent to buy model, rather than a
permanent PRS development, highlighting concerns about yields solely from rental income
raised in the Montague review.54
The EC Harris report was keen to stress that its calculations were not definitive, and that
variations in viability affected by local characteristics often take place within local authority
areas. The most viable regions were identified as the South East, and particularly London.
London’s younger, more mobile labour force, and greater availability of technical and
professional employment means that, compared to the 18% national average, 25% of the
population live in private rented accommodation (forecasted to rise to 37% by 2025).55
Although EC Harris assesses no London borough as having rental affordability, one of the
three local authority characteristics deemed important in the report for build-to-rent viability,
this is countered by a shortage in supply and a high demand. The research concluded that
31 out of 33 London local authorities can support high-rise PRS developments, without yield
improvement measures on unit size or capital delivery costs. 80% of projects submitting bids
for round 2 of the Build to Rent fund were in London.56
In terms of institutional investment, the London market saw the establishment in 2012 of the
UK’s first institutionally backed PRS-only developer, Essential Living, a partnership between
Essential Land and M3 Capital.57
Although the London PRS build-to-rent market is larger than much of the rest of the country,
it is still vulnerable to changes in the market. Rental returns are higher in London but this is
often off-set by the comparatively higher cost of land. Between 2013 and 2014, land values
in central London rose 18.7% and in outer London 13.2%, compared to the next biggest
regional rise, 3.9% in the West Midlands.58
Grainger, a major developer of PRS stock, told Inside Housing that their approach to PRS,
particularly in London, is to not compete in the open land market. Instead the company
negotiates deals with local authorities for public sector land.59
The recovery in the owner occupation market has also attracted risk averse London investors
away from PRS, particularly housing associations (see section 5.1), but also some
HCA, ‘Housing Minister unveils North’s first ‘build to rent’ scheme’, 11 November 2014.
Mayor of London, The Mayor’s housing covenant, December 2012.
DCLG, ‘Build to Rent to offer greater choice for tenants’, 5 March 2014.
CLG Committee, First report of 2013-14 – Volume III: Additional written evidence, The private rented sector, 8
July 2013, Ev w232.
Knight Frank, Residential Development Land Index, 2014 (Q3).
Inside Housing, ‘The private rented sector divide’, 23 October 2014.
institutional investors. Press reports in July 2014 said that the UK’s tallest PRS tower
development, Newington Butts, was under threat as the developer sought to change the
tenure mix to predominantly for-sale units.60
Additional initiatives to attract further investment
The Government’s Housing Stimulus Package, which followed the publication of the
Montague review, announced the introduction of a number of the more tangible measures
from the review.
The review made several additional recommendations beyond those announced in the
stimulus package. In 2013 two industry reports on the future of the PRS, Savills’ Montague,
one year on: unlocking potential in the private rented sector, and BNP Paribas’
Housing the nation, examined these recommendations in more detail.
Section 106 obligations
The Montague review raised concerns that the specific characteristics of the PRS investment
model were not being taken into consideration when setting section 106 (s106) and
Community Infrastructure Levy (CIL) “planning obligations” charges (charges for
infrastructure associated with development61):
In principle, the planning system does not distinguish between private rental and owner
occupation. But, in practice, people told us that it was generally assumed that homes
which were not specifically set aside for affordable housing would be sold to owneroccupiers, or perhaps to small buy to let investors. This assumption is built into
calculations of the value of land, including when assessing planning gain for the
purposes of determining section 106 and Community Infrastructure Levy agreements.62
BNP Paribas agreed with this point, arguing that “PRS should become a User Class in its
own right in planning terms and that local policy should be amended to require ‘a mix of uses’
to include PRS”63
The 2014 Lyons Review, commissioned by the Labour Party, highlighted the example of
Wandsworth council, which had used s106 conditions to require the delivery of
114 PRS units on a 510 home development. The review recommended extending the scope
of local plans in the NPPF to explicitly include an assessment of local need for market rented
Montague expanded on his argument regarding s106 and CIL charges to focus specifically
on affordable housing requirements. He argued that land values based on rental tenure “will
often not be strong enough to support the imposition of excessive affordable housing
In September 2013, Savills raised this issue again:
Local Planning Authorities must be open to negotiations regarding affordable housing
Property Week, ‘Blow to Boris as PRS scheme opts for private sales’, 11 July 2014.
More information on s106 and CIL obligations can be found in the House of Commons Library Standard Note
Community Infrastructure Levy, SN/SC/03890, 26 February 2014.
DCLG, Barriers to institutional investment, para 35.
BNP Paribas Real Estate, Housing the nation, summer 2013, p10.
The Lyons Housing Review, Mobilising across the nation to build the homes our children need, October 2014.
DCLG, Barriers to institutional investment, para 49.
provision. Although flexibility surrounding Section 106 requirements was a key
recommendation by Montague, there is little evidence that this is happening in any
meaningful way.66
Although Savills argued that this was not happening, on 18 October 2012, shortly after the
publication of the Montague review, the Government introduced its Growth and Infrastructure
Bill. Clause 5 included a requirement to reconsider affordable housing requirements where
they rendered a development unviable.67
This requirement became section 7 of the Growth and Infrastructure Act 2013, which
received Royal Assent on 25 April 2013. The Government’s guidance on this change
required PRS developments to be considered on their own terms:
For market sales and private rented housing, viability appraisals should be supported
by scheme specific evidence from comparable development schemes, taking into
regard type of property, location and delivery.68
BNP Paribas welcomed Government changes to the planning system, but raised concerns
over the effectiveness of their implementation:
Whilst Planning Officers follow policy, including the NPPF, and make
recommendations for approval; Planning Committees are often too political and ignore
these recommendations resulting in too many schemes having to be appealed and go
to Inquiry.69
The report instead proposed removing planning decisions from locally elected members,
replacing them with permanently employed local officials.
Regulatory stability
One of the major attractions for investors of the UK PRS market, according to Montague, is
the stability of the regulatory framework for the sector over the past 20 years, which has
given investors confidence in stable returns. Montague recommended not only regulatory
stability, but for the Government to explicitly commit to this stability to reassure investors:
Equally, they (investors) warned of the dangers to the attractiveness of the sector were
that stability to be undermined. In the 1970s rent controls and restrictions on regaining
vacant possession caused institutional interest in the sector to evaporate, and strong
Government endorsement of the current status quo in these areas would help to
bolster the market.70
Harry Downes of Fizzy Living, a PRS operator, told BNP Paribas that the professionalism of
the large-scale build to rent sector means there is little tenant demand for legislation on
longer-term tenancies:
FizzyLiving offers tenants flexible lease terms, but not one tenant has taken us up on
this offer. They are confident that we will not kick them out, and they prefer to retain the
flexibility of being able to move out when it suits them. So they stick with a standard 12
months Assured Shorthold Tenancy (ASTs) with a six month break clause. 71
Savills, Montague, one year on: unlocking potential in the private rented sector, autumn 2013, p10.
Growth and Infrastructure Bill, 2012-13, clause 5.
DCLG, Section 106 affordable housing requirements, review and appeal, April 2013.
BNP Paribas, Housing, p11.
DCLG, Barriers to institutional investment, para 26.
BNP Paribas, Housing, p9.
Andrew Cunningham of Grainger argued that as well as little demand from tenants,
legislation would affect asset value for investors:
Government intervention in tenancy structures is not required. Longer tenancies are
often not offered because of a lack of demand among tenants or because of the
negative impact that a longer tenancy would likely have on an asset which is valued
based on its vacant possession value. As PRS expands, and assets begin to be valued
on their net operating income rather than vacancy, longer term tenancies will naturally
be made more available by landlords. Legislation is not required.72
In contrast, a 2010 CLG report argued that investors in other countries may actually be
attracted by more secure, longer-term tenancies:
In Germany, Switzerland and the Netherlands institutional investors are not put off by
the strong security of tenure that tenants have. In fact long term tenancies are
attractive in keeping down voids and management costs and maintaining a secure long
term return.73
When the Labour Party announced a manifesto commitment in 2014 to legislate to make
three year tenancies the standard for the private sector,74 this received both criticism and
support from different PRS investors.75
The Government appears to support Grainger’s approach, encouraging family-friendly
tenancies rather than legislating for them. For example with family friendly tenancies, these
can be requested based on a model tenancy agreement developed with the sector.
Secretary of State for Communities and Local Government Eric Pickles stated that this
approach would avoid “strangling the sector with unnecessary rules and red tape.”76
Applicants for round 2 of the Build to Rent fund were also encouraged to offer longer-term
Rent controls are also opposed by the sector, with rental income as the predominant source
of yields for investors. In its evidence to the CLG Committee, the Young Group, a
PRS consultancy, stated that:
It is our view that rent controls would have a detrimental impact on the PRS; reducing
both the quality and quantity of accommodation available to residents. It is widely
acknowledged that there is a cavernous gap between housing demand and supply.
Rent controls/caps will do nothing to alleviate this imbalance and would act against
efforts to encourage investment into the sector to boost supply.78
A response from David Cameron during Prime Minister’s Questions in July 2014 highlighted
the Government’s strong opposition to any form of rent controls:
Q8. [904595] Jeremy Corbyn (Islington North) (Lab): …Will he give me an
assurance that, in addition to any regulation of the agencies, serious consideration will
be given to the need to bring back rent control to protect people and ensure they have
somewhere secure and decent to live?
CLG, Promoting investment in private rented housing supply: international policy comparisons, November
New Statesman, ‘Ed Miliband’s speech on Generation Rent: full text’, 1 May 2014.
Inside Housing, ‘Investors back Miliband’s PRS reforms’, 8 May 2014.
DCLG, ‘Better tenancies for families in rental homes’, 1 October 2013.
DCLG, ‘A brighter future for hardworking tenants’, 16 October 2013.
CLG Committee, Vol III, Private rented sector, Ev w277.
The Prime Minister: …Where I part company with him is on the idea of introducing
full-on rent controls. Every time they have been tried, wherever they have been tried in
the world, they have failed. That is not just my view; it is also the view of Labour’s own
shadow housing Minister, who is on the record as saying that she does not think rent
controls will work in practice. Perhaps he might want to have a word with her before
coming to me.79
Land availability
The limited availability of suitable sites for PRS developments was identified by
Sir Adrian Montague as a major constraint to the development of a volume of stock sufficient
to attract institutional investment. He suggested that public sector land could be freed up to
address this.80
The Government’s public sector land programme aims to release land for 100,000 homes by
March 2015, and has claimed to have released land for 90,000 homes as of
September 2014. The programme however has no specific measures for the PRS.81
BNP Paribas also highlighted a lack of available sites, and proposed a relaxation of planning
regulations on Greenfield sites, particularly those on town boundaries.82 The Housing Minister
Brandon Lewis, in response to a parliamentary question on 15 December 2014, confirmed
that this approach was not a Government priority:
Mr Jim Cunningham (Coventry South) (Lab): Does the Secretary of State agree with
me that greenfield sites can be very highly valued by local residents and are important
for protecting natural habitats and heritage? As we look to build the much-needed
houses, will he take steps to assist local authorities to make sure that brownfield sites
and inner-city spaces are fully exhausted before any greenfield sites are built on?
The Minister of State, Department for Communities and Local Government
(Brandon Lewis): I agree with the hon. Gentleman. He is absolutely right that local
authorities should be looking to develop brownfield sites first. In fact, we are looking at
that with the new starter homes programme that the Prime Minister announced today.
We have also put in more money over the summer to encourage local authorities to
develop those brownfield sites first and to make them more viable. 83
Individual landlords
Despite recent efforts to increase institutional investment and large-scale PRS development
it remains a fact that the sector is dominated by small-scale landlords. As previously stated,
the PRS is frequently described as a ‘cottage industry.’
The CLG Committee’s 2013 report questioned the then Housing Minister, Mark Prisk, on the
issue of whether the Build to Rent scheme was focused on the development of new housing
for the middle classes. The Committee recommended that the Government should boost
supply across the sector as a whole, if it could not be demonstrated that this was already
PQ 904595 [Prime Minister], 2 July 2014.
DCLG, Barriers to institutional investment, para 50.
DCLG, Increasing the number of available homes, 7 November 2012 (last accessed 23 January 2015).
BNP Paribas, Housing, p14.
PQ 906611 [House building], 15 December 2014.
CLG Committee, private rented sector, p56-7.
The economic profile of the PRS is not dissimilar to the population as a whole, according to a
2013 Building and Social Housing Foundation (BSHF) study, Who lives in the private rented
sector?, with a slight over-representation of the lower income groups.85 The build to rent
model, with market rents, may not be suitable for a large proportion of the PRS market.
Shelter’s response to the Montague review criticised it for focusing solely on institutional
investment at the expense of the rest of the PRS:
It (the review) misses a trick in offering 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. No solutions for our rental market could be complete without measures to
address this lack of stability.86
As well as new, large-scale, institutionally backed developments, the other aspect of the
Government’s private rented sector policy is “an abundance of good, small scale private
landlords.”87 89% of landlords in England are private individuals and 98% of private landlords
own fewer than 10 properties and 70% of all dwellings.88
With the significant majority of the existing PRS stock owned by individual investors,
developing the Government’s ‘new private rented sector’ involves changes to individual
landlord practice as well as the promotion of large-scale, professionally managed
build-to-rent developments.
The buy-to-let market
Much of the recent growth in the PRS has been from individual landlords, and a major driver
of this has been the availability of buy-to-let mortgages. A study by the Intermediary
Mortgage Lenders Association (IMLA) found that since the introduction of buy-to-let
mortgages in 1996 they have financed 1.4m of the additional 2.6m homes in the PRS.89
Critics of buy-to-let argue that the growth in the PRS is at the expense of homes for owner
occupation. IMLA figures show that in contrast to the rapid growth of PRS, the stock of owner
occupied homes between 2000 and 2012 grew by only 400,000 and has been shrinking
since 2007.90
Alex Hilton of Generation Rent criticised the lack of a level playing field between owner
occupiers and buy-to-let investors, who can qualify for interest-only deals and can offset
mortgage interest against tax.91
Initiatives to attract further individual investment
Land supply and rent controls
The Residential Landlords’ Association (RLA) 2015 election manifesto sets out a number of
policy initiatives it claims will boost the supply of PRS dwellings by encouraging individual
investment. Two of these, releasing public sector land and opposing any form of rent
controls, are similar those put forward by institutional investors (see section 3.2).
BSHF, Who lives in the private rented sector?, January 2013.
Shelter press release, ‘Shelter responds to Montague report’, 23 August 2012.
HM Government, Government response, para 41.
CLG, Private landlords survey 2010, October 2011.
IMLA, Reshaping housing tenure in the UK: the role of buy-to-let, May 2014, p3.
Ibid., p5.
The Times, “Britain becomes a nation of renters as buy-to-let prices out new buyers”, 1 January 2015
With regards to land, the RLA calls on the Government’s public sector land programme to
extend its reach from just large plots to include smaller plots that can be quickly developed
by individual landlords.92
As mentioned previously, the public sector land programme does not specifically focus on
the PRS, nor as the RLA mention on smaller plots. With regard to smaller developments
however, the Government has implemented measures to encourage their development.
Following a consultation in March 2014, the Government announced in its November 2014
response, Planning contributions (section 106 planning obligations), that it would introduce a
10-unit minimum threshold for s106 affordable housing requirements on any new housing
development.93 These changes are now reflected in the National Planning Practice
Guidance’s pages on planning obligations.
Taxation reform
Critics of buy-to-let such as Alex Hilton have pointed to advantages in the tax system
compared to owner occupiers. IMLA have dismissed these arguments as “erroneous”,
highlighting comparative disadvantages such as buy-to-let sales being subject to
Capital Gains Tax (CGT).94
The RLA have called for taxation reform in a number of areas to reduce perceived
disadvantages in comparison to owner occupation, including extension of the
Value Added Tax (VAT) relief on goods and services related to the construction of a new
dwelling, which is not currently permitted on new build dwellings intended for rent.95
Another perceived disadvantage relates to CGT, for which buy-to-let sales are liable, whilst a
number of owner occupier sales qualify for Private Residence Relief.96 The RLA argue for the
introduction of CGT relief when sale proceeds are reinvested, and when properties are sold
to first time buyers. The German PRS market operates a similar system of re-investment
relief to that proposed by the RLA.97
Press reports indicate that HM Revenue and Customs (HMRC) have recently stepped up
enforcement of CGT avoidance by buy-to-let property owners, leading to a 24% increase in
2013-14 collections compared to the previous year.98
A further concern of the RLA is the lack of relief in the tax system for re-investment in and
improvement of property standards. The LSE study Towards a sustainable private rented
sector notes that a similar ‘depreciation allowance’ exists in a number of European countries
including Germany, the Netherlands, Ireland and Finland (although in Finland this is only for
institutional landlords).99
The Government has not currently indicated any intention to implement any of these
proposals. In the 2014 Autumn Statement however it did announce changes to
Stamp Duty Land Tax (SDLT):
RLA, Election manifesto 2015, January 2015, p27-8.
DCLG, Planning contributions (Section 106 planning obligations): Government response to consultation,
November 2014.
IMLA, Reshaping, p9.
RLA, Manifesto, p27.
HM Revenue & Customs, Private Residence Relief, HS283 2014.
LSE, sustainable private rented sector, p25.
The Telegraph, ‘HMRC investigations into buy-to-let spark surge in tax receipts’, 10 January 2015.
LSE, sustainable private rented sector, p26.
1.208 To reduce distortions and improve the fairness of the tax system, Autumn
Statement announces that the government will reform SDLT on residential property
with immediate effect. From 4 December 2014, SDLT rates will only apply to the part of
the property price that falls within each band, similar to the structure of Income Tax.
The effective rate of SDLT will rise steadily as property values increase, removing the
distortions created by the existing system, where the amount of tax due jumps at the
thresholds. Transitional rules will allow buyers who have already exchanged on a
home but not completed before 4 December 2014 to choose whether to pay SDLT
under the existing or new rules.
1.209 As part of the reform, the government is introducing new rates and thresholds for
SDLT on residential property to ensure this change is introduced in a fair way. As a
result, SDLT will be cut for 98% of people who pay it. 100
These changes were welcomed by the National Landlords Association (NLA), which had
campaigned for SDLT reform:
We are delighted that the Chancellor has listened to the NLA and recognised the
inequity of the SDLT ‘slab’ system…
The introduction of a straightforward marginal system of taxation will mean private
landlords will now not only face lower costs when acquiring property, but also have
funds to implement property improvements and keep rents down.101
Houses in multiple occupation
The RLA manifesto also called for reform of planning regulations to get rid of ‘Article 4
Directions’ with regards Houses in Multiple Occupation (HMOs).102 Since October 2010 local
authorities have been able to use their direction making powers to restrict changes of use
(from family homes to HMOs) by requiring planning applications where they deem it
The RLA say the number of councils making these directions is growing, and that this is
restricting the growth of HMOs, which it argues are required to address the housing need of
groups such as young professionals.104 The NLA is also opposed to the use of
Article 4 Directions and agrees that they are restricting the provision of a much-needed PRS
In its response to the CLG Committee report on the PRS the Government indicated it would
not be looking to change the regulations:
Recommendation 16
Where there are community concerns about high concentrations of houses in
multiple occupation, councils should have the ability to control the spread of
HMOs. Such issues should be a matter for local determination. We therefore
consider it appropriate that councils continue to have the option to use Article 4
directions to remove permitted development rights allowing change of use to
HM Treasury, Autumn Statement 2014, Cm 8961, December 2014.
NLA press release, ‘NLA welcomes stamp duty reform’, 3 December 2014.
RLA, Manifesto, p28-31.
House of Commons Library, Houses in multiple occupation & the Use Classes Order, SN/SP/05414, 30
December 2013.
RLA, Manifesto, p29.
NLA, Article 4 Directions, 2014.
The Government agrees with the Committee's recommendation. Councils will continue
to have the option to use Article 4 directions where there are concerns from the local
community about high concentrations of houses of multiple occupation. 106
Social landlords’ PRS initiatives
Housing associations
The 2010 Spending Review set out the Government’s intention to continue with capital
investment in social housing, but on a much more modest scale than before. The review also
brought in a new intermediate rent for social tenants, set at 80% of market rents.107
The National Housing Federation’s (NHF) response to the review expressed concern that
rental income was now expected to play a much larger part in funding social housing than
We are extremely disappointed that the Government has chosen to impose such
significant cuts on the levels of capital funding available. It appears that Government
has chosen to move at a rapid pace to a system of personal subsidy to deliver new
homes at scale.108
Although housing associations using PRS income to cross-subsidise their social objectives is
not a new occurrence (a Joseph Rountree Foundation (JRF) report from 2003 examined this
housing delivery model109), reduction in housing association budgets since 2010 have
encouraged more to look at cross-subsidisation.
The Montague review noted the potential of housing associations to impact upon the
build to rent market:
The potentially important role of housing associations deserves special mention.
Among the larger associations, there is starting to be considerable interest in market
rent developments as a natural complement to their existing activities in affordable
housing. The associations have the potential to become key players in the
development of bespoke private rented schemes, as the balance sheets of at least the
strongest among them will support standalone capital raising to finance developments.
In addition, their existing affordable housing portfolios give them both asset
management expertise and a strong platform to offer a professional service to
A 2012 Resolution Foundation report also noted that the scope of larger associations may
mean they can avoid some of the difficulties of attracting investment due to a lack of sites for
large scale-developments:
Units could be built by the consortium (of housing associations) on sites across the
country to generate the scale of investment required by investors without that having to
be delivered on a single site. For example, 10 sites that could accommodate 100 units
each could create a fund of £100 million to attract large scale investors. 111
HM Government, Government response, para 16.
HM Treasury, Spending Review 2010, Cm 7942, October 2010.
NHF, Comprehensive Spending Review – Briefing for National Housing Federation Members, October 2010.
JRF, Developing and managing market renting schemes by housing associations, February 2003.
DCLG, Barriers to institutional investment, para 28.
Resolution Foundation, Making institutional investment in the private rented sector work, July 2012.
In January 2014 in response to a PQ, the then Housing Minister, Kris Hopkins, confirmed
that 13 out of 95 total bidders for round 1 of the Build to Rent fund, and 6 out of 125 bidders
for round 2, self-identified as social landlords.112
As well as directly bidding for funding, some housing associations are creating subsidiary
companies to act as their commercial arm in the PRS, with profits reinvested in social
housing objectives. In 2014, one of the largest such commercial organisations, Fizzy Living,
a subsidiary of Thames Valley Housing Association (TVHA), secured £200m of institutional
investment from Silver Arrow, an entity owned by the Abu Dhabi Investment Authority.113
Housing associations entering the PRS are however subject to the same concerns over
yields and sustainability as institutional investors. Notting Hill Housing Group reportedly
scaled back its PRS target after deciding that putting properties up for sale would generate
more money for cross-subsidisation.114 Keith Exford, Chief Executive of Affinity Sutton raised
similar concerns:
We remain unconvinced that [PRS] is a worthwhile activity for us,’ he says. ‘We don’t
believe that private renting is a charitable activity. Therefore, it is a commercial one,
and we don’t view the returns on PRS as sufficient. Why would we want to take the
profit slowly? The only reason we want the profit is to build more affordable homes.115
Where housing associations are operating successfully in the PRS it is often where they are
not doing so solely for the purpose of cross-subsidising affordable housing but because they
believe the provision of PRS is in itself beneficial. Elizabeth Froude of Genesis told
Inside Housing:
We always say we are here – particularly in London – to provide housing for people in
the squeezed middle as much as people at the bottom end. It’s not a great big
commercial activity for us, but we build enough to create some return in cross
Similarly Clarendon Living, a subsidiary of Watford Community Housing Trust, emphasises
the benefit its ‘ethical’ approach as a landlord can have for tenants, as well as the benefits of
Local authorities
Some local authorities have also begun to develop a greater involvement in the PRS. Unlike
housing associations however, their role has largely been to facilitate an increase in
PRS stock, rather than developing market rental properties themselves to cross-subsidise
social housing objectives.
A report from the London Assembly in 2013 recommended that councils could be
“introducing flexibilities over social rented stock use (for example by renting out under-utilised
PQ 177357 [Private rented housing: construction], 26 November 2013.
TVHA press release, ‘Fizzy Living raises new capital commitment of £200m’, 10 March 2014.
Social Housing, ‘Overseas investors target London PRS as UK groups focus on market sale’, 12 September
Inside Housing, ‘The private rented sector divide’, 23 October 2014.
Inside Housing, ‘London housing association launches PRS branch’, 14 February 2014.
properties at market rents) providing the resultant income is reinvested back into council
There does not appear to be any evidence that this is happening on any significant scale
(although Manchester City Council and the Greater London Authority both made it onto the
shortlist of bidders for round 2 of the Build to Rent fund). As the report itself notes, in the last
10 years, councils have built less than 0.5% of new homes in England, therefore any moves
by local authorities in this direction would likely have little impact on the overall PRS.
Whilst direct provision of PRS stock may currently be limited, a number of different
approaches by local authorities are being developed. A Local Government Association (LGA)
report gives the example of Ashford, which has set up a council owned housing company to
deliver new PRS stock.119
Inside Housing reports that the “power of competence” introduced by the Localism Act 2011
has encouraged a number of authorities to set up housing companies, with Newham and
Ealing cited as examples of companies providing some new PRS stock within mixed tenure
As well as arms-length development, some local authorities have also been utilising
institutional investment such as local Government pension funds. The high rent levels in
Leeds prompted the West Yorkshire Pension Fund to begin discussion with
Leeds City Council over release of land for new developments.121
In 2014, Manchester City Council (MCC) entered into a formal partnership with
Greater Manchester Pension Fund (GMPF) to provide new developments on council land,
including new PRS units. Although GMPF will receive priority returns, the council will receive
secondary returns to recover its land value costs.122
The LGA report cites a number of other approaches by councils to deliver new PRS stock,
including Eastleigh’s guaranteed purchase model and Kent’s land release deal with the
Kier Group.123
The release of public sector land to PRS developers also allows local authorities to attach
conditions for higher standards of property management, such as the required
implementation of the London Rental Standard at the Pontoon Dock development on
released Greater London Authority land.124
Prospects for future growth
The Government’s response to the CLG Committee report, published in October 2013,
reiterated an investor-friendly approach for future policy, without the need for what it felt
would be excessive regulation:
London Assembly, Right to build: what’s stopping councils from building more housing?, October 2013, p20.
LGA, Supporting housing investment: a case study guide, February 2014.
Inside Housing, ‘Breaking free to build homes’, 11 April 2014.
Inside Housing, ‘Councils consider PRS land handover plan’, 7 September 2012.
Manchester City Council press release, ‘Manchester’s innovative Housing Investment Fund given green light’,
14 April 2014.
LGA, case study guide
Greater London Authority (Housing Investment Group), ‘Agenda item: Pontoon Dock (part reserved)’, 10
September 2014.
The Government does not support a wide-ranging review to consolidate legislation
covering the private rented sector at this time. We are firmly of the view that a wide
ranging review would introduce uncertainty into the sector and would slow down
investment at a time when it is most needed. It would also provide significant and
unwarranted upheaval for tenants and landlords.
However, the Government does recognise that both tenants and landlords would
benefit from more information and an improved understanding of the flexibilities which
exist within the existing legal framework.125
The Government welcomed support for its Build to Rent fund, but did not announce plans for
any further extensions or budget increases beyond the £1bn for 10,000 homes. It also
confirmed that a minimum of £400m would be allocated for round 2. On 22 January 2015 the
HCA announced the remainder of the £1bn would be allocated through continuous market
engagement, rather than opening a third round of bidding.126
The Government’s hesitance to announce increases beyond the £1bn already announced, or
an increase in capital for the housing guarantee, reflect Montague’s approach for
Government to kick-start the new PRS rather than provide it with “enduring subsidy”.127
With regards to the PRS taskforce, the Government’s response confirmed an intention to
disband it in March 2015 to prevent it becoming “just another quango”.128
On 16 October 2014, Sir Michael Lyons published a review entitled Mobilising across the
nation to build the homes our children need, commissioned by Ed Miliband to inform future
Labour housing policy.
The review proposed that out of the 200,000 new homes which Labour plans to build in each
year by 2020, 8,700 should be institutional PRS.129
Although critical of the delays in finding a manager for the PRS housing guarantee scheme,
Lyons appears to agree with the scheme, or a similarly-designed one, in principle:
The HCA investment arm should act as the body to extend the use of government
guarantees where their use will increase supply and attract new additional investment
in viable projects at the same time minimising Government’s risk exposure and their
PSBR (public sector borrowing requirement) impact. It should work to increase the
effectiveness of government guarantees alongside its role set out above of driving
forward major development schemes.130
The report’s recommendations, focusing on “investment rather than grant” in light of reduced
options for public subsidy131, adopt a broadly similar approach to that of the current
Government with regards to encouragement of greater institutional investment in the PRS.
HM Government, Government response, para 1.
HCA, Build to rent fund: Continuous market engagement – prospectus, January 2015
CLG Committee, Vol II, Private rented sector, Ev 22.
HM Government, Government response, para 41.
Lyons Review, Mobilising, p159
Ibid., p42.
Ibid., p30.