With much of the media focus on Government schemes like Help to Buy it is easy to forget that the private rental sector (PRS) will also need significant support over the next decade if it is to help meet the huge housing gap that currently exists in this country. While much of the focus regarding improving housing supply blindly assumes this will only be for the benefit of prospective homeowners there is a real need to build new properties for the use of private tenants.
A good reminder of the scale of the need within the PRS was recently highlighted by the CBI as it called upon the Government to focus on the market issues currently facing landlords and tenants. The slight criticism in its public pronouncement was that, with 20% of households likely to be in private rental accommodation by 2018, the powers that be must not neglect what it called ‘Generation Rent’.
The CBI’s focus was on the large-scale investment and development of the PRS that will be required if we are to avoid a rental crisis. It anticipates that a quite staggering £57 billion of investment will be needed in the PRS every year post-2016. So, where might this be coming from?
Clearly, the CBI is looking for the Government to stimulate the major institutions into investing on such a scale because, at present, private landlords and investors are not going to be in a position to contribute at this level. While the market is currently dominated by the smaller investor/landlord with at most a handful of properties, the CBI is looking for development on a far more ‘industrial’ scale with major financial institutions being able to finance, development and bring to market thousands upon thousands of new rental properties.
You can see why there is a call for action now because one has to wonder where these properties are going to come from. The CBI believes that a number of measures are needed such as a VAT reduction on repair and renovation, increased roll-out of the Private Rental Sector Guarantee Scheme, continued focus on the Build to Rent Fund, and a nationwide engagement with Local Authorities to encourage them to look at their (under)supply of private rental properties. One can only hope that the wheels of power are able to turn much more quickly than they have in the past otherwise I suspect we do not have a hope in hell of meeting the demand of the next couple of years, let alone what it might be in 2018.
After all, this is an issue that is not going to go away. All the demographic modelling point towards an increase in the number of households in the years ahead – put this together with issues like the cost of living and the lack of housing supply, and we can see that the private rental sector is going to have to go some in order to meet demand.
Of course private landlords will be able to do their bit but this really requires investment and development on a large scale, and with the focus being on building homes for home purchasers rather than renters, it is little wonder that the CBI is looking for the PRS to receive a share of the focus and funding.
While I sincerely hope we are able to get our house in order I suspect we are (as is always too often the case) approaching this problem with too little resource and far too late in the day. We have all been fully aware of the lack of homes being built in the UK for many years and you do not solve this problem overnight. Clearly, the coalition government have also recognised this but their focus is on homeowners rather than ‘Generation Rent’. Which all means that while we are clearly moving in the right direction, the progress is likely to be too slow and therefore the destination – a fit for purpose PRS which can meet ongoing demand – will remain very much in the distance for some time to come.
Bob Young is managing director of CHL Mortgages