23 Aug 2012
Build-to-let: just the tonic?
Over the last few months the Government has begun to take quite seriously some of the realities of England’s housing crisis that we have been banging on about for years:
- We simply don’t have enough homes – we desperately need to build more.
- More and more people are renting privately for the long term – not through some fleeting lifestyle choice, but because buying a home is just too expensive.
- Building homes is good for the economy and for creating jobs; quarter after quarter, weak construction has held growth back.
A possible answer to all of those problems was seen in Build-to-Let. Big financial institutions are looking for investment opportunities, and letting out property is seen as a strong and safe investment option, so these institutions could finance building new homes to let. More new homes could relieve demand pressure across the whole housing market, but more specifically for private renters, many of whom are struggling with steep increases on already high rents, and the instability of short-term contracts.
The notion of Build-to-Let is attractive, and has been floating around policy circles for decades. But attractive as it sounds, and after several reviews of the barriers to investment and the granting of incentives, examples of Build-to-Let on the ground are few and far between. Recently Sir Adrian Montague was commissioned for a further review of the barriers to investment, and today he reported back.
Montague’s recommendations are somewhat lacklustre – a message to local councils to make use of existing flexibilities, encouragement for councils and government to offer up public land, a few incentives to kick-start the first round of developments, and a Task Force working towards some voluntary standards.
Could this be the nudge that investors need to kick-start Build-to-Let? Only time will tell, and much of it will come down to local councils and whether they choose to negotiate with developers or offer up public land for private rented homes. Either way, new homes for rent are to be welcomed to help the market work better – even though most renters really aspire to own a home of their own.
My big concern, though, is that this ends up being another niche initiative dressed up as a wholesale solution. The Government’s flagship NewBuy scheme has so far led to a paltry 220 sales for housebuilding giant Persimmon. The revamped Right to Buy has been accompanied with a national billboard campaign, but will it reverse the downward trend of purchases? Again, only time will tell.
With 8.5 million people now renting privately, however successful institutional investment is (and I really hope it is!), there are going to be a lot of people stuck renting for the long term who may not feel any of the benefits of Build-to-Let. I am increasingly convinced that higher impact solutions must work with the market that we have – and that more could be done to draw on the common interests of landlords and renters to come up with a more stable and workable private rented sector. Shelter will be setting out some practical ideas for improving renting in the coming months – watch this space.