Monthly Archives: February 2014

BPF calls on councils to plan for long term private rented homes

A new report has called on councils to set minimum targets for the construction of long-term private sector rented homes. Local authorities should commit land to such projects, and also start to understand the value of private rented projects in local communities.

The report, compiled by law firm Addleshaw Goddard and the British Property Federation, says the private rented sector has the power to transform the UK housing market for the better. While politicians focus on affordable housing, this is often inaccessible to working, earning people – for whom purchasing a home is also becoming an increasingly impossible dream.

The report says there needs to be formal planning guidance to encourage growth of the sector, and a better understanding of it. It calls for a “covenant”, which would bind partners legally to build homes for long term rent. This would not allow homes to be sold off, ensuring certainty for both investors who know what they are getting into, and local authorities who don’t want to be accused of helping the private sector to excessive profits.

“Planning guidelines need to be stronger and financial viability models need to reflect the fact that building for long term rent is not the same as traditional housebuilding,” said Marnix Elsenaar of Addleshaw Goddard. “Policymakers need to appreciate that if they get this right they could unlock a model that provides thousands of new homes with real long term community benefits.”

The sector is growing, said Ian Fletcher, director of real estate policy at the BPF: “Acceptance of the role that the PRS has in providing the next generation of housing has never been higher – with many local councils conducting ground breaking deals in the last twelve months.”

Private rented sector landlords turn away from local authority tenants

Private rented sector landlords are turning away from local authority tenants, as a result of changes to the benefits system. A benefits cap, and the so-called “bedroom tax” are forcing local authority tenants to rethink their housing priorities, with several consequences.

One of these is that tenants are moving from more expensive to cheaper areas. And councils with too much demand than can be met by housing association stock, are looking to the private sector for rented property.

The issues were debated by the London Assembly’s housing committee recently, who called local authority representatives to speak to them about the issues the changes were raising.

“I can foresee additional pressure on the private rented sector,” said councillor Jayne McCoy, chair of the housing, economy and business committee at the London borough of Sutton. “It is harder and harder to find private sector landlords who will offer temporary accommodation to a local authority, so we have seen a big gap there; and it is just going to be harder and harder.” Councilllor Dudley Mead from Croydon agreed: “It is getting increasingly difficult to persuade private landlords to give us their properties.” One solution in his borough has been for the local authority to pay landlords directly by monthly direct credit, effectively overturning recent government changes. “Our covenant to pay is copper-bottomed,” he said.

In Hackney, councillor Karen Alcock said the local authority is proactively looking to handle the letting of private rented properties directly. “We are actually going to try to take private rented sector properties away from the lettings agencies and use them ourselves with our own stock.”

In Sutton, said McCoy: “We have seen increases in rents and also a reduction in people prepared to rent their property, not the bigger ones but certainly the smaller private landlords.”

Alcock summed up the problem local authorities face, in a competitive market such as Hackney: “Why would you go to the LHA when you can get four young professionals paying £200 plus a week?”

 

Downes calls on planners to relax affordable housing rules

A few simple changes of outdated planning rules could boost the provision of professionally managed private rented sector (PRS) housing in London and other British cities. Planners need to simply be more open minded in determining what is “affordable housing”, and use existing legal frameworks to ensure PRS homes are delivered and ring fenced for the medium term.

That’s the plea from Harry Downes, director of Fizzy Living. Writing in a recent edition of Property Week, Downes says PRS landlords and their tenants have much to offer localities, and local councils should be actively encouraging them.

Fizzy is the private rented sector business owned by Thames Valley Housing Group, a major housing association with a portfolio of 15,000 properties across London and the south east. Fizzy Living is already offering private rented sector flats for rent at three developments in east London, and one in Epsom, Surrey, and is promising a new deal for renters including prompt attention to any issues, free wifi, and flexible lease terms.

Fizzy Living's new Epsom development

Fizzy Living’s new Epsom development

The private rented sector is really the only practical accommodation option for a rapidly growing group of people. These are young professionals who have a good job, ambitions and a social network, but lack the massive deposit currently required to get a property with a mortgage. Downes labels them “rentysomethings”.

There is an easy way for councils to solve the problem “to achieve their commitment to provide affordable housing – as in, housing that is affordable – in their boroughs,” says Downes. “They can do this by using the section 106 framework to allow buildings of more than 50 flats to be developed as 10 year PRS opportunities.”

Downes says the professional PRS landlord presents four key advantages that benefit both the tenant, and the local community. By building substantial size projects with an average of around 100 flats, professional landlords deliver scale, and with that comes a positive impact on communities. Unlike a private landlord, who can sell out at any time, there is long term commitment, which means tenants are more likely to stay long term, too. Great, proactive management means buildings that stay working well. And finally, there is community, something professional landlords today know is part of making their tenants feel wanted – whether that’s a centrally managed fitness facility, or an online forum that helps individuals find flatmates.

Downes says there are lots of people now wanting to rent; around 2.2 million 20 to 24 year olds were recorded in the 2011 census in the UK. They are, he insists, “valuable assets” as they “spend their time and money in the local bars, shops and amenities, pay taxes and contribute to their community”. Fizzy, and companies like his, would very much wish to accommodate these renters, and are looking for the opportunities to do so. They just need the planners to be a little more helpful, when allocating sites for development.

Legal & General edges towards involvement in private rented sector

UK institutions need to be part of the solution in resolving the UK’s housing shortage. “The private sector has a role in finding a solution,” insists Bill Hughes, managing director of Legal & General Property, in an opinion piece published by Property Week magazine.

Hughes notes that his organisation was historically a major owner of private rented housing, but this declined over time, with the move aided by the extension of rent controls by earlier governments. However, he now sees the mood of the UK consumer changing, away from an obsession about buying a property and towards the flexibility and other attractions of renting.

Today, just 1% of the nation’s private rented sector homes are owned by institutional investors, with private amateur landlords dominating. As a result, few homes are being built that are designed from the outset to suit renters i.e. homes with the right sized rooms, in the right places, that are easy to maintain efficiently.

Government, too, now understands the importance of renting homes, he says. “A vibrant rental sector is now recognised as being a key factor in the productivity of international cities.” Build to let will be just one part of a multichannel solution to the UK’s housing problems.

Hughes says L&G is already strongly committed to encouraging more homes. It has a stake in a house builder, is investing in student accommodation, and is lending to housing associations.

“Housing designed and built for long-term private-sector renting is virtually absent in the UK, despite being a large and mature investment class in both the US and Europe,” says Hughes. Here’s hoping Legal & General will take an active role In getting that private rented sector housing built.

Canadian investor questions friendliness of UK economy to investors

A Canadian pension fund which could potentially make a substantial investment in the UK’s residential private rented sector has indicated it is hesitating, because of uncertainty around regulation and government behaviour.

Leo de Bever, chief executive of the Alberta Investment Management Company, has already invested £550 million in European property, including a £200 million purchase of the old BBC Television Centre in west London. But he is worried about government moves that seem “more geared towards satisfying voters than getting things done from a building point of view”.

de Bever noted the contrast between trade missions visiting his Canadian colleagues, insisting Britain was open for business, “but the people who set the rules seem to be on a different planet from them.” In an interview with Property Week magazine, he indicated this uncertainty would mean holding off from investment in large scale housing projects in the UK.

Landlord tests freehold rules

US private equity investor Westbrook Partners has been to the High Court in its latest efforts to gain control of flats in major apartment block Dolphin Square, in a case that could have wide implications for homeowners buying flats.

Westbrook bought the head lease of Dolphin Square, with 1,223 flats, in 2005, paying £190 million. All of the flats are rented on assured short hold and short term leases, to individual tenants; the freehold of the property is owned by Friends Life Group.

Westbrook spotted an opportunity to exploit leasehold reform law dating from 2002, which gives any leaseholder of a flat with more than 21 years to run, or a group of them so long as no one owns more than two flats, the right to buy the freehold. It cleverly set up dozens of Jersey-listed companies, and sold each of them one or two flats on 26 year leases. It has then tried to exercise the right to buy the freehold.

The case has been through court, and the Court of Appeal, as Westbrook has tried to make the process stick. Most recently, the High Court is deciding whether the process is a valid one.

A law designed to stop tenants from being held to ransom by landlords, is in danger of being used against their interests, by some clever chicanery. Speaking to Property Week, Jeremy Hudson, who is a partner at law firm Speechly Bircham, commented: “This case has caused consternation. For a landlord to exercise the right to prise the freehold from tenants is against the spirit of the law.” If the claim by Westbrook is successful, there is a danger other landlords could see their way to grabbing back property that was leased long term, when it suits them.

Deptford buy gives IP Global 64 London flats for rent

Investor IP Global has bulk purchased 64 flats at Hilton’s Wharf in Deptford Creek, south London. The flats, which will not be completed for 18 months, are then likely to go into the group’s rental property portfolio.

The investment, estimated at £30 million by Property Week, has bought IP Global a mix of one, two and three bedroom apartments in the project, which is being developed by Glenageary Estates, part of the Durkan Group. The flats are selling off a value of around £600 per square foot.

IP Global has also recently purchased 8 flats at a development in Lovat Lane in the City of London. The block is a recent conversion from an office building, undertaken by Lucrum Holdings.

Sigma signs to build private rented flats in Barking

Scottish listed regeneration specialist Sigma Capital has made its first move into London’s private rented sector, buying an east London site for residential development.

The deal gives Sigma the option to buy a site at Barking Riverside, and build four apartment blocks containing 318 flats for rent, in a deal estimated to be worth more than £50 million. The project is expected to be family-oriented, with a high proportion of three bedroom flats. Sigma’s agreement is with Barking Riverside, which is a joint venture vehicle owned by the Greater London Authority and housebuilder Bellway Homes. Construction is not likely to start for another year, and will then take two years to complete.

Sigma has said it is looking for other sites in London and the south east, on which to build homes for the private rented sector. Read more here

 

London developers building wrong size flats

Developers in London are building flats that are too large for the rental market. By concentrating on what they think owner occupiers want, too many are building flats with several bedrooms – but the private rented sector is demanding smaller units.

London renters want studios, one bedroom and possibly two bedroom flats at around 650 square feet floor area, according to agents Knight Frank. But many apartments being built today are too large, with 650 square feet being splashed out on a single bed flat, with two beds often spread over around 1,000 square feet. And as a result, prices are simply too high for working young Londoners. Many cannot practically afford to pay more than £300 a week for somewhere to live in the capital.

“Renters are really stretched at the moment, and they cannot afford to pay more,” said James Mannix, head of residential at Knight Frank, speaking at the agent’s annual London market presentation and reported in the London Times. “Planning policy encourages larger, family units in the centre of town, but I am not sure that is entirely appropriate.”

There are currently estimated to be around 25,000 flats being built in central London. Many of them are being built to appeal to overseas buyers, who are less concerned about the practicalities of letting out their purchases, and more interested in buying for long term investment. And these buyers, if they want to rent their large roomed flats, are going to find few takers. Renters have an upper limit on what they spend, even though they would like to be in the centre of the capital. The Times reported comments from Mannix: “Many young, economically active people…… would prefer a small studio flat in the centre of town, than a one bedroom further out.”

Knight Frank says the private rented market presents great potential for companies prepared to take the first steps into such a fragmented market.

Pocket puts London apartments in the affordable bracket

This is an edited version of a feature that originally appeared in City Planning, and appears with the editor’s permission

London’s crazy housing market makes it increasingly difficult for “normal” people – those with a job and a half decent wage, who are considered too well off for housing association homes – to find somewhere affordable to live.

They end up sharing with mates…….for years. Or live far out from London, with an exhausting train commute to lengthen their long working days. So here’s an alternative that is working to bridge the gap.

Pocket Housing is the company starting a quiet revolution. Pocket, founded by Marc Vlessing and Paul Harbard, has developed a new model for delivering housing for urban professionals, people who will never get on a local authority housing list, and will struggle to afford an open market mortgage on their salary. They don’t do a preferred job in the fire service or NHS, so don’t qualify for typical shared ownership schemes, either. And culturally, they would prefer to buy.

There are thousands of these people working in London, who at the beginning of the last boom would have just about afforded to get on the housing ladder. Today, they are confined to renting a shared home, commuting from miles away, or living in the parental home they had long hoped to leave.

The unlikely vanguard for this coming revolution is a subtle but smart block of apartments being finished in a side street in Westbourne Park. Here, the Pocket model of small, affordable apartments for sale to a restricted market of buyers has once again been proven – but this time around, it has attracted mainstream interest from Westminster’s planners, and from a major developer in the form of Land Securities.

Pocket's completed project in Westbourne Park

Pocket’s completed project in Westbourne Park

The breakthrough has taken place in two stages. First, Land Securities came to Pocket, realising that they had a problem. Quite simply, navigating Westminster City Council’s current affordable housing policy can be slow, cumbersome and leads to considerable expenditure on consultants and advisers. “Big developers tie themselves in knots,” says Vlessing.

Westminster’s preferred option for on-site affordable housing often creates architectural complications. The second option, searching for a local site to fit the housing, takes time, trouble and expense; while the third option, paying an affordable housing contribution instead, means hiring expensive consultants to prove the first two options aren’t viable. Land Secs were prepared to take a punt, and fund the land for a Pocket scheme that could be declared affordable.

To make the idea fly, Pocket opened discussions with Westminster, who have now accepted the principle of their apartments as affordable housing, and of the developer’s cash commitment as an affordable housing contribution. “It crystallised a subsidy, and that is now a credit that Land Secs can use,” says Vlessing.

The Westbourne Park site cost around £2m, and was bought with residential permission. Pocket substantially increased the density, obtaining a new permission for 32 units. All are one bedroom flats, designed for singles or couples, and there is no on-site parking as the site is just minutes from an Underground station. Unlike a typical private sector scheme, the Pocket project was designed to comfortably exceed current green building requirements: the building meets code 4, with ground source heat pumps, centralised underfloor heating, and a green wall on the block’s south face.

This subsidised, restricted market sale model fits in a gap between open market housing, and a very limited supply of shared ownership homes. Most affordable housing contributions head via housing associations to deliver units that are rented to those on low or no incomes, with the government often paying some or all of the rents via the benefits system.

Having taken the risk, Land Securities have now proved that there is a new, more efficient way to support affordable housing through the planning system – and opened up this new tier of housing for sale. And with the credit concept established, Pocket’s directors believe they have the key to getting traction. “It allows us to buy small infill sites when they become available, and we can bank those sites,” says Vlessing. “Everybody’s a winner,” adds Harbard.

“We make it very clear what everything costs,” says Vlessing, and an open book approach helps all the parties understand the level of subsidy each project needs. With the apartments restricted in perpetuity so they can only be purchased by people below a maximum earnings threshold of £61,400pa, who have either lived or worked in the vicinity for the previous 12 months and are on a vetted register, “our homes remain affordable”. These restrictions are fully compliant with the affordable housing requirements laid out in PPS3.

At Westbourne Park, the one bedroom flats have sold out at around £180,000 each, with many residents moving in before contractors have finished the common areas of the scheme. “There are no demand constraints,” says Vlessing – he could sell hundreds of the apartments this year, if they could be subsidised and built.

So could this work elsewhere? Vlessing thinks the model would be right in the City of London, where there are similar pressures to create more residential development, often exclusively for high end occupiers. Says Vlessing: “It’s time to do something. I’d be surprised if we’re not in the City by the end of this year.”

What is a Pocket apartment? The model has been fine-tuned over six schemes, and at Westbourne Park the 32 apartments are:
• One bedroomed – development economics dictate this is the most viable unit
• Around 38 sq metres floor area – this has varied a little from scheme to scheme, but Westbourne Park is now the standard
• Well specified and fully fitted out, with underfloor heating, real wood floors, ample cupboards and fitted wardrobes
• In a code four block, complete with green wall and ground source heat pumps
• Designed to police-approved layouts to enhance residents’ safety
• Fitted with an external store to accommodate cycles
• Planned to cut maintenance costs, with thoughtful touches such as easy access cisterns and stopcocks, to prevent water damage

Who buys a Pocket apartment?
The typical Pocket buyer is:
• 32 years old
• earning around £38-40k per annum
• someone who loves their job
• single (70% of buyers are)
• female (around 65% of buyers are)
• a renter for the previous 8 years

A typical Pocket apartment interior

A typical Pocket apartment interior