Monthly Archives: May 2014

Ten ways to ease the housing shortage – Legal & General contributes

Changes to the UK tax system could help encourage more companies and organisations into the business of being professional residential landlords. This, and the construction of properly designed, well-managed rental apartment blocks could go some way to encouraging the growth of the sector in a more professional way, benefiting both tenants and landlords.

Those are some of the key suggestions from insurance and investment company Legal and General, which recently produced a report entitled Let’s House Britain. A review of the current situation in the UK housing market, it came up with a ten point plan to address the housing shortage.

Legal & General sees the private rented sector as a key plank in the drive to improve housing in Britain. It notes the fundamental problems – prices have doubled in real terms since the 1990s, almost a decade after the legislation obliging them to do so, less than half of local authorities have prepared a Local Plan detailing where they will permit the construction of new homes. While recognising there is a housing shortage, it notes that older people who want to downsize are just as poorly served in the current market, as those wanting to get their first home.

The ten steps Legal & General calls for are:

1) build more – we need lots more homes to be built

2) planning needs to be reformed, with local authorities being more interventionist and forward thinking

3) more smaller homes would suit downsizers, singles and the divorced – not everyone wants a home with a garden

4) more flexibility on funding formats is needed, to help affordability. What about longer mortgages and rent to buy schemes being extended?

5) more social housing is needed, as currently too much of the government input into this sector is simply paid to private landlords as rent

6) equity release needs to be expanded and positively endorsed as an option

7) incentives could be used to help retired people downsize – and to encourage the construction of more suitable homes

8) prepare borrowers for the inevitable interest rate rise

9) encourage the growth of a larger private rented sector, with purpose built blocks that deliver inclusive additional lifestyle services

10) professionalise private rented by reforming the tax system and copying what works well in other countries

Mayor launches rental standard to improve life for London renters

Mayor of London Boris Johnson has launched his London Rental Standard, an accreditation scheme designed to drive up standards in the private rented sector.

The idea is to improve compliance and standards of service among landlords in the capital, many of whom are amateurs with no property management expertise. It will also draw in letting agents.

Landlords need to commit to 15 key elements, in order to be accredited. These include dealing with emergency repairs the same day they are raised; being readily contactable at all times; providing written rental agreements; and giving tenants clear information about how their deposit is protected.

The scale of the issue in London comes from the fact that more than a quarter of the capital’s households now live in rented accommodation, with much of it provided by smaller landlords, a situation fuelled by the availability of buy to let mortgage finance. According to the mayor’s office, 85% of landlords are ignorant of core legislation, and 61% have no professional management training.

Deputy mayor for housing Richard Blakeway said the new standard is part of a wider programme, which he outlined in City AM. “The strategy is three-fold: set professional standards; tackle poor building conditions with tougher enforcement; and promote US-style long-term, purpose-built homes for rent to boost housebuilding – our biggest challenge.”

To encourage take-up of the standard, which is voluntary, the mayor has negotiated deals with insurance provider Endsleigh and deposit manager My Deposit.

Clearly, professional landlords will sign up to the scheme, exposing those who are less scrupulous as being outside the approval regime. However, it will be down to tenants to ask the right questions of their new landlord – and to have the will to walk away from those who are not approved.

Fixing the housing crisis – Toby Lloyd of Shelter

Toby Lloyd, head of policy at housing charity Shelter, suggests a five point plan to help deliver more homes to the British market, which were outlined in a recent article published by the Financial Times.

A restricted land supply means that housing supply is also restricted. This is rational market behaviour by developers, rather than, as is often perceived, some perverse reaction. A shortage of land – and therefore houses – means every house a developer builds, will be sold, he argues; so there’s no incentive to innovate, the market is hard for new entrants to get into, and every sale should generate profit.

He notes that the last few years have seen a concentration of the market, as larger firms come to dominate, and they like to build large, lumpy sites out. The combination of all these factors means, he warns, the market “is not delivering the homes we need”.

Lloyd’s five suggestions are:
Establish New Homes Zones, specifically set aside to help promote lower cost development and reduce land speculation
Start charging council tax as soon as planning permission is granted – to encourage construction to be carried out fast
Publish ownership details of sites, along with option agreements – enabling greater market transparency
Increase public investment in housing, using a national housing bank similar to that used in Holland
Allow councils to borrow more, to invest in affordable homes

“Ultimately we should be aiming not only to boost supply, but to transform our housing supply system once and for all,” says Lloyd. “With the right intervention and investment we think we can launch house building into a new era, in which competition can function properly, builders can build more homes – and consumers can finally start getting a better deal.”

Will these work? Do comment.

The article is in full on the FT blog.

Quintain plans PRS brand to launch Wembley rental homes

Listed property developer Quintain is another major player planning to launch its own consumer-friendly private rental brand. The company has promised a launch within the next nine months, which will be used to help promote more than 1,000 private rental flats to be built around Wembley stadium. The aim is to build flats that will appeal to young professionals, with rents in the region of £1,500 per month.

Quintain, which has major land holdings around the stadium in north west London, has already completed a number of early phases of the redevelopment, including a new hotel, student accommodation and a designer outlet retail centre. Last month, it agreed a deal with investor Keystone Developers to bring forward a residential phase that will include 475 flats, of which 143 will be rented long term – details reported here.

Now, it has decided that private rental flats could form between 25 and 35% of the total 5,000 homes that have been granted consent for construction. That could mean a total of up to 1,750 private rented flats at Wembley – potentially a £300 million investment. For Quintain, one attraction is that building for rent could accelerate the development of the site, compared to simply building for sale. The company has already experimented at Wembley with combined facilities for residents including a communal refuse system, and wired in broadband and TV capabilities.

Quintain will initially commit its own capital to building for rent, but will then look at other options. “It’s a pretty meaningful commitment to the sector,” chief executive Max James told Property Week. “We, like others, are looking to create some scale and create a brand.”

“We want to make sure the business works properly at Wembley, and therefore this could either be just for Wembley or we could take the brand elsewhere. My instinct is that if it works at Wembley it could work in other comparable locations.”


Fizzy Living adds fifth project in Lewisham

Private rented sector developer and manager Fizzy Living has committed to buy 136 apartments in the Lewisham Gateway scheme in south London. The flats will be within a 193 unit first phase being built by Muse Developments, part of an overall scheme that is destined to include up to 800 homes in total, under various forms of tenure.

For Fizzy, the deal is the fifth site the company has taken on. It is the first transaction to make use of a recent injection of £200 million from the Abu Dhabi Investment Authority, which has provided a long term funding commitment to Fizzy’s growth. Fizzy is a stand alone private rented sector brand owned by Thames Valley Housing.

For Muse, the opportunity to forward sell the majority of the first phase of its development will give the company the capital to continue developing the second phase at a faster pace. Increasingly residential developers are looking to private rented sector landlords to buy early phase developments, helping them to fund a faster completion of major redevelopment projects.

Dev Secs buys Cathedral to create private rented powerhouse

Listed property company Development Securities has agreed a £27.4 million takeover of the Cathedral Group, creating the potential for a major new brand in the private rented housing sector in London. The two have previously worked together on projects, and saw the combination as a natural fit.

The deal adds nine development sites to the Dev Secs portfolio, and brings on board the Cathedral team with its track record of developing mixed use, residential led projects specifically in London and the south east. Dev Secs, being listed on the UK stock market, has stronger access to development funding.

The acquisition means Dev Secs now has seven new sites under its control:
the Telegraph Works in Greenwich
Morden Wharf, Greenwich
The IP Global project in Deptford
St. Mark’s Square in Bromley
The Old Vinyl Factory, Hayes
Circus Street in Brighton
Spirit of Sittingbourne in Kent
There are two further sites currently being acquired, but with deals not yet inked, at The Albany in Deptford, and Preston Barracks in Brighton.

Noted the company in a statement: “Six of the above developments have funding in place to execute the relevant business plans, three have achieved detailed or outline planning consents, and planning applications have been submitted in respect of a further two of these sites.”

Cathedral chief executive Richard Upton commented: “We already have a successful history together through our existing joint venture partnerships at The Old Vinyl Factory and Morden Wharf and our completed development at The Movement, Greenwich. We are confident that the integration with Development Securities will provide a stronger platform as we progress our existing portfolio of developments towards completion, and secure additional projects to further contribute to the growth of the company.”

Dev Secs has been in discussions with housing association London & Quadrant about growing a private rented sector portfolio together, involving potentially six sites around London, and up to 800 homes – details here.

In January, Dev Secs hired agent JLL to look for a development partner – details here. It is unclear whether the combination with Cathedral means it will now no longer look for additional partners to work with.

Among Cathedral’s projects is a private rented sector development in Deptford, south east London. This was recently forward sold to investor IP Global – details here. It would appear that, in this instance, Cathedral had insufficient access to funds to develop the project and retain it, instead relying on an advance sale to IP. Now, with the greater access to funds that Development Securities provides, it is likely that similar projects will be developed and retained within the group’s private rented sector portfolio.


Changes will force letting agents to clarify fees

The Government has announced plans to increase fines against letting agents breaching rules, and will require them to publicly state the fees they charge.

The new rules are aimed at reducing complaints in the sector, after they increased by 23% in 2013, compared with the previous year. Strangely, it is not only renters who are fed up with rogue letting agents – half of complaints were from landlords.

Currently, letting agents are bound by the rules of the Advertising Standards Authority, which requires them to list compulsory charges. However, many additional hidden charges are often added, and it is these that the new rules aim to reveal. The new requirements will be for a full tariff to be shown both on websites, and “prominently” in offices. Warns the Government: “Anyone who does not comply with these new rules will face a fine – a much stricter penalty than currently exists.”

Minister Kris Hopkins said: “The vast majority of letting agents provide a good service to tenants and landlords. But we are determined to tackle the minority of rogue agents who offer a poor service. Ensuring full transparency and banning hidden fees is the best approach, giving consumers the information they want and supporting good letting agents.”

And in a hint that this approach is fundamentally different to the approach suggested by the Labour party, he added: “Short-term gimmicks like trying to ban any fee to tenants means higher rents by the back door. Excessive state regulation and waging war on the private rented sector would also destroy investment in new housing, push up prices and make it far harder for people to find a flat or house to rent.”

Labour’s proposed PRS changes polarise opinion

Britain’s Labour party is promising legislative changes to support tenants in the private rented sector, should the party be voted into power in the 2015 general election. But the announcement has led some to warn that the proposals threaten to frighten off institutional investment in the sector – which is already promising to deal with some of the issue raised.

Labour specifically wants to tackle the insecurity of short tenancy agreements, to enable more steady rents, and to reduce one-off fees and additional costs related to taking out tenancies.

On tenancies, Labour says it wants to make three year long tenancies the norm, with landlords required to give longer notice periods. Said Labour leader Ed Milliband: “Generation rent is a generation that has been ignored for too long. Nine million people are living in rented homes today...a Labour government will take action to deliver a fairer deal for them too.”

This could present a practical problem for small scale buy-to-let landlords. Often mortgages for these borrowers restrict tenancies to a maximum 12 months.

Rent rises would be limited to a maximum ceiling, based on a percentage rise related to local market averages.

And there would be a restriction on letting agents charging fees to tenants. This is often an area for complaint, with up front fees; and often issues around retentions from a deposit, even if there are clear grounds for it being returned in full. Labour says this restriction would save tenants an average £350 per tenancy.

Not everyone is impressed, however. In a letter to the Financial Times, Charles Fairhurst of Fairbridge Residential Investment warned: “Institutional investors in the private rented sector, as well as domestic and overseas buy-to-let investors, will read Labour’s announcements and question whether this is a good time to invest in the sector. The result will lead to a reduced supply of UK housing until the Labour party’s housing plans are clarified, which makes its annual new homes target of 200,000 look unrealistic.”

And at law firm Addleshaw Goddard, Marnix Elsenaar warned: “Rent caps would severely undermine the potential to get the investment we desperately need in the sector.”

Despite the concern over rental controls, some point to other markets where some form of rent control works just fine. Germany – the poster child for the private rented sector – has rent controls and longer tenancies, and the market there is robust, with many major institutional investors happily involved. Other markets including France and American cities such as San Francisco also operate some form of restriction on the pace of rental increases.

L&Q tipped to link with DevSecs for major PRS projects around London

Housing association London & Quadrant looks to be close to partnering developer Development Securities in creating a £200 million portfolio of up to 800 private rented homes on several sites in greater London.

Development Securities revealed in January that it was looking for a joint venture partner, potentially the first step in the creation of a larger private rented sector housing portfolio. Now, according to a news report by Property Week, London & Quadrant is preparing to sign up to help create the portfolio. Agent JLL is advising the developer on potential partners.

The developer, well known for its sometimes adventurous stance in the market, has purchased a number of sites with planning permission for homes. Those that might be included in the deal with L&Q include:
Market Place, Romford with 91 flats in two phases
399 Edgware Road, a site with permission for a mixed project including 183 homes
Valentines House, Ilford, which could be redeveloped to include 110 homes
The Old Vinyl Factory, Hayes where 200 flats could be built
Shepherds Bush Market, with potential for 120 homes
Cross Quarter, Abbey Wood with 140 flats
Development Securities has previously said it was considering how to get the best outcome from its sites, noting in a past market report: “This could include land disposals, joint ventures or direct development as a means to extract maximum value from our portfolio. The growing private-rented sector could also provide a strategic option for us in the delivery of the consented residential element of some of selected schemes.”

London & Quadrant has its hand on nearly 70,000 homes in London and the south east, but has yet to get involved actively in the private rented sector, in contrast with some of its more adventurous housing association peers.

Last September, the housing association indicated its interest in the private rented sector, when it sponsored a research report delivered by the Centre for London, called Stressed, a review of London’s private rental sector. At the time, L&Q’s Susi Schafer said: “We sponsored this report in recognition of the growing role of the PRS and the need to better understand the challenges faced by the sector. We believe L&Q and other housing associations have an important role in growing and improving PRS.”

Charity bids to improve standards in private rented sector

A new charity has launched, with a mission to improve standards in the private rented sector. The TDS Charitable Foundation is also making grants available, to support projects that will promote knowledge of landlords’ obligations, and raise awareness of tenants’ rights.

The charity is backed by The Disputes Service, while the foundation’s board of trustees includes representatives from the RICS, National Union of Students, and National Association of Estate Agents.

“The TDS Charitable Foundation is providing a valuable new source of funding for organisations which are committed to better standards in private renting,” said Steve Harriott, chief executive of The Dispute Service. “At present, anyone can enter the lettings industry without training or experience, exposing people to many risks; from bad service to substandard living conditions, to financial loss or worse.”

And Colum McGuire, vice president (welfare) at the NUS, added: We’re very glad to be a part of this initiative and believe that the foundation will go a long way to increasing tenants’ empowerment and protection.”

Just some of the problems tenants face are laid bare in a new article by Zoe Williams in the Guardian newspaper, who notes how difficult it can be for tenants to get deposits back. “I think some letting agents see it as a matter of honour not to return the full amount,” she writes. “They are like playground bullies who would rinse you for a piece of string rather than leave you unmolested.”

Williams says the market is skewed in favour of landlords. While the Tenancy Deposit Protection scheme has been successful, other regulation is dismissed as being unnecessary and too many rental homes are poorly maintained.

More on the TDS grants at their website here.

And the Guardian article by Zoe Williams is here.