Local planners need to embrace the professional private rented sector, and recognise it in development agreements. Only by including a private rented provision in section 106 agreements, will the sector gain the traction it needs.
That’s the argument put forward by Harry Downes, managing director of Fizzy Living. PRS developments need a leg-up from the planners, he says, in order to give them a chance in the current overheated development market. Currently, most sites to go a developer who builds for sale, as their business model – a quick turnaround with a full financial exit – allows them to bid more for building land.
“While true long-term PRS operators have to directly compete for sites with the deliverers of open-market sale property, the growth will be slow,” he warns in Property Week. “All sites are fiercely contested…the winner is usually the one whose residential valuation exercise knocks out the highest land value.”
The problem is, he adds, that someone holding the properties they build for a decade or more, with the liabilities of managing those properties built into the cost structure, will not be able to come up with such a frothy return as a house builder.
Downes says there are plenty of investors waiting to participate in the market, similar in scale to the Abu Dhabi Investment Authority, which put £200 million behind Fizzy Living earlier this year. Ready to invest long term, they have the potential to significantly change the rental market for the better, giving tenants well-designed, professionally managed properties they will want to live in.
Downes says one solution would be for section 106 agreements on major sites to include a PRS factor. These are legal documents, regularly entered into by developers and local authorities, and can cover a wide range of commitments from the parties. Often they deliver local infrastructure benefits, from new roads right down to park benches.
The terms of the deal could include a minimum size of, say, 50 units – to help deliver scale; it would cover a long term commitment for the rental units to remain so for a minimum period of, say, 10 years; and “where appropriate…an income cap on tenants, to ensure the flats are actually tenanted by the generation rent target market”.
As Downes reiterates, the problem of affordability is not going away anytime soon – in London, anyone looking to buy will currently need a deposit of around £80,000 to purchase their first home. The professional private rented sector is ready to deliver – but it needs a few simple elements of support to get the momentum going.