Housing Futures

AN AFTERNOON AT THE MUSICALS!

Ian FletcherDirector, British Property Federation

17 July 2007

Act 1

What do you do with a problem like….buy-to-let? (The Sound of Music)

Act 2

This is the moment! (Jekyll & Hyde)

Act 3

Who will buy rent? (Oliver!)

Act 4

Wouldn’t that be loverely! (My Fair Lady)

THE ROLE OF THE PRIVATE RENTED SECTOR

£95 billion of lending – CML, Feb 07

850,000 mortgages – CML, Feb 07

Houses over 1 million households – M. Ball, for ARLA, Sept 06

BUY TO LET

Impact on demand/supply

BUY TO LET - CONCERNS

Table 1 summary: Who buys new homes in London? Category Sub-category Percentage Buy to Let Private individuals - 1 or 2 homes 28% Private individuals - larger portfolios 12.5% Investment funds 4.5% Buy to Let total 45% Buy to Sell Buy to Sell total 16% Build to let Developers 6% RSLs 3% Build to let total 9% Owner occupiers First home 27% Second home 3% Owner occupiers total 30% London total 100% Source: London Development Research Ltd – December 2006

Wrong type of housing

BUY TO LET - CONCERNS

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Studio 1 bed 2 bed 3 bed 4 bed

Social rented

Private rented

Owned

Source: Hometrack

Quality of management

Impact on planning

“Concerns remain, however, over reported poor management of investor owned homes on some developments; the effects on the sustainability of very large housing developments should a high proportion of homes be privately rented; and over the possible effect on the investor market of falling house prices in the

future.” KEN LIVINGSTONE, FEB 07

BUY TO LET – CONCERNS

Significant exit costs

Capital gains tax

Fixed rate mortgage penalties

Transaction costs (estate agent fees etc.)

Entry costs

Motivations of investors – JRF report October 2003

In it for long term pension planning

Live on the rental income when retired

Counter-cyclical

BUY TO LET – ARE WE HEADING FOR A CRASH?

Using buy-to-let, and in particular a single buy-to-let property as the main source of retirement income can be a high-risk strategy, similar to relying on investing in one company on the stock market. The value of the property may fall, or rental income may be lower than expected, or even zero. An alternative is to invest in a property fund, which owns a large number of properties. PENSIONS POLICY INSTITUTE, MAY 2004

BUY TO LET AND PENSIONS

OVERSEAS COMPARISONS - % RENTED

0

10

20

30

40

50

60

70

80

total rentedsector

private rentedsector

Switzerla

nd

Netherlands

USUK

Australia

Spain

THE INSTITUTIONS – THIS IS THE MOMENT!

The rest

85%15%

Commercially managed

Commercial property

£750bn invested in shops, offices, industrial by a range of big investors: Land Securities, British Land, Prudential

Private rented sector

Grosvenor £2.6bn, Grainger £1.5bn, Wellcome Trust £800m, Terrace Hill £500m, several other smaller funds, ING, HSBC, Schroders, Dorrington….

Investment in residential….is larger

£20bn in student accommodation, Unite £1.5bn...

Some investment in equity release, senior housing…

INSTITUTIONAL INVESTORS – WHO ARE THEY?

Quality housing management

Diversification and professional investment management

Help support supply

INSTITUTIONAL INVESTORS –WHY ENCOURAGE THEM?

INSTITUTIONAL INVESTORS –WHY ENCOURAGE THEM?

0%

10%

20%

30%

40%

50%

60%

over 100 units over 250 units over 500 units

2001 2005

Source: EMAP Glenigan, 2006

The PRS to offer a competitive risk/return profile

No residential REITs yet – some fine-tuning required

Tackling some cost disincentives – stamp duty, VAT….

Access to appropriate stock

INSTITUTIONAL INVESTORS –WHAT THEY NEED

Students

Higher education numbers up from 600k to 2.25 million since 1990. Government target is 50% participation rate by 2010. Currently, just over 43%.

Immigrants

Net international migration of 235,000 in 04/05. Overall, migration is predicted to contribute about a third of all housing need over the next 20 years.

Those with affordability problems

Bramley – 121K in 2001 for Barker Report – Currently providing less than half that number of affordable homes – 1.5m on waiting lists

Other social trends

Children living at home longer, separation and divorce, ageing population.

WHO WILL RENT?

33,000 per annum up to 2021

Calculating the growing demand’, Richard Donnell in More homes for rent: stimulating supply to match growing demand, Smith Institute, London, 2006.

About half that on central projection

The Outlook for the Private Residential Rental Market, Oxford Economic Forecasting and University of Reading for BBG Group, 2006.

WHO WILL RENT – FUTURE GROWTH

WHO WILL RENT - FAMILIES?

Brent - Housing for Families

Owner-occupied

Private renting

Social housing

Temporary accommodation

WHO WILL RENT – FAMILIES?

GLA - Households in Temporary Accommodation - Sept 05  

   

Number in B&B, shared annexes and HMOs 2795

Number in self-contained annexes 3777

Number in private rented sector 41571

Housing Act 2004

Licensing – in various forms

Tenancy deposit protection

Housing Health and Safety Rating System

Anti Social Behaviour Act (Scotland) 2004

All those involved in letting are required to be registered.

WOULDN’T IT BE LOVERLY!

New legislation/ potential legislation and campaigns

HB reform – local housing allowance

Equality bill – extension of disability discrimination legislation

Housing Green Paper?

CAB – retaliatory eviction

APPG Balanced and Sustainable Communities – planning permission for, and increased licensing of HMOs

Various – security of tenure reform

Various – reform tax treatment of buy-to-let interest

WOULDN’T IT BE LOVERLY! 2

Other approaches

Law Commission – enforced self-regulation

Growth of accreditation

BPF – Code of Practice and Plain-English Tenancy Agreement

WOULDN’T IT BE LOVERLY! 3

In a relatively short space of time the modern PRS has become a vital ingredient of the UK housing market

Future economic and social trends suggest it will continue to need to grow, to meet various housing needs

Much of the current focus is on the buy-to-let market and its impact on supply and management standards

The institutional sector is small, could provide different facets, but needs encouragement

The sector continues to suffer from an image problem

A key facet of future policy will be to see how it tackles standards without negative impact on standards or the sector’s growth

IN CONCLUSION

THE END