Institutional Investment in PRS

With 4 million privately rented homes in the UK, PRS (Private Rented Sector) has overtaken social housing for the first time. Furthermore, the English Housing Survey has reported that home ownership has fallen to the lowest level in 25 years. While we shouldn’t overemphasise the significance of these figures – home owners still represent two-thirds of all households – there is clearly a meaningful trend here. PRS is on the rise and will have a major role in helping the housing problem. People are now posing important questions about the UK’s approach to PRS. Does it need to be changed? If so, in what way and how significantly?

Ian Fletcher, Director of Policy at the British Property Federation, and Roberta Blackman-Woods, Shadow Planning Minister, are both strongly advocating a large increase in institutional investment in PRS through build to rent. The idea is that institutions, such as pension funds, will be attracted to fund new PRS developments by the secure, long-term returns that are to be gained from letting. An article in the Guardian last week also lent its support to the idea. It should be emphasised that such a drive is far from imminent; it is an idea. Indeed, before it could really take off as suggested, several big changes would have to occur, such as the alteration of financial viability models in the National Planning Policy Framework (NPPF) and having more room to establish longer tenancies.

It’s worth asking what this would mean for landlords. The strong support from key players in property policy means it could one day become a significant issue. There is an assumption (not necessarily correct) that it would drive up standards and help eliminate rogue landlords, making renting more appealing across the board. But by increasing supply, rents may take a hit and it’s natural to assume that the rise of this kind of build to rent may adversely affect buy to let. But this is just something landlords should keep in mind, not worry about (it would be starting from an incredibly low base anyway). And it is still unclear whether the financial benefits will be appealing enough to many institutional investors. Leaving the final word to the Treasury, a 2010 report on this very topic concluded that ‘institutions seem unlikely to threaten the dominant role of individual investors in funding overall PRS supply’.

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