PRS: a united front


An exclusive look at the latest report into the private rented sector by the BPF and Savills shows its gains and objectives. The problem is it is not called the PRS

There was blood in the water as delegates filed into CBRE’s PRS breakfast on the Thursday morning at MIPIM last year.

Less than 24 hours before, the government’s Budget had failed to exempt to large-scale build-to-rent schemes from the 3% stamp duty surcharge on second homes, something the sector had been confident it would avoid.

In sympathy, the weather was cold, wet and miserable. But in one of those curious instances of universal serendipity, then housing minster Brandon Lewis was to speak that morning.

Unfortunately, those hoping for fireworks were disappointed. Lewis unashamedly said the sector needed to make it clearer to government what it wanted.

“The challenge I have laid out to the sector is that it needs to come together and take a unified, cohesive view if it wants to ask government for something it thinks is important,” he said.

So was the sector at fault?

“I am not a great fan of politicians who say that you are not unified, that is often a smokescreen,” says Ian Fletcher, director of policy at the British Property Federation.

Be that as it may, roll on 11 months and the BPF has done a huge amount of work to present a united front for a rapidly growing but often diverse sector. And part of that culmination of that is its Unlocking the benefits and potential of build-to-rent report, produced with Savills, which provides 88 pages of proof of concept and policy wants, and a united approach for a diverse sector.

And which in turn, the BPF and Savills say, could lead to 15,000 more homes each year.

Policy wishlist

1. A statutory definition of build to rent A planning definition will ensure consistency amongst planners, and is a prerequisite for other planning policies
2. Discounted market rent The NPPF should make  discounted market rent acceptable for affordable housing commitments
3. Covenants and clawbacks Planning guidance should allow rental covenants and clawbacks when concessions are made in affordable provision
4. Planning preference for BTR on large schemes National and local guidance should encourage the use of rental to bring forward big schemes faster and with more homes
5. Design and space standards National guidance should promote greater flexibility in space and design, notably when it affects viability
6. Government debt guarantees for PRS Government should extend £3.5bn debt guarantee scheme for PRS to boost the confidence of debt financiers
7. Home Builders Fund The HCA should use a tranche of the fund for building out rental units
8. Market information and transparency More aggregate data would help the growth and development of the sector
9. Stamp duty changes Exempt large-scale investors from the 3% SDLT surcharge
10. VAT amendments Zero-rating the costs of repairs and maintenance would increase viability

Why the report?

“The British Property Federation commissioned this report to help understand whether the build-to-rent sector would benefit from any specific policy measures to help the sector establish during its infancy phase,” states the opening paragraph.

This essentially means using policy to increase viability. The difficulty has been in establishing what policy would help the sector when it has different interests, business models, lobbying groups and requirements.

Is it PRS or BTR? Forward funded or direct development? Housebuilder stock or made to order? Amenity rich or bare bones?

Fletcher says that as part of the report he specifically asked Savills to draw the different voices into one.

“I felt it was important that while we use the name BTR, it covers a number of different approaches, I am unashamed in the different ways that people are entering the sector. The bigger challenge is ensuring the sector grows at scale.”

This does, however, make addressing government, writing a report and lobbying harder, because different actors want different things.

Harry Downes, managing director at Fizzy Living, says the sector is delivering across the entire range of the market, from post-student to retirement. “This makes it quite a complicated sector,” he says.

“There are very different types of investor who have very different expectations on how assets are managed and how the financial side is reported… the ways those assets would be managed, and the cost, is very different, and plays into viability.”

How BTR can provide additional homes

Potential How it works
Units occupied more quickly Does not require phasing like typical housebuilding
Meets different types of demand For rent not sale, thus allows faster and increased output because not for the same type of occupier
Reduces costs Speeds up development, thus potentially reducing the cost of finance and other longer term costs
Reduce risks Pre-sales can de-risk large sites for developers and financiers and can assist with place making
Expand land supply Can make more sites available through accelerated output: authorities will be more willing to make land available if they know schemes will be built out faster

Has this hurt the sector?

Has having different business models slowed the sector’s growth and development?

For years there has also been debate around whether the sector needs a separate use class; because while it would make development more viable, it would hinder exit strategies if the market buckled.

In the case of the infamous 3% surcharge, there were some who would not support the exemption for large-scale landlords, deeming it unfair for operators of smaller blocks, who were being left behind.

“I think people were caught napping,” says Ed Crockett, director of residential fund management at Aberdeen Asset Property Investors.

“People had not taken the rhetoric coming out of government seriously. I don’t know what conversations had been had, but for some reason we were sold a pup. Whether that was because we were naive, or disparate voices, all I know is we got lumped with it and we should not have done.”

Now the task is bringing all those voices into one and finding policies that can benefit everyone.

“It is important that we are reflecting the various different models, and they will have different policy asks,” says Fletcher. “But some of the biggest ones are common ones. What that would make the most difference to the sector are the planning policy changes: being recognised in the National Planning Policy Framework, codifying the way it is approached in terms of covenants and discounted market rents.”

Michela Hancock, development director at US giant Greystar, says she does not see having different voices as a problem.

“People have different business models, but their goals are similar, they want to provide a good quality product and increase housing stock. There are differences in management, scale… but the market is working together very closely.”

The recommendations in the report (see box) reflect that. They are broad based, but, at least with the group EG ran them by, universally popular.

On the other hand, as a case in point, they still do not know what to call the sector. BTR is used 539 times, PRS 156.

Hancock adds: “I do think we need a definition of build-to-rent, even when we go to the planners they are not quite clear what is build-to-rent.”

Levelling the playing field

An accepted definition is essential: despite the sector’s recent gains, there needs to be steady, unanimous pressure on government.

Crockett says the report is needed to level the playing field for the sector against the build-for-sale market.

“The reality of why the report needs to be written is there is not enough supply coming forward: if there was it would not need to fight for its place at the table,” he says.

That is one of the key points of the report, to help educate those at the national and local level of the benefits of the sector.

“At the end of the day, the businesses that are seeking to deliver BTR will have to work with authorities,” adds Fletcher. “The pinch point is: do they understand?”

The report makes plain the advantages and gains possible through PRS (see box). But what it also explains is that while it cannot compete financially, it should be allowed to.

That is why having a united front and a consistent set of demands is so important, because the sector cannot compete with housing for sale, and needs government and policy intervention to help it. This is acceptable, because it is in addition to, not instead of, housing for sale.

Finding common ground

What the report shows is that as the sector develops and models of delivery emerge, common ground is becoming easier to find.

“I like every single one of them, I cannot see what’s not to like,” said Downes.

Hancock spent five years working for Bozzuto PRS in the US before coming to the UK nearly four years ago. She says that while the American market is more streamlined in its approach, the UK has come a long way very quickly.

“It took the US 30 years to become a mature multifamily market but I think the UK will become a mature market much faster,” she says.

Here’s hoping, because, at least on the surface, the new government seems to be listening.

Business models and definitions

 <- PRS ->
Retained for PRS Build-to-rent (HCA funding) Purchased for PRS Build-to-rent (reg)
New Newly built homes New New
Multiple units Large scale Multiple units Multiple units
No min size Long term No min size No min size
Large scale investor Attractive institutions Large scale investor Large scale investor
Not necessarily purpose built Exit strategy Not necessarily purpose built Purpose built
Broken blocks Single/multiple sites Generally unbroken Unbroken blocks
AST contracts 100 unit minimum Single phase development Single phase development
Risks sits with deliverer Delivery risk shared
Little control over design More control for funder over design
Bought before or during construction AST contracts
AST contracts

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