With a 10% increase in house prices this year, the outlook for first time buyers remains gloomy. Access to mortgages is constrained and with the average deposit for home first-buyers now £33,000, a cut of 1% stamp duty for cheaper homes is unlikely to make much difference to most people.
With public spending cuts a certainty, meaning less investment in social housing and regeneration, the private rented sector (PRS) is going to be a vital component of Britain’s future housing supply.
In their response to a Treasury consultation, the Property Industry Alliance (PIA) – a collective which includes the British Property Federation, Investment Property Forum, Royal Institute of Chartered Surveyors, British Council of Shopping Centres and British Council of Offices – as well as the Council of Mortgage Lenders (CML) and the Association of Real Estate Funds (AREF), want to see some of the significant barriers to investment overcome.
Liz Peace, chief executive of the BPF, said: “The public are bored of countless political promises to fix our housing crisis and while there is no silver bullet, it’s clear that we need to look at new avenues of finance.”
The response, drafted by a broad spectrum of industry expertise, stresses the importance of promoting equity investment from small and institutional landlords and the unparalleled opportunity for government to signal its support.
Specific barriers to institutional investment highlighted include:
• the large investment costs that occur in the sector, which are exacerbated by tax anomalies, such as the SDLT bulk-purchase rules, which mean SDLT is paid on the aggregate price of a portfolio purchase, rather than per unit; and VAT on management costs
• issues of scale in terms of accessing investment stock and achieving management efficiencies
• the absence of a suitable tax-efficient investment vehicle onshore, given the particular characteristics of the residential sector
The organisations admit that not all the tax changes would be neutral, but stress that they would be slight in comparison with other interventions to address housing need and would bring a range of benefits, in terms of:
• addressing housing need
• support for the development industry
• broadening investor choice
• service standards and innovation.
Andrew Stanford, head of residential at Cluttons, chair of the BPF PRS Working Party, said:
"It is clear that institutional investment in the PRS could be a key contributor to solving the UK housing crisis. We are sufficiently close to a tipping point which would see institutions invest more in the sector with just a little bit of support from government. The PIA response provides a clear vision of what that support should be and it deserves to be taken seriously by anyone in government who wants to see more homes being built."
Peter Pereira Gray, managing director of investment at the Wellcome Trust and chairman of the IPF, said:
“The PRS is potentially a significant institutional investment market and there are good reasons to believe that the asset class is attracting institutions today. It is therefore essential that a variety of tax-efficient investment structures are developed to allow differing investor requirements and the particular characteristics of the sector to be fully accommodated.”
Mark Goodwin, director of external affairs at the RICS, said:
“The private rented sector has a vital part to play in creating a vibrant and sustainable housing market across the UK. With housing completions at record low levels, it is essential that we consider all approaches to increase the number of homes being built. Encouraging both individual and institutional investors will attract new sources of finance into the residential sector and will help give developers the confidence to start building homes again.
“Increasing levels of investment is part of the challenge and must be accompanied by further work on regulation in the sector. Action must be focused on ensuring that renting becomes a tenure of choice rather than a poor substitute for owning a home. A combination of increased investment and effective regulation can help show that the private rented sector can offer a realistic alternative to owner occupation.”
Michael Coogan, director general of the CML, said:
“To meet the growing demand for privately rented accommodation, considerable new investment will be needed in the sector with a contribution required from both individual and institutional landlords. The Treasury’s decision to reconsider its proposal to regulate buy-to-let lending suggests that it has listened to our concerns that buy-to-let mortgages have not been a source of consumer detriment and wants to avoid unnecessary over regulation.”
John Cartwright, chief executive of AREF, said:
“A number of the investment houses who represent current AREF member funds are seriously interested in the private rented sector if the current barriers to entry can be eliminated and investment at the scale they are used to in the commercial sector achieved. With first time buyers now having to save for longer to raise larger deposits, the opportunity for the industry to create rented accommodation now, plus the potential to create savings and investment products closely correlated to the residential market to assist that accumulation, is a double benefit.”
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