At a point in the economic cycle where there is strong investor appetite for low-risk investment, focused on income distribution and a longer-term investment horizon, many believe that this is the perfect time to expand the private rented sector. The initiative will form a key part of the package of proposals at the heart of the Government’s forthcoming response to the Rugg Review of the private rented sector.
The HCA is seeking to work with financial institutions and other investors to develop a long-term funding model for new private rental housing in England. It is anticipated that the potential investment could come from sources such as pension funds or overseas investors which have not traditionally been involved in UK residential letting.
The PRSI could have the potential to help kick-start stalled schemes and lead to a significant increase in high-quality new homes for rent, managed in a consumer-focused way, which would in turn help to make private rental an option of choice for consumers and relieve pressure within the housing market.
Sir Bob Kerslake, chief executive of the Homes and Communities Agency, said: "Our initiative is one of many innovations we have used to attract new investment, kick-start stalled housing schemes and mitigate against the effects of the market downturn.
"To date, achieving scale has been one of the main barriers to attracting institutional investors into the housing sector. We believe there is an opportunity now for the HCA to work with developers and housebuilders to offer a pipeline of projects for the PRSI, which could result in a positive outcome for all stakeholders.
"But it is only potential at this stage. We will engage with the private sector to develop a market-driven proposition which is attractive to investors. Projected rental yields and the current market suggest that the time is right, and that is why we are engaging with the market to develop the proposition further."
The principal focus for the HCA’s initiative is to facilitate the building of new homes for rent, but with the potential to consider recently built homes as "seed assets". It is envisaged that such new funding will invest in homes predominantly for private rent, with the possibility of supporting a smaller component of intermediate rent. The investment return profile of the initiative is therefore primarily income focused, with the potential for longer-term capital growth.
The HCA will consider support it can give to ensure that new investment into the sector is viable, which may involve some form of limited financial support to stabilise the portfolio and create confidence for investors during the initial years.
It is anticipated that development risk for schemes supported by any new investors would remain with the housebuilders. Crucially, the PRSI could provide a source of pre-sales for projects with suitable product, which in turn could help to reduce the speculative nature of housebuilding and unlock funding on stalled schemes.
Liz Peace, chief executive of the British Property Federation, said: "This paves the way for a new kind of private renting that could support new development as the housing market recovers and offer the public real quality and choice in private renting, at little or no cost to the taxpayer.
"The task now is to stimulate interest in the HCA’s proposals, encourage some innovative bids and ensure that we create some attractive proposals that provide solid returns for investors and more importantly, tenants. To make this work, we do need to reflect on the different financial structures of private rented housing, ensuring that we do anything we can to draw in this vital new funding."
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