Despite signs of a flattening in prices, the UK residential sector continues to raise affordability issues, delegates at the British Property Federation’s (BPF) residential conference heard today.
The BPF’s last residential-focused gathering before the UK general election saw investors, developers and asset managers consider the medium-term future of the emerging private-rented sector (PRS).
Speaking on a Housing Market for the Next Five Years panel, Liam Bailey, head of residential research at Knight Frank, said affordability will be the “key issue over the next five years”.
Panel chair and Dorrington director, Duncan Salvesen, said there were affordability issues in both the buying and rental market.
Rain Newton-Smith, director of economics at the Confederation of British Industry, told delegates that the amount needed for a deposit had risen in the past year, adding to existing affordability issues.
“More homes need to be built,” she said, estimating that the UK needs 240,000 new homes to be built each year. “If we don’t meet that challenge, then issues such as skills will bite. There is an interplay between housing supply, skills shortages, and productivity.”
Paul Winstanley, partner of residential valuation at Allsop, said that more than one million new households are needed due to population growth and immigration. “Most of that will be in PRS,” he said.
Allsop, he said, estimates that £177bn (€238bn) of investment in the residential sector is needed between now and 2020 – or £35bn a year.
“Housebuilders, however, don’t build for supply, they build for profit – it’s not in their shareholders interest to do so,” Winstanley said.
Along with constrained supply, Winstanley said “lifestyle changes” and “increased flexibility” were creating greater demand for rented property.
The role domestic and international institutional investors have to play in UK PRS was highlighted by Evenbrook director, John Coles.
“Institutional PRS is not going to be built overnight,” he said.
David Cowans, chief executive of Places for People, which manages rental properties for the Greater Manchester Pension Fund (GMPF), said local authority pension funds have “a role to play in PRS”, but few had stepped into the sector.
Coles added that hurdles needed to be overcome to make PRS a viable sector for institutional investors – notably by improving the scale of product.
“You need blocks, not pepper-potted properties,” he said. “We’re at embryonic stage but we now need the stock to invest in.”
Reputational issues were also a factor for investors, Coles said.
“But the message is that all main political parties want institutional investment in PRS,” he said.
Bill Hughes, head of real assets at Legal & General Investment Management and BPF president, said all parties now recognised the need for PRS properties, creating a “helpful political environment”.
“The reason PRS hasn’t happened in UK is that there are gaps in the right sort of real estate, and few organisations with the appetite to take development risk,” Hughes said.
Knight Frank’s Bailey said there had been a “high level of government activity” in the wider residential sector, ranging from policies aimed at encouraging first-time buyers to the taxation of foreign ownership of London homes.
Outside the conference walls, Savills said the growth of PRS, alongside falling numbers in mortgaged owner occupation, was “exercising policymakers across the country”.
In a report looking at the impact of the upcoming election on residential property, the agency said both the UK’s main political parties have interests in the PRS, where the amount and value of stock continues to rise because of a lack of accessibility.
“There is cross party consensus that more housing needs to be delivered, even if there is disagreement as to why this is the case and what needs to be done to achieve it,” Savills said.
Speaking at the BPF’s event today, the UK’s minister for housing and planning, Brandon Lewis, said increased supply, rather than “blanket regulation” would create more choice and quality for tenants.
Ben Sanderson, director of fund management at Hermes Investment Management, said: “We have a very regulated market – risk of government interference is less of a concern for institutions than the lack of stability.”
Andrew Saunderson, director of transactions and special project at Grainger, which is currently in a build-to-rent joint venture with Dutch pension fund group APG, said land needs releasing by local authorities.
Dorrington’s Salvesen also identified the release of land by local authorities as key.
“The numbers just don’t work, so something needs to be done on the planning side,” he said.
With less than 100 days until the UK’s general election, the head of the government’s PRS Taskforce, Andrew Stanford, used the BPF’s conference to confirm that there would be a full-time “Build to Rent Champion” within the UK’s department for communities and local government.
Stanford revealed that recruitment is currently underway for the post, which will replace the PRS Taskforce when it is disbanded next month, three years after inception.