Housing Associations, the Private Rented Sector and Landlords
In this blog post, David Lawrenson of www.LettingFocus.com looks at the growing clamour for housing associations and city investors to get into the private rented sector via “build to let” and thus offer a direct challenge to the UK’s army of private landlords.
In the report, “Where Next” published last year with PricewaterhouseCoopers, the housing association, L&Q explored the challenges facing the housing association sector after the end of the current spending review in 2015.
The paper proposed that housing associations could finance a move into “market renting” via their own balance sheets backed by councils using public land as equity whilst building a successful track record to attract institutional investors.
Tenants could be offered five year tenancies and hence get much greater security than they currently enjoy in the “buy to let sector” in which private landlords are usually restricted (by their lenders) to offer tenancies of no more than 12 months.
(Our own research work has shown that there are actually few impediments to lenders in the “buy to lending space” offering selected landlords the option to offer their tenants longer term tenancies for up to as much as 7 years. And the fact that they still don’t do so is something of an open goal to potential new entrants to come into the private rented sector from other housing sectors and using other sources of investment.)
Clearly there would seem to be something of a perfect match between the desire of the housing associations to offer well managed long term housing and tenants in the private rented sector, many of whom want just that.
Using the money from market rents the idea is that the housing associations would then be able to cross subsidise the development of “affordable homes”.
But many housing associations are still cautious and not sure how to make diversification viable, get it to fit with the rest of their business or generate high enough returns. And from a reading of the agendas at various National Housing Federations conferences, the housing associations’ leaders do not exactly have the debate at the top of their “To Do” list yet.
And there is still little sign of significant institutional investment with property companies still seemingly reluctant to take the risk to create the stock for investment by institutions.
Traditional “Buy to Let” Could Get Left at the Gate
Clearly, the housing associations and institutional investment sectors – the large scale “build to letters” – are the most obvious candidates as new entrants, providing they can make the returns stack up.
Whether they can do this or not may depend on what further tax breaks or concessions can be wheedled out of the government. In the last two years we have seen changes to the Stamp Duty Land Tax regime and changes to REITs to make large scale investment in the private rented sector more doable. We could yet see more incentives still.
Where does this leave the small scale private landlord whose success has done so much to grow the supply of property to let since 1988?
Not in a good place I would suggest, because the UK’s growing army of small scale private landlords (only a tiny fraction of whom are members of their associations) does not have the firepower or “lobbying wallop” that the British Property Federation, the city investors or the NHF have.
RLA Calls for Tax Concessions for Individual Landlords
However, small landlords associations are trying to fight back.
In an excellent paper by the Residential Landlords Association (RLA) and quoting insightful research by Professor Michael Ball, the RLA called for clever and targeted tax breaks for the small scale landlord and questioned the need for the bigger investors to enter the party.
The trouble is that many folk in politics think private landlords are lightly taxed.
My view on this is neutral but of one thing I am sure – the tax system certainly doesn’t do anywhere near enough to encourage the small scale private landlord to improve their properties, at least in the short term. Too much of the tax incentives are built around capital gains (long term) and fail to encourage private landlords to invest in the here and now.
This argument is part of the main thrust of the RLA paper. I will report more on this in a future blog post soon.
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