Housing Futures AN AFTERNOON AT THE MUSICALS! Ian Fletcher Director, British Property Federation 17...
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Transcript of Housing Futures AN AFTERNOON AT THE MUSICALS! Ian Fletcher Director, British Property Federation 17...
Housing Futures
AN AFTERNOON AT THE MUSICALS!
Ian FletcherDirector, British Property Federation
17 July 2007
Act 1
What do you do with a problem like….buy-to-let? (The Sound of Music)
Act 2
This is the moment! (Jekyll & Hyde)
Act 3
Who will buy rent? (Oliver!)
Act 4
Wouldn’t that be loverely! (My Fair Lady)
THE ROLE OF THE PRIVATE RENTED SECTOR
£95 billion of lending – CML, Feb 07
850,000 mortgages – CML, Feb 07
Houses over 1 million households – M. Ball, for ARLA, Sept 06
BUY TO LET
Impact on demand/supply
BUY TO LET - CONCERNS
Table 1 summary: Who buys new homes in London? Category Sub-category Percentage Buy to Let Private individuals - 1 or 2 homes 28% Private individuals - larger portfolios 12.5% Investment funds 4.5% Buy to Let total 45% Buy to Sell Buy to Sell total 16% Build to let Developers 6% RSLs 3% Build to let total 9% Owner occupiers First home 27% Second home 3% Owner occupiers total 30% London total 100% Source: London Development Research Ltd – December 2006
Wrong type of housing
BUY TO LET - CONCERNS
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Studio 1 bed 2 bed 3 bed 4 bed
Social rented
Private rented
Owned
Source: Hometrack
Quality of management
Impact on planning
“Concerns remain, however, over reported poor management of investor owned homes on some developments; the effects on the sustainability of very large housing developments should a high proportion of homes be privately rented; and over the possible effect on the investor market of falling house prices in the
future.” KEN LIVINGSTONE, FEB 07
BUY TO LET – CONCERNS
Significant exit costs
Capital gains tax
Fixed rate mortgage penalties
Transaction costs (estate agent fees etc.)
Entry costs
Motivations of investors – JRF report October 2003
In it for long term pension planning
Live on the rental income when retired
Counter-cyclical
BUY TO LET – ARE WE HEADING FOR A CRASH?
Using buy-to-let, and in particular a single buy-to-let property as the main source of retirement income can be a high-risk strategy, similar to relying on investing in one company on the stock market. The value of the property may fall, or rental income may be lower than expected, or even zero. An alternative is to invest in a property fund, which owns a large number of properties. PENSIONS POLICY INSTITUTE, MAY 2004
BUY TO LET AND PENSIONS
OVERSEAS COMPARISONS - % RENTED
0
10
20
30
40
50
60
70
80
total rentedsector
private rentedsector
Switzerla
nd
Netherlands
USUK
Australia
Spain
THE INSTITUTIONS – THIS IS THE MOMENT!
The rest
85%15%
Commercially managed
Commercial property
£750bn invested in shops, offices, industrial by a range of big investors: Land Securities, British Land, Prudential
Private rented sector
Grosvenor £2.6bn, Grainger £1.5bn, Wellcome Trust £800m, Terrace Hill £500m, several other smaller funds, ING, HSBC, Schroders, Dorrington….
Investment in residential….is larger
£20bn in student accommodation, Unite £1.5bn...
Some investment in equity release, senior housing…
INSTITUTIONAL INVESTORS – WHO ARE THEY?
Quality housing management
Diversification and professional investment management
Help support supply
INSTITUTIONAL INVESTORS –WHY ENCOURAGE THEM?
INSTITUTIONAL INVESTORS –WHY ENCOURAGE THEM?
0%
10%
20%
30%
40%
50%
60%
over 100 units over 250 units over 500 units
2001 2005
Source: EMAP Glenigan, 2006
The PRS to offer a competitive risk/return profile
No residential REITs yet – some fine-tuning required
Tackling some cost disincentives – stamp duty, VAT….
Access to appropriate stock
INSTITUTIONAL INVESTORS –WHAT THEY NEED
Students
Higher education numbers up from 600k to 2.25 million since 1990. Government target is 50% participation rate by 2010. Currently, just over 43%.
Immigrants
Net international migration of 235,000 in 04/05. Overall, migration is predicted to contribute about a third of all housing need over the next 20 years.
Those with affordability problems
Bramley – 121K in 2001 for Barker Report – Currently providing less than half that number of affordable homes – 1.5m on waiting lists
Other social trends
Children living at home longer, separation and divorce, ageing population.
WHO WILL RENT?
33,000 per annum up to 2021
Calculating the growing demand’, Richard Donnell in More homes for rent: stimulating supply to match growing demand, Smith Institute, London, 2006.
About half that on central projection
The Outlook for the Private Residential Rental Market, Oxford Economic Forecasting and University of Reading for BBG Group, 2006.
WHO WILL RENT – FUTURE GROWTH
WHO WILL RENT - FAMILIES?
Brent - Housing for Families
Owner-occupied
Private renting
Social housing
Temporary accommodation
WHO WILL RENT – FAMILIES?
GLA - Households in Temporary Accommodation - Sept 05
Number in B&B, shared annexes and HMOs 2795
Number in self-contained annexes 3777
Number in private rented sector 41571
Housing Act 2004
Licensing – in various forms
Tenancy deposit protection
Housing Health and Safety Rating System
Anti Social Behaviour Act (Scotland) 2004
All those involved in letting are required to be registered.
WOULDN’T IT BE LOVERLY!
New legislation/ potential legislation and campaigns
HB reform – local housing allowance
Equality bill – extension of disability discrimination legislation
Housing Green Paper?
CAB – retaliatory eviction
APPG Balanced and Sustainable Communities – planning permission for, and increased licensing of HMOs
Various – security of tenure reform
Various – reform tax treatment of buy-to-let interest
WOULDN’T IT BE LOVERLY! 2
Other approaches
Law Commission – enforced self-regulation
Growth of accreditation
BPF – Code of Practice and Plain-English Tenancy Agreement
WOULDN’T IT BE LOVERLY! 3
In a relatively short space of time the modern PRS has become a vital ingredient of the UK housing market
Future economic and social trends suggest it will continue to need to grow, to meet various housing needs
Much of the current focus is on the buy-to-let market and its impact on supply and management standards
The institutional sector is small, could provide different facets, but needs encouragement
The sector continues to suffer from an image problem
A key facet of future policy will be to see how it tackles standards without negative impact on standards or the sector’s growth
IN CONCLUSION
THE END