Will Cinderella come to the ball? Looking ahead for the PRS

1. Will Cinderella come to the ball? Looking ahead for the PRS Richard Capie Director of Policy and Practice December 2010

2. Why the PRS matters • Decline in home ownership set to continue • Decline in new social housing • Growing and changing population (Bramley last week) • PRS seen as the growth tenure (HMT) • Private rented sector moving from transition tenancy to long-term/”home” let

3. Why the PRS matters to affordable housing 1 • Positive choice for consumers though housing options at gateway • The primary tenure option in some markets where supply of social is low • Help meet demand for low cost housing through PRS with LHA

4. Why the PRS matters to affordable housing 2 • Competition for consumers • proximity of existing (and new affordable) rent to PRS levels; • levels of service; • Location; and • Product (the property) • Competition for landlords • Impact on land prices; • Impact on house prices (sales and acquisitions); • Impact on finance; and • PRS as part of the wider development equation (eg: development partners, planning)

5. But the forgotten tenure? “The long decline of the PRS has started to reverse, and the sector has begun to increase in absolute size and in terms of the proportion of households it accommodates. Attention has become focused on the capacity of the sector to meet a range of housing needs…. the sector presents a number of policy challenges relating to such issues as property quality, management standards and security of tenure. At the heart of the Review is the desire to see private renting as a less marginal, poorly regarded ‘third’ option that sits behind the preferred tenures of owner occupation and social renting.

6. New supply Two main classes of potential investor in the UK PRS – individual landlords and institutions. Historically PRS supply has been driven by individual landlords/investors, and in recent years the introduction of buy-to-let mortgage financing had accelerated this, with the PRS growing from 9.7 per cent to 11.3 per cent of the total housing market (2000-2006). In contrast the role of institutional investment has been limited to niche areas of the PRS market, such as student accommodation. The PRSI scheme, a flagship HCA vehicle, aimed at bringing in institutional investment.

7. Government appetite? • “The Government believes that the best way of supporting the Private Rental Sector is to restore confidence in the economy, stimulate investment, and maintain a stable financial system that supports lending and the long-term growth of the economy. “ • Asks from sector to HMT consultation: • Stamp duty land tax (SDLT) on bulk purchase NO • VAT on property management fees, renovations and repairs NO • Capital allowances NO • Residential Real Estate Investment Trusts (REITs) EXAMINE • Rent a room allowance threshold CONSIDER

8. Welfare reforms • LHA caps (£250 1 bed, through £400 4+ bed) • LHA calculated at 30th percentile rather than 50th • LHA CPI indexed in future • HB deductions for additional residents increased • JSA link – HB cut to 90% for people receiving JSA for 12 months or more • HB calculated for working age households based on size of property they need • Universal credit caps (household and individual) • SRR cap to 35 • Affordable rent will be capped on same/similar basis

9. DWP/IDS • Levels of housing benefit are unfair to low paid working families • 40% of private rented housing is underpinned by housing benefit • Government is going to use its buying power to drive down rents

10. SSAC (quotes) • The Committee’s report recommends that the Government should not go ahead with the package of amendments proposed. • The Committee challenged the case for change that was put forward by the Department for Work and Pensions. They felt it was contradictory to suggest that Housing Benefit reform is needed to ensure the housing choices of benefit recipients are geared to a similar level that people in work are likely to achieve, as Housing Benefit is also available to people in work. In addition, the Committee found no evidence to suggest that the housing choices made by Housing Benefit customers are excessive, noting research which suggests that the Local Housing Allowance arrangements are not unduly favourable compared to low income working households. • It was noted in the report that the very high rates of benefit seen in London and the South East are driven wholly by rent levels in that area, meaning that there is very little cheap accommodation for those who are not able to access social housing – this, it was felt, was a problem of supply, with high levels of demand driving rent levels. Therefore there is little evidence to suggest that landlords will reduce their rents to reflect the resources available to people who are reliant on Housing Benefit. • The Committee’s report stated that the effect of these measures would result in customers being unable to access private rented sector accommodation in a number of areas.

11. SSAC (quotes) • It was noted in the report that the very high rates of benefit seen in London and the South East are driven wholly by rent levels in that area, meaning that there is very little cheap accommodation for those who are not able to access social housing – this, it was felt, was a problem of supply, with high levels of demand driving rent levels. Therefore there is little evidence to suggest that landlords will reduce their rents to reflect the resources available to people who are reliant on Housing Benefit. • The Committee’s report stated that the effect of these measures would result in customers being unable to access private rented sector accommodation in a number of areas.

12. Implications • Economic and personal hardship for tenants and their families • Financial risks for landlords (both prs and social – we will need to revisit this settlement) • Housing options curtailed – issue for Las and RPs • Future private rented housing for low income groups in receipt of benefits will be squeezed further • No evidence of price movement • Arrears, evictions likely to spike • Demand exceeds supply in most areas, therefore displacement likely • Impact on departure and arrival communities and housing markets • Customer Insight – lesson number 2 - leaseholders

13. So where next? Support with housing costs • Welfare reforms will get driven through so it is about preparation and mitigation • BUT we need to work on a long term sustainable model – CIH is leading on this already • Stability for lenders, tenants and landlords is key Building new homes • No magic bullet in terms of PRS investment as a solution to housing provision crisis • If there are solutions they will come from landlords and investors developing their own models, not from government. The quality and management of existing homes • Government doesn’t want to regulate the PRS any more than currently in place, but is open to sector led models. • But PRS bodies (ARLA, NLA), CIH, CIEH up for looking at how we can take the lead in driving up standards in the PRS • Increased pressure on Las but reduced resources • Increasing consumer pressure for better PRS offer…