Duncan’s Economic Blog

A bigger rental sector

Posted in Uncategorized by duncanseconomicblog on July 27, 2009

This story strikes me as good news.

The UK is set to experience a boom in American-style mass-produced rental homes as part of proposals by a consortium that meet a government call for greater institutional investment in the residential market.

Aviva insurance group,is to launch an investment fund with as much as £1bn to buy and rent out swaths of new-build residential property in partnership with CB Richard Ellis property consultancy and a big US residential manager.

The venture will order purpose-built residential blocks of 100 units or more in south-east England to rent out, mainly near big transport hubs and on significant regeneration sites that have stalled because of the economic downturn.

The partners have based their strategy on a US model of large-scale, multi-family rented housing. They say that it will be the first of its kind for the UK, providing thousands of homes for the private rental market, which is dominated by amateur landlords and buy-to-let investors. Rental property is a much bigger business in the US and across northern Europe.

I’d prefer the State to be building more public housing but this seems to me to be a  good start. As I’ve said before (here and elsewhere) I’d prefer house prices to be lower. Developing a bigger, and better run, rental sector can only help.

I know I’ve got at least two readers that know more about the issues here than me. Curious for their thoughts.

9 Responses

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  1. CharlieMcMenamin said, on July 27, 2009 at 10:25 am

    Duncan,
    My immediate reaction is not positive. We don’t need concentrations of rented housing. We’ve got loads of them, we call them estates. We need mixed tenure developments, as these tend to be socially mixed as well.

    The Housing and Communities Agency – the funding body for most social housing – has £400m set aside for a programme called Kickstart Housing Delivery, which was supposed to to support construction of high quality mixed tenure housing developments on currently stalled sites. Recently, a further £500m was allocated to this programme in Building Britain’s Future. I don’t want money spent on one class developments.

    Also, I don’t see Britain easily moving over to a American or Continental pattern of housing tenure. Privately rented housing in Britain concentrates on three main niches: the very poor; young people just starting up as independent households and families ‘in-between’ periods of owner occupation, perhaps because they have moved town. From the scanty details in this article it appears that Aviva want to concentrate on the third niche alone. I hope I’m wrong on this point, but it is a worry if one is concerned with the building of communities.

    my third point of concern is whether there will be the option of ‘stair-casing up’ out of this putative privately rented stock into shared ownership and from there to owner occupation as there is in social housing run by housing associations. I suspect not.

  2. CharlieMcMenamin said, on July 27, 2009 at 11:19 am

    P.S. Who’s your other reader who is interested in housing? if they’ve got a blog I’d like to add them to my blogroll…

    • duncanseconomicblog said, on July 27, 2009 at 11:31 am

      Thanks for the response.

      The housing tenure issue, I guess, is key? And what would be required is more than a simple legal change but a cultural shift towards renting?

      Fixed the link. The other reader is The Local Government Officer.

  3. CharlieMcMenamin said, on July 27, 2009 at 11:38 am

    Ah yes. I’ve already got LGO on my list.

    It’s not just cultural. Clearly, there have been economic advantages of a very significant order in owning over the long term, despite periodic crashes. But it does remain true that there are a very large number of people who would simply refuse to live in the midst of – or even near – large concentrations of rented housing because they feel it would affect local facilities like schools and so on. I suppose you could call this ‘cultural’. Or you could call it class prejudice. if you were feeling less charitable.

  4. thelocalgovernmentofficer said, on July 27, 2009 at 12:26 pm

    As I think you know, there are examples of developers trying to offload their stalled developments onto the council and social housing sector, only to discover that modern new-builds often don’t meet the minimum standards we expect for state-subsidised housing. I think that’s something we should worry about, though clearly unsurprising to a lot of us: http://rentergirl.blogspot.com/2009/04/talk-to-us_9276.html

    I don’t know if it’s possible from their proposal and desired return and prevailing rents to work out how much they plan to spend on making these residences decent places to live, and therefore whether they are likely to succeed. I certainly imagine that there are advantages to a single institutional landlord owning all the rental premises within one block, rather than the mess of individual buy-to-let investors all being played off against a management company with the tenants the ultimate losers as per usual.

    Is it of course helpful in principle in the context of too many people having unsuitable housing that someone is going to keep the build rate up, though I’m unclear how injecting a billion pounds into an illiquid market will achieve your stated ambition of house prices being lower, particularly when that market moves primarily on momentum. They might help in the short term but that will intensify the competition for buildable land when the boom returns.

    On Charlie’s point about mixed developments (though I was gratuitously abusive about shared ownership las week) you might want to look at the Fabian report ‘in the mix’, and the MORI research on what drives people’s attitudes to an area. While in principle I’m in favour of mixed communities, I also accept that we’ve got what we’ve got, and a lot of what needs to be done is about culture, facilities, behaviour and social mix, rather than simply taking the form of tenure as a proxy for this.

    For example, I would rather live in a 100% socially owned block where the facilities were well maintained and the tenants and, more importantly, others congregating in the area, were clear about what standards of behaviour are expected towards other human beings, the fabric of their neighbourhood, and their pets, than a block in which these factors were totally absent, even if that latter block was 30% socially owned, 30% owner-occupied, and 40% privately rented, or whatever.

    Meanwhile, the inflation target is 2%. I know you think inflation is good for an economy and to an extent you’re right, but even if we just meet the inflation target, and house prices don’t rise in real terms, someone buying a house for £200,000 will see their wealth increase by over £5000 a year more per year over a 25-year period than an identical person who is not an owner – more if you factor in the tax advantages of offset and similar mortgages.

  5. thelocalgovernmentofficer said, on July 27, 2009 at 12:45 pm

    Speaking of investment in UK residential housing, your favourite country seems to be in the news again.

    http://www.bloomberg.com/apps/news?pid=20601102&sid=a1hvRAcjlYc0

  6. Tim Worstall said, on July 27, 2009 at 2:35 pm

    But….but….but…..private rental housing? Grasping landlords?

    Don’t you know that it’s got to be social housing? “Affordable”?

    Rachman!

  7. Alex said, on July 27, 2009 at 3:56 pm

    Tim – that’s pathetic even by your standards.

  8. Tim Worstall said, on July 27, 2009 at 5:18 pm

    Jeebus, can’t anyone ever make a joke?

    OK, it’s a pretty pathetic joke maybe but….


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