Without a clear signal from government of its commitment to build-to-let development, we are unlikely to see investment take off in a new type of private rented sector
Yesterday’s report from the National Housing Federation predicted that by 2021 home ownership in Britain will have fallen to its lowest levels since the mid 1980s. 64 per cent of people will own a home compared to a peak of 73 percent ten years ago.
The government’s response to these predictions was half right. The minister for housing, Grant Shapps, talked about the need to build more homes. This would of course help address the chronic undersupply of housing, with the number of new homes being built at a post-war low. But it was also half wrong by continuing to focus exclusively on meeting people’s aspiration to own and ignoring the potential for the private rented sector.
Even if the government could find the money to massively expand support for first time buyers, we cannot just avoid the fact that huge numbers of young families on low-to-middle incomes are increasingly finding their long-term home in the private rented sector.
Analysis published by the Resolution Foundation earlier this month showed that it would now take the average low-to-middle income household 31 years to save for a deposit for the average first home if they saved 5 percent of their income a year. This is extraordinary in itself, but with wages stagnating and the cost of living rising, we know that most families in this group are not able to save anything like that amount, even in better economic times. They simply have little option but to rent for the long-term.
But the current rental market in the UK is poorly designed for long-term tenants. A shortage of properties is pushing up rents in many parts of the country. Standard tenancies offer little security. The quality of properties and landlords is highly variable and people have limited flexibility to make improvements to their homes. In Making a Rented House a Home, the Resolution Foundation put forward the case for a new type of rental market in the UK driven by investment from pension funds and life insurance companies. Rental properties would be built at scale, be designed for efficiency, provide longer-term security for tenants and be managed by professional landlords, possibly Housing Associations. Renting of this kind is common in countries like the US, the Netherlands and Germany. In Germany, for example, the availability of high quality rented homes means that more people choose to rent than buy.
What can government do to help create this kind of rental market in the UK? First, it can earmark some of the land that it owns and will release for house building for build-to-let development that meets the needs of those who are squeezed out of ownership. So far, it has focused its release of public land on building more homes for sale. Second, as part of its reform of planning guidance, it could fast-track planning permission for build-to-let development that provides a high proportion of rented homes that are within the reach of ordinary working families.
Speeding up the planning process would significantly reduce the costs of development, keeping rents down. Without a clear signal from government of its commitment to support build-to-let development, we are unlikely to see institutional investment in a new type of private rented sector take off. ‘Generation rent’ needs government to step in.
Vidhya Alakeson is director of research and strategy at the Resolution Foundation
