Good morning. I’m delighted to be here and to see that the industry is looking to the future of the rental market.
I’d like to start by looking at the context for a moment. For too long, our housing markets have been dysfunctional. For much of the past 2 decades, we have been consistently building half of what we needed, year on year. The result has been a serious imbalance between supply and demand, and while this has led to potential opportunities for investors, there are significant social consequences too.
So as a government, we’ve had to step back and adopt a new, comprehensive approach to the problem. An approach which reaches across all tenures - owner-occupied, affordable, and private rented - understands the relationship between the three, and seeks to address the deep dysfunctionality in supply and demand.
Good progress has been made on several fronts. We have fundamentally reformed the planning system, to make it simpler and quicker. It’s still early days, but we’ve made a good start. The New Homes Bonus provides real incentives for local authorities to encourage new development. The Get Britain Building fund is helping to unlock sites that are stalled with more than 11,000 new homes. And, we are bringing surplus public sector land back into use, turning idle assets into jobs and homes.
Last month’s Budget included several further initiatives. We have significantly expanded both the Build to Rent fund and indeed the grant offered in support of the Affordable Housing Guarantee scheme, and I’ll say more about these in a moment.
We’ve also announced the Help to Buy schemes, which will provide £3.5 billion of equity investment in England, as well as bringing forward the new guarantees supporting up to £130 billion of high loan-to-value mortgages. We think that these measures will help to release demand for owner occupied housing, whilst offering a good boost to the construction sector.
That’s the broader context, and I’m happy to talk in more detail about this when we have questions at the end.
Bigger and better private rented sector
But, today, let me turn specifically to the role and opportunities in the private rented sector.
Over the last decade, the rented sector has become increasingly important in addressing people’s housing needs. The sector now houses 3.8 million households. Mobile patterns of work and reduced mortgage availability have made renting a more realistic choice for many more people, and the effect has been a strong rise in demand over the last decade.
So far, this rising demand has been met principally by individual landlords, who have been responsible for adding approximately 1.5 million new homes to the sector over the past decade. But there is real potential to go further, and particularly to bring new players into the market. Put simply, we want a bigger and better private rented sector, a sector in which large scale and experienced institutional investors can help the market not simply grow, but also to mature.
Small scale individual landlords operate around the world, but in many countries, such as the US, Germany and Switzerland, institutional investment in the private rented sector is much stronger and more established than it is here. Evidence from those markets shows that where institutional investment is stronger, costs are driven down and the sector becomes more professional, with a longer term perspective.
That’s what we want to encourage here. It’s a change which has the potential to underpin sustained growth of the entire private rented sector, and offer beneficial changes to the market as a whole.
Private Rented Sector Taskforce
So this is our aim for the private rented sector. But to realise it will require certain expertise and experience that Whitehall does not have. That is why we have set up a new expert Private Rented Sector Taskforce.
Led by the former head of Cluttons Residential, Andrew Stanford, the rest of the taskforce members join the department this month. That team I can announce today as:
- Julian D’Arcy, of Kirby Capital - a former regional chairman and proprietary partner at Knight Frank
- Joanna Embling - a property consultant and chartered surveyor - and former equity partner at Cushman Wakefield
- Tracey Hartley - a specialist asset manager for Grainger plc
- Dominic Martin - senior analyst at EC Harris
The role of the taskforce will be to connect investors with opportunities for long term investment in the sector and help to break down actual and perceived barriers to entry. They will work with the sector to kickstart the delivery of innovative, high quality and large scale rented projects. And they will bring developers, management bodies and institutional investors together to help you get the most from both the private rented sector Housing Guarantees and the Build to Rent Fund.
Housing Guarantees Schemes
Let me turn to the specific financial initiatives for the sector. Through the Housing Guarantees Schemes, we will underpin up to £10 billion of debt to make borrowing cheaper for housing providers, boosting provision of both private rented and affordable housing.
The Chancellor announced in the Budget that grant funding in support of the Affordable Housing Guarantees has now been doubled. We’ve taken it up to £450 million, pushing out the completion deadlines to 2017. This flexibility is important to help bring the number of additional affordable homes delivered by the scheme to 30,000.
Bidding has closed for the delivery of these guarantees, and we will be announcing the arrangements later, in May, give or take a few weeks.
Meanwhile I would encourage you all to prepare your proposals for housing guarantees, which offer a significant opportunity for large scale investment in this market.
Build to Rent Fund
As I mentioned a moment ago, the Chancellor has also expanded the Build to Rent Fund, pledging an additional £800 million, in addition to the original £200 million we announced last September.
Why did we do so? In part, because of the high level of interest in the fund. The fact that it has been heavily oversubscribed shows that there is a substantial appetite out there to build for the residential sector.
Today, I can announce that we are taking forward 45 projects for due diligence. We expect these projects to deliver up to 10,000 new homes, and there is actually a very good geographical spread. A quarter of the projects are in London, a quarter have sites in the Midlands, and almost half include sites across the North of England. So this is not just about what’s happening within the M25, as important as that is.
Together these projects will help kickstart the expansion of this sector, while demonstrating the good returns that can be made from private rented housing.
So, the combination of the Housing Guarantees and the Build to Rent Fund will not only boost supply, but should help improve quality and choice for tenants through increased competition from new entrants.
But there is also a role for proportionate regulation in raising standards, particularly in tackling some poor and appalling practices that a minority of the sector engage in. Practices that I am sure no one here today would condone but which, unless we are careful, could tarnish the reputation of the sector as a whole.
We have already provided funding to nine local authorities where the unusual but important problem of landlords renting ‘beds in sheds’ is most acute. It’s vital we crack down on this minority of rogue landlords, who flout the law and exploit people shamelessly, and we’re showing that bad practices like these are unacceptable.
Separately, but just as important for the image of the sector, there have also been quality of service issues in relation to letting and management agents. Now, letting agents play an important role in the market, and I am satisfied that a clear majority of them act within the law and offer a good service to their clients, landlords and tenants alike.
But of course the reputation of the majority can be damaged by a small minority, people who offer a poor service and engage in practices that are unacceptable. It’s bad for letting agents, but also bad for landlords and tenants.
There have been a number of reports on this issue, from bodies such as RICS, Which? and the Office of Fair Trading, and some people have argued for a full panoply of new regulation to cover the lettings industry.
I think that is an excessively burdensome approach, and could potentially stifle innovation and competition.
However, I do recognise there is an issue here, and we propose that government should do something about it. So that is why today the government has introduced an amendment to the Enterprise and Regulatory Reform Bill giving powers to require letting agents to offer landlords and tenants access to approved redress schemes. This is being debated in the House of Commons today and I strongly hope that it will be passed, so that we can then get on and consult on the secondary legislation we will need to put this in place. The keyword here is consult: I would encourage you all to engage with this process, because we want to listen to what the industry has to say and get it right.
I encourage all of you to engage with this. Offering access to redress will not only give landlords and tenants an avenue to complain when things go wrong. It will also drive up the quality of service that letting agents offer, and benefit the whole market through changing perceptions of the private rented sector.
We believe that the Private Rented Sector is a vital part of a functioning housing market, and we want it to get bigger and better.
A sector in which supply keeps pace with demand, large investors play an increasing role, and government policy is set for the long term.
Only in this way will private rented housing fully realise its potential alongside other tenures. It’s why we’ve introduced Build to Rent and our Housing Guarantees.
Our interventions are radical and significant. And that’s because this is a long term commitment, not a short term fix.
Success will not be easy or quick. There will be further obstacles along the way. After all, this is an untested market.
But working together, I believe we can rebalance our housing markets, and so provide the right type and quality of homes for the next generation.