RESIDENTIALlettings
Cracking under the strain? William Jordan says action is needed to encourage further investment in the PRS.
F
or reasons that have never been clear, the residential letting sector of the property market has always been seen as somewhat secondary, when compared to the more stellar and vociferous new-home
building or commercial property sectors. Perhaps planning battles and soaring
returns for corporate shareholders are more attractive subjects for editors and financial commentators than a side of the residential provision industry based on myriads of mainly small, private investors. In reality, rented accommodation is a
critically important national resource. Thousands of first time buyers, unable to build up required deposits are becoming renters and thousands more repossessions are pouring people into the rental market. Extreme financial stringency by banks,
the remaining mutuals and other providers has caused a massive haemorrhage in the supply of affordable accommodation. The total disruption of the home
acquisition step ladder, flat-lining house prices and the need for tens of thousands of people to re-locate in pursuit of jobs in a rapidly changing employment market has put huge strain on the rental sector. I wouldn’t go so far as to say that it’s cracking under the strain but there is plenty of evidence that we’re reaching saturation point. This is causing upward pressure on rents. Unlike the other key components in the
residential mix, by which I mean public and council housing, housing associations and the construction and new build- industry, the rental sector doesn’t have hoards of civil servants, industrial bodies and local politicians measuring and regulating supply and demand. The supply of properties for residential letting is driven by market forces in a comparatively haphazard way.
54 DECEMBER 2011 PROPERTYdrum Strong demand and rising rents
encourage more speculative investors, mostly private individuals or small independent businesses, to enter or expand into buying-to let. Those who can get the finance in order are increasingly keen to increase their portfolios. Not surprising as rents continue to rise. In September the average rent rose to a record high of £718 pcm and landlords are now achieving average yields of 5.3 per cent. They do so for a variety of reasons.
Perhaps they have the inclination to sink some surplus funds into bricks and mortar because so many other ‘conventional‘ investments are performing so badly. Perhaps a friend has pointed out the
‘With no government action it falls to us to take the initiative.’
benefits of this kind of activity. They may have simply spotted a ‘For Sale’ sign or decided to invest in providing accommodation for a son or daughter who is off to university. There are no (or very few) formal efforts
to encourage new investors into this critical part of our infrastructure. Respective governments and local authorities are happy to leave the strategic direction of the sector to chance. This process tends to be slow and cumbersome. ARLA is warning of an impending crisis
with zero availability as property stocks reach full occupancy and the list of tenants seeking homes continues to increase daily. Subsidised council housing new-build
starts are at an all-time low as cash- strapped authorities struggle to cope with massive government cuts. So, in the absence of any formal political initiative or
incentive scheme to stimulate the movement of private or corporate funds into the provision of new property for rent – currently negligible – it falls to letting agents and the rental industry to take the initiative. Jordan’s has responded to the crisis by
launching a new division, Jordan’s IPEX. Its purpose is to sell ready-made ‘packages’ to would-be investors in the market (particularly new investors). Properties are offered for sale with properly qualified tenants who have had full reference checks and binding tenancy agreements in place. It’s a way for new money to be encouraged into the market and a way of keeping properties available that might otherwise fall back into private owner-occupation. Early indications are that investors, who
are feverishly searching the horizon for a better home for their money than the ‘traditional’ wealth management channels are finding these packages an attractive ‘hands-off’ option. The Government needs to be mindful
of the effect on the rental sector of any changes it does introduce – for example, the muted idea to have a different tax structure on second homes is fine as long as the rental sector is not affected by such a tax during the current housing crisis. What we need now is for a responsible
government to recognise the looming crisis and give tangible benefits or allowances to investors prepared to help avert the nightmare scenario of homeless families wandering the streets because, as a society, we have proved ourselves incapable of providing enough decent homes for the populations needs.
William Jordan is MD, Jordan’s.
Do you have any views to share?
www.propertydrum.com/articles/PRSinvest
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