UK: Planning and Affordable Housing for Build to Rent
Introduction:
Recent years have seen the emergence of a new sector in the housing market, namely large-scale developments purpose-built for private rent – often referred to as ‘Build to Rent’. In part, the emergence of this sector is due to actions taken by the Coalition Government following the 2012 Montague Review but it also reflects underlying demographic and economic conditions of high demand for rented housing and the abundant availability of institutional capital for investment in residential property. The Government welcomes Build to Rent as a desirable and enduring feature of the housing market. This support is set out in the 2017 Housing White Paper.
The number of new Build to Rent homes constructed is steadily increasing, but the Government has heard from developers and investors that barriers to development remain and that the capital available for investment could be deployed faster if those barriers are overcome. Acquisition of land, the predictability and speed of planning decisions for this emerging sector and the negotiation of planning obligations relating to affordable housing are frequently cited as key barriers. This consultation paper seeks views on planning measures intended to support Build to Rent through the planning system and make the benefits of Build to Rent more widespread. These include the availability of longer tenancies (to those tenants who want one) and facilitating a new form of affordable housing, known as Affordable Private Rent.
The emergence of Build to Rent:
The sector that we now refer to as ‘Build to Rent’ originally started in the 1920s and 30s when financial investors, such as insurance companies, started to develop and own purpose-built housing for private rent. year, as well as unlocking the wider benefits that Build to Rent has to offer.
Barriers and the case for intervention:
As an emerging industry facing a number of market and regulatory failures, Build to Rent is not yet sufficiently established to compete to its full potential against established housing developers. A number of barriers have been cited by industry. These include:
• Policy uncertainty – the need for a clear signal of Government support for Build to Rent as an enduring feature of the housing market.
• Teething issues associated with a new industry – the need to ramp up supply chains in management and operations; the absence of industry benchmarking data (making cost and income assessment difficult); the varying approaches by surveyors to valuing Build to Rent schemes; the lack of consumer awareness; and the absence of an established secondary market in the trading of Build to Rent developments and portfolios.
• Marginal financial viability and unpredictability of planning outcomes – the uncertain outcome of negotiations around S106 agreements, affordable housing requirements and housing mix can make it difficult for Build to Rent developers to bid for land in competition with housebuilders intending to build homes for sale.
• Finally, the methodology for ascertaining viability for Build to Rent is less well understood by local planning authorities than for other tenures. The Build to Rent model differs from build for sale in that it is based on a long term income stream and does not generate an early capital sum to pay for affordable housing. This creates difficulties in assessing viability at the outset.
Affordable housing and viability:
The requirement, in many parts of the country, to provide affordable housing alongside market housing can be a significant cost affecting the financial viability of development. Section 106 planning obligations, which may include affordable housing, have to meet statutory tests in order to be taken into account in planning decisions. Decision taking on planning applications does not normally require an assessment of viability.
Conclusion:
Affordable Private Rent homes are likely to represent only a very small proportion of total affordable housing provision, and not to have any negative impact on overall affordable housing provision. The Government considers that the greater availability of rented homes as a result of these policies, both at market rent and Affordable Private Rent, will improve housing outcomes for people living in rented housing, including people with protected characteristics, notwithstanding some level of reduction in the number of affordable homes to be delivered by Build to Rent schemes under other tenures.
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