Call for company domination of the private rental sector is unrealistic

Today's call to government to create a new policy to encourage companies to provide private rental housing (The British Property Federation Conference, 27 January 2008[1]), whilst being well-meaning will never become a reality.

Private landlords currently make up two thirds of the rental sector in the UK, and companies have around 10 percent of ownership[2].

It's also important to remember that many companies, particularly in Greater London, who in the past would have offered employees accommodation as part of their remuneration package, have benefited from rising house prices and sold off their rental property portfolio.

Despite these realities, The British Property Federation is keen to encourage private institutions, such as pension funds, to claim their stake in the rental market. It believes this will lead to a higher quality of stock, which is easier to manage, and which will encourage ‘good quality’ tenants.

Companies like Property Investment for Pensions plc, an AIM trading company investing in London residential property, are likely to develop; focusing on prime, modern blocks of flats in the main.

But, house building is down year-on-year (as at 2008), and today's tough financial conditions have caused the vast majority of developments to come to a grinding halt, because no one is buying. It seems likely they will follow in the footsteps of companies, such as Unite and Grainger, who have done an excellent job in raising the quality of stock thus far. However, the vast majority will look towards new build in metropolitan areas, but I am not convinced as to where these properties will be based.

I believe it will take a long time for corporations to enter the private rental sector (PRS). For those that do have either equity or cash reserves in the current climate, then the availability of funding to gear this up is limited. There is however opportunity for private landlords who have minimal gearing at the moment, or cash reserves to invest at a time when house prices are competitive.

The main investment source for institutions should indeed be in pension funds (as cited at the conference), but we are in an era where investment in pensions is at an all time low.

There is also an ethical issue around new build versus existing properties. Already a sizeable proportion of London’s housing stock lies empty and in poor condition. Therefore, isn’t there argument for private landlords to refurbish on their doorstep? And, wouldn’t this be better supported by The Government offering tax incentives for landlords to renovate property in their local area?

Despite these misgivings, it is extremely encouraging to see such lively debate being generated on the PRS. In particular it highlights the notion that renting, rather than buying, a home will no longer be taboo in the UK.

James Davis
CEO of upad.co.uk London Rental Portal