Making a rented house a home: housing solutions for ‘generation rent’

Low-to-middle income households are likely to be shut out of home ownership for a lifetime, according to analysis published today by the independent think tank the Resolution Foundation.

High average first-time buyer house prices and more restricted loan-to-value mortgage advances mean that the average low-to-middle income household putting aside 5 per cent of their disposable income each year would have taken 31 years to save a deposit in 2010, up from just eight years in 1983.  In London in 2010, low-to-middle income households would have needed to save for 54 years compared with 24 years in the North of England.

Alongside cuts to social housing funding, the major new report Making a Rented House a Home argues that the private rented sector must adapt to accommodate the needs of ‘generation rent’. This requires large-scale investment and longer term, more secure contracts that allow for home improvements – a model more common in Europe and the US.

In the Netherlands institutions, such as pension and life insurance companies, invest about half their real estate portfolio in residential property. In the UK the figure is just 1 per cent with a lack of returns cited as the major barrier by investors.

The report proposes a new approach to build-to-let development that could make institutional investment viable in the UK based on:

• Public sector landowners investing their land as an equity stake in the development, rather than selling it up front;
• Local authorities balancing the needs of the most vulnerable with those of local working people. This might include requesting lower, or no, affordable housing ( S106) requirements where the private rented development is targeted at low-to-middle income people, or enabling the S106 units to become market rent after a number of years;
• Investors retaining an option to sell some of the rental units after a fixed period of time if necessary to secure competitive returns on investment
• Rented homes being managed at scale by professional landlords who can provide tenants with a high quality service at the same time as keeping management costs down.

Some local authorities, including the London Borough of Barking and Dagenham, are leading the way in this area and demonstrating that by working in partnership this age old problem may be cracked.

Vidhya Alakeson, author of the report said: “Falling between the gaps in home-ownership and social housing, low-to-middle income households are finding themselves increasingly reliant on the private rented sector for housing support. Institutional investment not only brings the potential to deliver private rental homes at scale but also a product more in tune with tenants requirements for a long-term home.”

Giles Tucker, Managing Director, RBC Capital Markets said: “RBC has been involved in financing the affordable housing sector for many years and sees the Resolution Foundation’s initiative as an important contribution to the sector’s evolution. We see housing, particularly for low income families, as a fundamental part of the UK’s infrastructure and essential for supporting economic growth”.

Nick Jopling, Executive Director of Property at Grainger plc, the UK’s largest listed residential landlord, said: “Part of the answer to today’s housing crisis lies in the private rented sector, the stepping stone in housing tenure between social housing and ownership. This important report from the Resolution Foundation urges the UK government at all levels, the residential sector and institutional investors to work together to help create a private rented sector that can play its part to the fullest in housing a significant proportion of UK residents. I hope that the recommendations in this report are taken on board and help shape a UK-wide solution to the housing problem we face.”

Jeremy Grint, Divisional Director of Regeneration and Economic Development, London Borough of Barking and Dagenham said: “In a more challenging economic environment the Council is exploring new ways to unlock private finance to meet the growing demand for affordable rental housing in the borough.  By providing public land and a rental guarantee we have secured institutional investment to build 500 homes for people on the council waiting list as well as people in work on low incomes who would struggle to access both Council housing and private for sale housing in London. Without this sort of funding these homes could not be built”.

Paul Beardmore, Director of Housing at Manchester City Council said: “Manchester City Council is pleased to be working with the Resolution Foundation to explore new models for bringing forward housing, recognising the changed fiscal and economic environment”.