What politicians have ignored for decades is that poor housing is the root cause of many of society’s ills, something the prime minister has today admitted. While Tony Blair’s government did much to address Britain’s inner-city problems, it failed to fix housing. And despite dozens of announcements – and record low interest rates to borrow at – the State has not taken a major role in development since the 1980s.
Today’s announcement of plans to redevelop Britain’s sink estates through the setting up of an investment fund should be universally welcomed. As I’ve said today on Sky News, the reality is that £140m alone is like a pinch of salt in the Atlantic when it comes to the amount of cash we need. Therefore, the key to this will be having the right structures in place to attract pension fund investment, as the government has suggested.
There has been no better time for this: institutions have stayed away from residential property for over a generation. But poor performance of traditional investments – like bonds and equities – have made them look twice at price. It’s more stable, offers solid, often index-linked returns, and can help plug the gaps many pension funds have in their books through long-term capital growth. But pension funds hate risk. And there’s nothing riskier than construction and planning.
Ensuring these projects can be adequately de-risked will be essential.
Another critical element will be the rights of residents to return – something else that the government’s statement addresses. As I have written about before in Inside Housing, large-scale social housing regeneration projects often fail to put enough social housing back. Ensuring residents not only have the right to return but can afford to do so will be the key point here. We should see a commitment around having the same proportions of homes at subsidised rents for those who truly need them (rather than those people with jobs who have never bothered to let the councils know).
Getting the mix of affordable and market rented homes right should not be too difficult. It’s already being done as we speak: private companies are now becoming the biggest delivery vehicles for affordable rented homes. In Greenwich, Essential Living, the UK’s first developer and operator of homes for rent, won planning consent for 249 homes with a quarter to be for discount market rent. The rents will be between 55% and 75% of market value and will be pepper-potted within the scheme.
The Creekside Wharf scheme won the Sunday Times Homes awards for Best Housing Project and was lauded by the Labour council for being “innovative” and “community-focused”.
Proposals by Essential Living for a major 500 home regeneration scheme in west London at the Perfume Factory, part of the Old Oak Common regeneration zone, will be considered by Ealing Council next month with a similar offering of discount market rent homes.
Up the road, also in Acton, HUB, a residential developer, is doing the same in its scheme funded by M&G Real Estate, one of the UK’s oldest institutions.
Up until now, the government’s focus has been on promoting home ownership at all costs. In spite of warnings from the Bank of England (and anyone else who lived through the 2008 crash) that spiraling debt is risky, a barrage of proposals encouraging first time buyers to take out hefty mortgages with 5% deposits have come forward. This is short sighted.
A greater focus on Build to Rent should be promoted by the prime minister, not least because companies like Essential Living, which is backed by London-based M3 Capital Partners, who manage global institutional capital, are already doing the sort of thing they are now promoting.
Other major businesses like Legal & General and Greystar, an American developer and operator backed by global capital, are also entering the market in Britain. Fizzy Living, another Build to Rent brand, is backed by Middle Eastern cash.
The future of funding the homes we need will very much be in the hands of global players – not the same old housebuilders whose stock rises and falls in line with the economy.
We need new ideas and above all, new money which can take a long term view, not a three-year view in line with what shareholders demand.
As the report I authored last August (“Funding Britain’s Rental Revolution”) showed, major investors are queuing up to come into the sector. Published by Addleshaw Goddard and the BPF, the report was widely covered by the FT, WSJ, BBC1 Breakfast and Radio 4. It noted that £30bn of institutional investment was already on the table. More recent estimates put this at £50bn.
This is the kind of capital the prime minister is talking about harvesting through its £140m fund. He should invite these guys in for a cup of tea.
In conclusion and as is ever the case, the key to this will be the detail. But the intent is laudable and the government’s track record of promoting institutional investment in strong. Its Build to Rent Fund has helped cut the costs of developing for rent, for example.
Yet there are several things that need to happen for this to succeed. It will need the right structures in place to attract pension fund cash. Having the right advice here is key: they must seek advice from those who have already done this.
Building large scale developments for market-price rent also needs to be prioritised. The prime minister cannot ignore this any longer. His housing minister Brandon Lewis has been highly supportive of Build to Rent. But many councils don’t have a clue. This has to change.
Ensuring residents can actually afford to live in redeveloped estates is crucial if we’re to preserve the social fabric of our communities. All too often developers come in, cash out and shift people far away. This is morally wrong and highly unfair. It’s good to see this has been recognized.
Finally, as Labour’s Lord Adonis said, we must build higher, getting away from silly rules preventing height and nimby attitudes against change. Many people in the Conservative Party itself oppose high density development, but it is the only way to do this. If you want to do more with the same space you have to build up.
However, estate renewal makes far more sense than build outwards on green field land, creating more urban sprawl.
In Michael Heseltine, the man who oversaw the regeneration of London’s docks in the 1980s, there’s nobody better-placed to manage this process. Let’s just hope he’s looking forwards and outwards at the solutions which are largely already in front of us.