Tom Hyde, Senior Consultant at Nexus Planning discusses the importance of the private rented sector in tackling the housing crisis and the role of planning policy in supporting this…
As the private rented sector (PRS) or ‘Build to Rent’ grows in scale and becomes a larger part of the UK housing market, its potential to reduce the ever widening housing deficit will only increase.
This rapidly expanding sector is engaging with a variety of stakeholders from smaller scale landlords to larger developers who are constructing new accommodation, purpose-built for the private rented sector. As a result, competition in this market has increased in turn. Newer firms such as Fizzy Living, a subsidiary of Thames Valley Housing, be:here, a subsidiary of Wilmott Dixon and even international firms such as Greystar are beginning to challenge the more established brands such as Grainger PLC, whose portfolio of 3600 units is the largest in the UK.
The rental market is only set to increase, as homeownership levels hits its lowest point for thirty years at 64%1, and so the PRS is set to become an increasingly integral part of the market. Despite these positive signs for this market however, the planning policy guidance is still lagging behind the economic reality.
A lack of government regulation has caused local councils to step into the breach to address the planning policy needs of the PRS, with London providing a particularly strong lead. For example, the Minor Alterations to the London Plan (MALP) published in March of this year included a newly updated policy on PRS in London – Policy 3.8 outlines that ‘the planning system provides positive and practical support to sustain the contribution of the Private Rented Sector (PRS) in addressing housing needs and increasing housing delivery’.
To see how each borough is responding to the rise of the PRS, Nexus Planning has reviewed the planning policies of all thirty-two London boroughs and the City of London. Partly because the policy has emerged on a piecemeal basis, the responses from local authorities have been broadly mixed. However, the dynamic rise of this sector means that boroughs must act quickly in order to form a coherent policy.
In addition to this, London boroughs must consider their own wants and needs alongside those of the new Mayor Sadiq Khan, who has placed a strong emphasis on affordable homes in his manifesto campaign and first 100 days of office. Khan wants ‘more stability’ for those in the private rented sector, stating that his priority is “to get London building the homes and communities we need, with a target of half of all the new homes that are built across London being genuinely affordable to rent or buy”. The updated London Plan has been a useful prompt for Authorities when issuing guidance, but there has been a range of approaches taken to this.
Our research has demonstrated that of the thirty-two boroughs and the City, 24% take a positive view of the PRS; many explicitly acknowledge the role that the PRS can play in helping to meet housing demands. Wandsworth Borough Council exemplifies this, with Policy 15.5 of its 2016 Core Strategy stating ‘the Council supports the development of private rented sector housing and schemes offering a mixture of private and intermediate rented housing aimed at working households’.
Interestingly, five London boroughs (15%) highlight the PRS as an important element of the housing stock but do not state their support for the sector through specific guidance. For example, the City of Westminster and Richmond upon Thames have suggested that updates to policy will be needed, with the Borough of Richmond stating in their draft Local Plan (Pre-publication version July 2016) that the ‘Private Rented Sector (PRS) can assist in meeting a range of needs and be particularly suitable for certain locations. It can for example offer longer term tenancies/more certainty over long term availability and ensure effective management through single ownership’.
Most surprisingly, twenty boroughs (61%) have still not recognised the PRS within their development plan documents or local plans, despite the buoyancy of the sector. In some cases, authorities have prioritised the availability of affordable housing over any PRS development. Haringey Council’s emerging Development Management DPD (pre-submission version January 2016) provides a particularly good example of this, stipulating that ‘whilst the private rental sector may provide a cheaper alternative to owner occupation, for the purpose of planning these units are treated as conventional market housing (Use Class C3) and are subject to affordable housing contributions’.
An increasing trend is for London boroughs to start their own development companies, such as Camden Council’s Camden Living which operates at an arm’s length from the Council. These sorts of companies are well positioned to take advantage of their own land to construct large scale PRS schemes; the rent from which could be ploughed back into essential services and the provision of more affordable forms of housing.
In addition to this, with historically low interest rates that don’t appear to be changing in the near future, the cost of borrowing has significantly reduced. By creating an independent company, councils can circumvent government-imposed debt caps. Moreover, any ‘Right to Buy’ policies will not apply to these developments, ensuring that they remain in the rental stock.
Our research also considered this option for local councils and found that 10 (30%) of London boroughs, including the City of London, have started or are planning to start building their own council housing again; for many this is the first time since the 1980s that they have built council housing. A further 11 (33%) are in the early stages of establishing or have already established their own development company, allowing them to enter the private rental market. The remaining 12 (36%) have taken a relatively hands-off approach and rely primarily on housing associations and the private sector to provide their housing needs.
While it is fair to say that there has been a definite change in trend in how councils look to provide housing stock, with more boroughs investigating the possibility of building their own housing, the scale is still small and the potential unfulfilled. In addition, relatively few boroughs are considering large-scale PRS schemes as a key part of their long-term revenue stream despite the rise of this sector.
There has been much debate around how the planning system can better accommodate the PRS. The broad consensus from investors and developers is that they require greater flexibility in terms of Section 106 contributions and design to help speed up the delivery of PRS projects. As a result, the UK government has faced calls to provide stronger policy behind the current ‘Build to Rent’ initiatives, with some going further to ask the government to provide a specific Use Class for PRS.
A tailored use class for PRS stock would mean that the London Housing Design Guide’s minimum size standards would not be applicable in their current form, allowing developers to be more flexible in their approach to development. The provision of communal facilities, which in many ways define PRS developments, also mean that the need for certain features is reduced; thereby reducing the size of flats. Indeed, some forms of housing, such as student accommodation, are already exempt from these standards.
However, a new Use Class for PRS developments is not without drawbacks. The PRS has come to the fore of the housing market as a response to changing demands. Tying PRS developments into a specific use arguably defies the dynamism that characterises the sector, constraining potential changes of Use Class which can be unattractive for short term investors. Moreover, there is no typical PRS development format, making it challenging to categorise PRS developments into a single Use Class.
The planning industry must therefore play a role in aligning the growth of the PRS in the property market with the long term housing needs of the population. Not only can the PRS contribute significantly to the ever widening gap in housing supply, but it can also improve the affordability of housing already in the market.
The mixed benefits of employing a specific Use Class for the PRS has meant that the industry remains undecided on this element of planning policy. On balance, we consider the creation of another Use Class to cover the PRS unnecessary, adding further complication to an already complex process and creating potential barriers to any future changes in market conditions.
Nonetheless, a more comprehensive and consistent approach to the PRS would be valuable to all. As the PRS grows, prudent planning has the potential to harness this growth to maximise the benefits of the sector for authorities and communities alike.
1 https://www.property118.com/the-resolution-foundation-reports-home-ownership-lowest-for-30-years/89379/ (Cited on 2nd August 2016)
Tom Hyde
Senior Consultant
Nexus Planning
http://www.nexusplanning.co.uk
