The housing crisis won't be solved by units alone

On 27 January 2015, Peter Vernon, CEO of Grosvenor Britain & Ireland (GBI) gave the keynote speech to industry and public sector figures at the PRS property summit organised by London First and Movers & Shakers. 

29th January 2015

On 27 January 2015, Peter Vernon, CEO of Grosvenor Britain & Ireland (GBI) gave the keynote speech to industry and public sector figures at the PRS property summit organised by London First and Movers & Shakers.  He outlined GBI’s views on London’s housing shortage and argued for, amongst other things, greater ambition from central and London government to catalyse build for rent as an additional source of much-needed housing supply.

You can listen to Peter speaking at the summit here or read a transcript of his speech below.

"Given this perspective, I would argue that we should aspire to solve the housing crisis not just with units…

But by creating new neighbourhoods that provide a good and growing quality of life."

"Thank you London First and Movers and Shakers for bringing this forum together today.

Let me start by suggesting, as John has, that the housing crisis is the ultimate focus of this forum.

I will focus my comments on the capital today, where the shortage of supply is most acute.

This shortage is acknowledged by policy-makers as a threat not only to our economic success but also to social cohesion.

It is felt by employers who now rate the housing shortage as a top 3 risk to London's competitiveness, according to London First members.

It is also felt by employees. Perhaps the sixty thousand 30 to 39-yr olds who left London last year – a net outflow of 22 thousand thirtysomethings from the city.

A city whose success depends on remaining a global talent hub.

That talent will question their being here

– If the daily commute becomes too long, difficult and expensive;

– If their homes are cramped, poor quality or provide insecure tenure – or alternatively their housing costs leave them with minimal disposable income; and

– If the neighbourhoods in which these homes located are lacking life, variety, vibrancy – the mix we’ve come to expect of London.

In short, if their quality of life deteriorates – and the costs of London life begin to outweigh the benefits – London will not compete.

Given this perspective, I would argue that we should aspire to solve the housing crisis not just with units.

But by creating new neighbourhoods that provide a good and growing quality of life:

– Urban neighbourhoods that are home for all Londoners: the young, the old, families, people of different incomes.

– Neighbourhoods that have density with liveability; high-quality amenities and public realm; strong local retail; and community-leadership – residents with a say.

Build for rent can have a positive impact on both fronts:

– It can provide a badly-needed source of supply.

– And when its funding source at scale is likely to be long term capital – it can be a force for good in the creation of high quality neighbourhoods that are maintained and enhanced over time.

This is Grosvenor’s approach… Through our work in London, Liverpool, Edinburgh, Oxford, Cambridge and Southampton.

We want to invest, with patient capital, in vibrant, urban neighbourhoods that stand the test of time.

We have acquired sites in London and other cities. We have ambitions to create a differentiated rental product for mid-market customers.

So… If we’re going to meet the substantial need for new homes in London, we’ll need to turn the tap on full for all forms of housing – social, build for sale, intermediate, as well as build for rent.

How big a contribution could build for rent make?

Is there any reason why London could not, with the right catalytic policy incentives, develop a build for rent sector on par with New York?

Two thirds of New Yorkers rent, double the national average.

That city, as the housing sector returns to growth, saw total completions in 2013 up 34% from the previous year. Half of them were build for rent.

This reflects demand. In America’s largest cities, renters are on par or outweigh owner-occupiers.

So what policy change would have the catalytic effect needed to turn the tap on for high quality build for rent in the UK… Such that it would make a meaningful difference to supply?

First, central Government.

As we all know, the price of sites for housing is driven by values in the build for sale market making it difficult for build for rent developers to compete.

Compounding this is the assessment of viability for planning purposes – and the negotiation of s106 and CIL contributions for affordable housing.

The outcome of this process for investors in build for rent is more uncertain than conventional for sale housing – making it even harder for developers wishing to build for rent to compete for sites.

I personally believe that planning lies at the heart of the issue.

It's interesting to note that last month the Prime Minister launched the Starter Homes initiative.

House builders who sign up will be exempt from s106 and CIL obligations on public sector land – if they commit across a fixed period to pass on savings to first time buyers via a 20% discount.

In effect, the Government has accepted the principle that removing obligations to provide affordable housing is an acceptable trade-off for growing capacity and reducing costs for first time buyers.

Do we need a similarly bold planning policy intervention to promote build for rent? 

For example…

In exchange for similarly exempting a build for rent development from s106 planning obligations including affordable, developers could be required to:

– Provide a covenant committing to PRS for say 20 years; providing longer tenancies of say 3 years with rent indexed over this period.

Such a policy would end the uncertainty created by viability testing – which after all is based on negotiations that offer no predictable outcome to investors.

And with enough land made available – an important condition – the build for rent industry would be providing net additional supply to a segment of the market that badly needs it…

And the volume of affordable housing delivery via building for sale should not be affected.

It may be that such a policy should apply to projects where the starting market rent is below a maximum threshold… But….

It goes without saying that any regulation in the form of rent control would be a mistake – and fatally undermine that vital new supply.

Regulation in the form of rent control would be a mistake – and fatally undermine that vital new supply.

So what do we want of central Government?

What policies are needed to catalyse build for rent?

What signals to the market could Government send in creating them?

Turning to London Government – the Mayor and London's boroughs.

I support the argument that the Mayor should set sophisticated targets and incentives for boroughs in London.

And I welcome the progress being made on the Mayor being able to identify and dispose surplus public sector land.

But in a way, the challenge is not just identifying and disposing – it is ensuring that sites are assembled have clear planning consent and enabling infrastructure.

Personally, I would favour a muscular Mayoral Housing Agency – a 'Housing for London' if you like – backed by a determined Mayor.

Properly resourced – working with boroughs and the private sector – it could assemble sites, designate use and forward fund the necessary infrastructure – starting with the Opportunity Areas the Mayor has already earmarked.

It could unlock land for build for rent – and sell to the market, plot by plot stimulating build for rent in the process.

It’s a version of the model we have established in Oxford City for a new urban neighbourhood called Barton Park.

What of the London boroughs?

What is their appetite to drive housing supply with build for rent?

Here I would point to the challenge of estate regeneration – unlocking the land they already own with a view to increasing density…

Replacing large mono tenure estates with a mixture of housing for sale, subsidised affordable homes and importantly market housing for rent.

Now… Without greater borrowing headroom to invest in housing, the boroughs’ hands may always be tied.

So I’d agree with those who say that the arbitrary cap on boroughs borrowing on their assets should be lifted – if they can demonstrate a track record and a prudent fiscal plan.

So what is our ask of London government?

What should the Mayor and the boroughs do to unlock build for rent in London…

By way of policy or a more powerful Mayoral Housing Agency; and

By way of site assembly?

Let me close by reiterating – the housing shortage is a big, pressing problem for London that requires big, bold solutions.

We need to turn the tap on all forms of housing – and catalytic policy change may be needed to switch on the build for rent sector at scale.

At the same time, the housing crisis will not be solved by more units alone.

We will need new and renewed urban neighbourhoods in London – to maintain and grow the quality of life as we meet that demand for more homes.

So I’ve posed a few questions – and perhaps we might at the end of the day return to them to see if any consensus has emerged on answers.

In the meantime, I look forward to hearing the debate unfold.  Thank you."

britainandireland@grosvenor.com

 

 

 

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