On 25 February 2016, 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 read a transcript of his speech below.
"I believe the housing shortage in London puts at risk our capital's greatest success factor:
- Its ability to attract and retain talent both nationally and internationally
Success rest heavily on a sufficient quantity and quality of housing of all types, as well as mixed neighbourhoods with rich histories that offer a unique lifestyle to that talent.
So I think the response to the housing shortage must be not just more housing units, but new and growing urban neighbourhoods:
- Neighbourhoods are home to people of mixed incomes, backgrounds, life stages and jobs; and
- Neighbourhoods that host and sustain strong communities.
Is the build to rent sector contributing to the development of these neighbourhoods and what potential does it have to do so?
I would argue the trends on investment and delivery are not yet strong enough.
According to the British Property Federation, there is around £30bn of private capital looking to invest in rental housing in the UK over the next five years.
There have been some recent eye-catching announcements - from Grainger, Legal & General and Invesco Real Estate amongst others.
And we at Grosvenor are planning a build to rent development of over 1,000 homes in south east London.
These are encouraging signs.
But taken together they fall well short of what the city needs -- and a long way short of what has been achieved in other cities.
In the US, the private rented sector attracts a quarter of institutional investment in property. In the UK that figure is 3%.
In New York, two thirds of the population rents rents and multi-family rental development is a major contributor to the housing stock.
I can see no fundamental reason why London cannot similarly respond to a generational shift in renting.
There are signs of lift-off - there were for example 1,600 new rent homes built last year - and the capital is undoubtedly there, but volumes are nowhere near enough.
So what is needed to catalyse the market?
Many things - but let me briefly prioritise two:
First, a step change increase in the supply of developable land.
With others, I believe this will require in London a more muscular, interventionist Mayor.
A Mayoral delivery body:
- That identifies, assembles and designates site for development -- maximising the potential of public land using CPO powers if necessary;
- That puts in place the necessary enabling infrastructure; and
- That sells plots to those who want to build -- sub-dividing larger sites to accelerate delivery.
Second, I believe we need a clear and unambiguous planning policy for build to rent.
At present, build to rent investors and developers just don’t know where they stand in London.
The GLA has a draft but broad policy statement which each borough is interpreting differently.
This ambiguity is creating a stand-off between planning authorities and the private sector -- and holding back the investment of substantial private capital.
I think we need a clear, city-wide policy that recognises the economics of building rental homes are different from housing for sale and therefore need a different approach.
Today, the polarising outcomes of the shortage in the capital pose a profound challenge, especially in inner London:
- With housing too often available to the relatively few who can afford to buy it, and those who need social rented accommodation.
So I would argue that market rented and discounted market rental homes should be unleashed to meet the wide range of needs of those on middle incomes.
Policy change could bring this about -- unlocking more rental homes overall, with a proportion of discounted market rental homes amongst them.
Discounted rental homes that are:
- Funded and held by long-term investors;
- Affordable to a wide spectrum of local people with a range of discounted rents;
- Entirely integrated in tenure blind, mixed neighbourhoods.
So here’s a suggestion for a London-wide policy for build to rent:
- One. There would be a London-wide tariff - a requirement for investors to provide a fixed percentage of discounted market rental homes at a blended average percentage discount to market rent.
- Two. Discounted market rental homes would be controlled through planning regulation and would be outside the Homes and Communities Agency regime - and could therefore be in the same ownership as market rental homes.
- Three. Schemes, in order to quality, would need to commit to renting homes for a minimum number of years. There might also be qualifying standard lease term.
Clearly any London-wide tariff would have to be set with enough input from boroughs to be credible - and enough input from the industry to avoid choking off the market.
After a window of, say, 5 years, its impact could be assessed.
And boroughs would have the freedom to deploy the tariff with whatever range of rent discounts they felt would best match local need:
- Boroughs, not the Mayor, would decide within the fixed envelope how many homes at what range of discounts best met need.
I have argued that we need a new narrative and policy on what constitutes affordable housing to unleash the benefits of new rental homes.
Let me close by pose some questions for the discussion today:
- Is catalytic policy change needed to unleash the build to rent sector?
- And if so, what form might this take - and what leadership should Government, the Mayor, the boroughs take?
Perhaps we might return to them at the end of the day to see if any consensus has emerged on a new narrative.
In the meantime, I look forward to hearing the debate unfold."