Innovative partnerships between local authorities and large investors such as pension funds could help ease the capital’s housing crisis and ensure it maintains its status as a leading world city.
This is the key message from a new report Invest to Rent launched today by the British Property Federation (BPF) and London Councils – the umbrella body for London’s 33 local authorities.
The report reveals that major investors, including well known pension funds and insurance companies, are poised to invest up to £1bn each in building homes for rent and explores how this investment can be unlocked by closer partnership working between councils and developers.
It argues that these large investors are one of the few groups with the resources available to develop new houses on a significant enough scale to tackle London’s housing need, and so create much needed jobs and growth.
One of the engines of London’s economy is its flexible workforce, but this is being eroded by its severe housing need. More than 350,000 families are on council waiting lists, while the average house price in the capital is £363,043 – 13.5 times the average London income of £27,000. Buying an average price house requires an annual income of £93,000 to get a 90% mortgage at 3.5 times salary (see notes to editors).
The report outlines a number key findings for local authorities and investors:
1. By contributing land or other assets into a partnership with an institutional investor, councils can earn financial returns as well as provide tangible benefits for local people and communities.
2. Councils can help unlock stalled development sites by allowing developers to make homes available at below market rents instead of providing affordable housing.
3. The institutional private rented sector can particularly help councils in their statutory duty to house vulnerable and key-worker tenants. These tenants are attractive to institutional investors as they represent longer-term customers and so provide guaranteed rental income.
Through the use of case studies, the report also illustrates how innovative partnerships between the public and private sector have been used to help vulnerable households access accommodation; to create a “sense of place” and create mixed and balanced communities; and to help kickstart stalled developments that are currently unviable due to market conditions.
Speaking at an event to launch the report this morning, Sir Steve Bullock, Mayor of the London borough of Lewisham and London Councils’ executive member for housing, said: “Institutional investors have access to the scale of funding needed to develop first-rate private rented and mixed tenure schemes, and local authorities, through their planning powers and their capacity to invest their own resources, can ensure that such schemes arrive on site.
“In these challenging times, those investors and boroughs that are most able to adapt and explore new ways of delivering homes will be best placed to deliver the secure, high-quality homes that Londoners need.”
Ian Fletcher, director of policy at the British Property Federation, said: “The engine of London’s economy is its flexible workforce. Yet with house building levels not keeping pace with demand, and little indication of change, the capital will struggle to house everyone.”
“Buying a home is moving into the realms of fantasy for many young Londoners. If we are to compete as a world city it is important that there is quality rented sector that is seeking to innovate and add to housing supply, otherwise many of our young workers will simply up sticks and look elsewhere.”
Debbie Taylor, director of development and residential consulting at BNP Paribas Real Estate, added: “The latest figures reveal that mortgage approvals have fallen and lending restrictions remain tight. The Bank of Mum and Dad appears to be the only institution willing to fund the dream of home ownership for many first time buyers and even this is limited in the face of deepening cuts.
“As a result of this the private rented sector is something that remains a reality for swathes of people in their 20s and 30s with the average first time buyer aged 37. A flexible and innovative approach from local authorities will enable the private rented sector to deliver new housing to meet their needs.”
