RICS residential policy: property prices and the rental market
Pressing the other buttons
22 November 2016
Jeremy Blackburn continues his summary of RICS residential policy
The housing deficit has resulted in huge rises in property prices. What effect has this had on the rental market? And does new-build offer the only answer?
The private rented sector
It is estimated that a fifth of households will be in the UK’s private rented sector (PRS) by 2020, but the Build-to-Rent fund is the only supporting initiative, while lack of supply is leading to unaffordable rents. The government and the market must therefore establish a robust framework to attract continuing institutional investment in the sector.
- the development of a long-term approach to the PRS by ministers, supported by all major political parties;
- full engagement by ministers with the outcome of the Communities and Local Government Committee’s inquiry into the cumulative impact of the Right-to-Buy extension, the rent cap and housing benefit reductions; and
- government assessment of the feasibility of a portable homeownership discount for tenants.
The PRS market has been dominated by individual landlords, which has led to a fragmented system. Removal of buy-to-let mortgage relief creates an opportunity for releasing pension funds to institutional bodies, however. RICS wants institutional investors to build and let new developments; it recommends using the taxation system to encourage contributions from self-invested private pension schemes.
Public and private sector
RICS believes both sectors could help increase rental supply. It proposes, jointly with the Local Government Association and the Royal Town Planning Institute, to explore a specific planning class for the PRS and assess whether this would allow greater development of such property.
It is estimated that a fifth of households will be in the UK’s private rented sector by 2020
National government and several local authorities are implementing initiatives to drive up standards in rented property. RICS thinks heavy-handed intervention can deter investment, while local registration schemes are further fragmenting the sector. It recommends that the UK government mandates that all letting agents join a professional body and introduces minimum standards for all residential sales and letting agents.
More than 200,000 homes have been unoccupied for longer than 6 months and need renovating before they can be brought back into use. The UK government should therefore:
- provide funding to encourage owner investment (RICS suggests that in areas of less demand, consideration is given under future City Deals and Growth Deals to wide-scale refit projects, along with a 5% VAT rate for repair and improvements); and
- ensure that owners of second homes pay full property tax (VAT should be applied to demolition work, encouraging councils to find alternative uses for stock).
Converting commercial property into residential units has made a contribution to housing supply. RICS agrees with the government on permitted development rights; however, it argues that these need to offer further exemptions to areas without sufficient commercial premises.
The Scottish government introduced mandatory Home Reports in 2008 for all houses for sale north of the Industrial Strategy, the property sector and banks together investigate the reasons for low take-up of the Green Deal and develop a replacement programme.
The ageing population
Figures for 2014 from the Office for National Statistics suggest there are around 11.4m people aged over 65 in the UK, projected to rise to around 17.2m by 2033, while provision of homes for senior members of society is falling. Addressing this issue in the older owner-occupied, social and affordable housing markets should help release larger, underoccupied properties on to the market.
Provision of homes for senior members of society is falling
RICS endorsed the All-Party Parliamentary Group on Housing and Care for Older People’s inquiry into The Affordability of Retirement Housing. However, the report found that there was poor communication of housing options for older people, meaning that emerging models were not exploited. There was also an apparent disconnect between financial and housing advisers: those giving information on one topic were not fully aware of all the choices.
RICS urges central and local government to work with the property industry and financial advisers to create innovative housing solutions for older people. Acknowledging the physical difficulty and emotional dimension of moving at an older age, RICS proposes a fund to help with the costs, and suggests that local authorities and industry work together to provide accompanied visits to suitable properties.
The rural impact
There is a severe shortage of both new and affordable homes in rural communities. Although more people are renting, a large-scale, institutionalised PRS is not an appropriate solution.
Several factors have exacerbated this; for example:
- high competition for small numbers of properties;
- lower wages in rural areas constraining affordability; and
- far fewer housing association and council houses.
The fair share of new affordable homes, relative to population, should be no fewer than 7,500 annually, but only 2,886 were built in 2013.
RICS suggests that the government encourages landowners to develop rural affordable housing through, for example, tax incentives or nomination rights. Small rural authorities should approach major landed estates about the possibility of releasing land for at least 8 affordable houses, based on long leaseholds for sites so the estate can retain an interest, and with an explanation of financial returns and social benefits.
RICS further proposes a new national minimum target for provision of rural housing through the Homes and Communities Agency; this should be 13% of its national investment in proportion to settlements with a population of fewer than 3,000. Local planning authorities should require all sites to make an affordable housing contribution, reversing current government policy. RICS supports the expansion of permitted development rights in terms of agricultural buildings, which offers the opportunity for businesses to grow. This should feature in business-led neighbourhood plans in rural areas to ensure future home supply.
RICS commends the Construction 2025 strategy and urges the government to commit to its implementation. The skills shortage in the industry is now at its highest ever level, while the existing workforce is staying longer, which will create a ‘knowledge cliff’ when people eventually retire. These factors have exacerbated a long-term skills shortage, which many members have cited as the biggest risk to their businesses. RICS calls for a construction skills investment charter to encourage companies and colleges that employ and train construction workers.
The skills shortage in the [construction] industry is now at its highest ever level
RICS supports the government agenda on apprenticeships across the entire built environment sector, with an emphasis on housing and infrastructure. It suggests that professional bodies remain the main advisers on the schemes to ensure consistency across the industry.
Innovative construction methods have a clear future role. Lessons can be learned from the economies achieved in the student sector, where buildings have proved efficient and cost-effective. RICS urges the government to back non-traditional forms of construction with incentives such as tax breaks and better education of lenders in valuing these methods. The government should support the Buildoffsite Property Assurance Scheme to assure lenders that innovatively constructed properties will be sufficiently durable to enable ready sale for at least 60 years.
The Scottish government’s ambitious Joint Housing Delivery Plan for Scotland 2015–2020 contains 34 actions covering supply, planning and housing options.
Estimates of Scotland’s housing gap range from 25,000 to 35,000 a year. Small builders are struggling with a lack of equity and the banks are generally reluctant to lend. As larger builders are bidding for smaller or even individual sites, SMEs risk being squeezed out of their traditional target market of self-build and the reuse of empty homes, of which there are presently 27,000.
RICS believes that the Scottish government’s housing policy should switch from assisting demand to assisting supply. It calls for government to create more opportunities to invest in new and regenerated housing production. Capital put towards housing should be regarded as an investment that would support building activity and accrue returns directly by increased outputs, and indirectly through tax receipts and wider economic growth opportunities.
RICS also wants to see more City Deals managed by skilled housing investment experts.
Housebuilding in Wales remains at around 5,500 homes a year, far below the need for 14,000 identified by the Federation of Master Builders. Wales currently has the lowest ratio of any of the 4 UK nations in meeting its housing deficit.
The Welsh government has followed the UK government in some policy areas, such as the Help-to-Buy scheme in Wales, but the Right-to-Buy scheme is unlikely to be extended.
RICS recommends that the Welsh government commissions a new housing taskforce to report to ministers on the impact on housing provision after the changes in devolved powers and economic stance. Wales should fast-track the planning process for brownfield sites.
Because of the connectivity between the Welsh and UK residential markets, RICS believes that coordination between the systems is vital. It would like to see use made of property rate relief for mixed-use schemes in Wales. Uniformity of standards across different local authorities could be achieved through regular secondment of planning officers throughout the UK. RICS supports groups of local planning authorities coordinating their own combined local development plans in considering housing requirements.
Now the Rent Smart Wales service is in place, RICS wants reviews to ensure that registered practitioners receive regular training and are aware of best practice.
The rate of empty homes is still rising while housing demand is increasing. Now the Urban Regeneration and Community Development Policy Framework is in place, local authorities need sufficient resources to ensure efficient operation of the planning system and support housing provision.
Bank finance remains constrained for small-scale housing developers, and RICS recommends that the Northern Ireland Executive (NI Executive) promotes financial transaction capital as a potential funding source and encourages joint ventures between housing associations and private developers.
Local authorities must ensure that current and future evidence-based needs for mixed-tenure housing and available land supply are reflected in their local development plans.
The NI Executive should promote the Housing Executive’s ‘matching service’ which aims to pair owners of empty homes with potential buyers, and helps inform those who have inherited property how to bring it back into use.
There need to be incentives for retrofitting residential property, possibly by allowing a temporary rate reduction. The NI Executive’s current housing strategy review of the PRS should ensure that regulation measures are introduced to enhance the rental sector.
Jeremy Blackburn is Head of RICS UK Policy