Private Rented Sector Programme
The Parliamentary Under-Secretary of State for Communities and Local Government (Kris Hopkins)
The Government are investing in building a bigger and better private rented sector through the Department for Communities and Local Government’s expanding the private rented sector programme. The programme’s work includes the £3.5 billion private rented sector housing debt guarantee scheme, the £1billion Build to Rent fund and the private rented sector taskforce.
The Build to Rent fund provides development phase finance to large-scale private rented sector projects and is on track to create up to 10,000 new homes for private rent. It will demonstrate the viability of developing and investing in large-scale private rented sector developments. The programme received £1.4 billion of bids under round 1. This round of funding is currently expected to support 2,550 homes across England in locations that include Durham, Liverpool, Manchester and London. Five round 1 projects with a combined value of over £74.5 million are already in contract and will deliver over 1,000 new homes for private rent; construction has already started in Southampton (Centenary Quay) and Manchester (Three Towers), with further round 1 projects undergoing legal work in advance of exchange of contracts.
Bidding for round 2 of the Build to Rent fund was significantly oversubscribed, receiving 126 bids to the value of around £3 billion. Thirty-five projects on the shortlist from round 2 are now going through a competitive due diligence process, with successful bids receiving funding to deliver thousands of new homes. A list of all shortlisted bids has been placed in the Library. Sixteen projects, with a combined value of circa £625 million, are already in detailed due diligence. The shortlist is over-programmed, meaning not all shortlisted projects will receive funding. Shortlisting and due diligence are the first stages of the Build to Rent approval process and the Homes and Communities Agency will continue to work with bidders until exchange of contracts in order to ensure value for money for taxpayers. I anticipate that all round 1 projects will be in contract by the end of June 2014 and the first round 2 contracts are scheduled to be signed by autumn 2014.
In addition to direct funding, the Government’s private rented sector taskforce is continuing to build the private rented sector as an investment market and have identified £10 billion of domestic and foreign investment available in the private rented sector.
The Government propose to guarantee long-term debt raised by housing providers investing in large scale, new build private rented housing projects through the £3.5 billion private rented sector housing debt guarantee scheme. The scheme aims to facilitate the construction of new private rented accommodation through incentivising private sector investment. Specifically, the guarantees will use the Government’s fiscal credibility to reduce the cost of borrowing for private rented sector housing providers.
The Department for Communities and Local Government intends to take on a contingent liability for the guaranteed debt of up to £3.5 billion (nominal value of the guaranteed debt). This is a limit, not a target for the guarantees. How much of it is used will depend on the appetite of those who apply for the guarantees and the quality of the applications. This amount forms part of the £10 billion made available for both housing guarantees schemes. Should demand for private rented sector guarantees exceed £3.5 billion, the Government may make available a greater share of the total £10 billion for private rented sector housing. I will, of course, inform Parliament in a further minute before taking this step.
The Department for Communities and Local Government is open for business to issue direct private rented sector housing debt guarantees and continues to progress discussions with a number of borrowers looking to invest in large-scale developments. Following extensive pre-market engagement, on 18 March 2014, the Department also launched a procurement exercise for a delivery partner for the private rented sector housing debt guarantees scheme, with the aim of increasing access for smaller borrowers and maximising take up of the guarantees. My Department is currently evaluating bids to perform the role and I expect the delivery partner to be in place in autumn 2014 and approving its first borrowers in early 2015.
A departmental minute providing full details of contingent liabilities arising from the issuing of private rented sector housing debt guarantees is being laid before Parliament.