Private Rented Sector
Debate between Andrew Love and Robert Neill
Robert Neill
My hon. Friend is entirely right. That is the main point that I wanted to make in my speech. It is precisely because there have not been funding models to attract institutional investment that money has not been invested for long enough periods to underwrite the longer-term, more stable tenancy arrangements that we would all like to see. I think that what has been done so far is an important step forward, but it is ironic that under Governments of both political persuasions we have lagged somewhat behind other countries when it comes to leveraging institutional money into the private rented sector. REITs—real estate investment trusts—have never taken off in this country as they have in many others, and I think that that is a shame. Some adjustments to the fiscal treatment of those vehicles would be helpful.
Robert Neill
I think that this is a classic case of “It is not an either/or scenario”. We certainly need to take steps to improve the image of the sector, which I believe is often unfairly castigated. A good deal of action is suggested in the report, and I would probably agree with the hon. Gentleman on some helpful steps that we could take. However, I think that we must do that in parallel with creating mechanisms that will bring in the institutional money. The two go hand in glove: they are two sides of the same strategy that we should be adopting.
I want to say a little about what we could do to improve institutional investment in the private rented sector. There are obstacles, and this brings us back to the point made by the hon. Member for Islington North (Jeremy Corbyn). In some cases land for private sale may be worth more than land for long-term rental. There are issues with speculative costing and valuation methods. We also need to look at whether there is some scope for using the private rented sector to create an income stream that could generate a source of cross-subsidy for affordable housing units, particularly in regeneration schemes, as rents rise. The current models we have tend to put the subsidy at the beginning of the system, in effect through the planning gain being taken out, with the consequence that the landowner takes a lesser price on the sale or the market housing will be inflated a little to pay for the subsidy that comes via section 106 or the planning gain.
That does not help in respect of the longer-term funding streams we would like to see, however, and I hope the Minister will think about the following. I recently had the opportunity to talk with representatives of the New Economics Foundation. They have been doing some very interesting work in this field, and I commend the work in particular of Alicia Weston who has been doing some very interesting research. They have come up with a model that merits further consideration. It is a model for a defined income scheme that is designed to bring forward more rented housing. It allows private rental incomes to subsidise the rents of affordable units on a rolling basis and therefore gives the ability to have a long-term income flow. Indeed, it almost gives a bond that can be available to back up the investment.
The housing that is created stays in the rented sector for the life of the scheme. One cannot guarantee beyond that, but that would none the less give valuable supply increases. A new form of contract would be required, which would be perfectly doable within current English law, between the local authority and the housing association, so that rather than setting a specified level of affordable housing on the site, the allowable income from the site is what is set. That income is made up of a combination of market and affordable rents and their levels are allowed to flex in order to make up the defined income. Provided there is the income, which is guaranteed and is therefore a quasi-bond, there is the stream to cross-subsidise. Under those circumstances, if market rents were to rise, as they have in London recently, the excess income would cross-subsidise more affordable housing. Conversely, if there is a revenue shortfall some affordable units can be switched to market rent, but the integrity of the income stream is preserved, and therefore the integrity of the investment model. That will give local authorities a semi-guaranteed stream that is not guaranteed by the public purse, but which creates something almost as good as a bond. I hope the Minister will look seriously at that. There are some practical issues that we will need to deal with, but pilot schemes are being considered around the country and I hope the Department will give schemes such as this one a fair wind.
There is an advantage for housing associations there, too, because that more stable income stream is worth more to them and the increase in value will allow them to subsidise more housing or to unlock further sites and land for rented housing, either using a mix of the private rented sector or just affordable. This also encourages housing associations into the private rented sector, co-operating with institutional money, which might be an interesting approach to pursue.
If applied sensibly, this scheme could lead to increased institutional investment in the private rented sector. I hope the Minister will look at that and encourage it. That can be done in respect of the whole scheme or simply the section 106 element. There is a degree of flexibility. I do not pretend it is a silver bullet, but we do need to think outside the box in leveraging in institutional money. There are a number of possible routes, and I think this particular one may be very timely.
Overall, a healthy private rented sector is an important part of the housing mix, especially in large cities such as London, where the nature of the population frequently means that for a period of their lives people may well want the flexibility of living in the private sector before moving on to house purchase. They are likely to be earning incomes that mean they would never qualify for social rented housing, but they cannot at the moment access the market readily. Finding models that produce adequate housing supply for people in that situation is crucial for the health of London, my city, and of all the major conurbations in this country. I hope the Minister will think about that as a model that is worth pursuing and that this report will generally find favour with the House. I also commend the Government’s response to it, which is a constructive one.
Oral Answers to Questions
Debate between Andrew Love and Robert Neill(13 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text
Robert Neill
As my hon. Friend knows, we are consulting on a raft of matters in relation to local government finance. We propose shortly to issue some technical papers. When he has perhaps read those, I will be happy to meet him to discuss the issue.
Mr Andrew Love (Edmonton) (Lab/Co-op)
To address housing need, we need to build more than 200,000 properties, but according to the statistics that are coming out, it is unlikely that we will complete half that number in the coming year. The Government have already massively cut support for affordable housing and made a complete botch of the planning system. What will they do to address the coming housing crisis?