Business

UK private rental sector must grow, says Montague report

  • 23 August 2012
  • From the section Business
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To Let sign
There are a number of recommendations to speed up the timescale for building privately-rented homes.

Institutional investors could fund the large-scale building of private housing for rent, a report for the government by Sir Adrian Montague has said.

He says a combination of recent tax changes and wider market conditions could help the sector to grow.

Sir Adrian was asked for ways to tackle the UK's housing shortage, especially in the private rental sector.

But Labour has criticised suggestions that future developments might not cater to lower-income households.

Housing Minister Grant Shapps told the BBC he thought private funding for rental homes was "an interesting idea; I think it's odd that it doesn't exist".

He said the UK housing market was "unusual in that there is no institutional sector in building homes for rent to get a long term rental income".

'Targeted incentives'

Sir Adrian's report makes a series of recommendations for speeding up the timescale for building privately rented homes.

It is hoped that any major housebuilding programme could also boost the stalled construction sector and reduce unemployment.

Suggestions include calling on councils to review stalled development sites, to see whether some of the new homes originally planned could be made available to rent rather than sell.

There could also be some new measures to get redundant public sector land and buildings made available for housing development.

And the Montague report also says the government could look to provide a number of "targeted incentives" to encourage the development of build-to-let business models, which could include sharing development risk in the short-term.

In areas where there is a high current demand for rented housing, the report says land could be made available to developers on the grounds that a proportion of the homes built be let out to tenants.

And a code of standards could be adopted so that tenants knew what standards to expect of new rental developments.

'Missed a trick'

The Montague proposals also include councils being asked to consider relaxing requirements for developers to build affordable social accommodation as well as private housing, something the Labour Party opposes.

Labour shadow housing minister Jack Dromey said "many of the measures recommended in this report are sensible, for instance on the use of public land, on attracting investment and on standards in the private rented sector".

But he said Labour was "not convinced that the answer to the crisis created by this government is to further water down affordable housing requirements that councils place on developers".

And homeless charity Shelter said that while it welcomed the report's recognition of "the need for more and better quality homes for people to rent", it had "missed a trick" in not addressing the current state of the sector.

Shelter said the report "offered nothing for the millions of people already in the sector, paying sky-high rents and living under constant threat of eviction or further rent rises".

Mr Shapps said the government was already spending "an awful lot of money on building affordable homes for rent and on social housing, even in these austere times".

He said the government would be spending almost £20bn in the current parliament.

"So the question is, what else can we do?" he said.

'Unleash investment'

The Local Government Association said the private rented sector had a key role to play in providing new homes, and that councils were keen to support the sector in providing good quality homes.

But Mike Jones, from the LGA, said the government needed "to address the lack of liquidity in the finance market and limited availability of mortgages".

It said these were the obstacles standing in the way of a resurgence in new house building.

The vast majority of private-rented homes in this country are currently managed by individual landlords.

But the British Property Federation (BPF) believes the Montague recommendations "could unleash unprecedented investment in house building from pension funds, insurance companies and REITs [real estate investment trusts]".

"Encouraging institutions into building homes for rent has for some time been seen as the holy grail in enabling a long-term, private rented sector which is designed and built to let and offers renters something a bit different in the marketplace," said chief executive Liz Peace.