Could help be at hand?

As councils struggle to deliver PRS, Hayley Cole and Anthony Burnett-Scott look at whether a separate use class would provide an effective solution While support for build-to-rent/private rented sector (PRS) schemes has been gaining momentum, there has been much discussion about whether a new planning use classification could ease delivery of such schemes. Since the idea of a separate classification seems to have fallen by the wayside, where does this leave PRS delivery? The problems with PRS delivery There is an increased desire from investors to become involved in the delivery of PRS schemes because of the long-term returns that can be derived from stable growth in the build-to-rent housing market. This has been broadly welcomed within the public sector because of the benefits to be realised from increased investment; not least from institutional investors. Their involvement is likely to mean certainty of delivery of the relevant scheme with the associated infrastructure, as well as an ongoing commitment to ensure that the scheme continues to succeed (given the long-term nature of the investment). Although there is general support for build to rent, there are significant barriers to efficient delivery, such as: the dearth of detailed adopted development plan policies relating to PRS; a lack of understanding as to how the model operates (such that some local authorities see PRS as undermining affordable housing delivery); and The fact that section 106/community infrastructure levy obligations and payments are front loaded, which can adversely affect viability given the long-term returns which PRS seeks to deliver; and Investors are competing against house builders for sites; with private sales generating a higher upfront return, which allows them to bid significantly more for sites. PRS schemes as a separate use class Early suggestions were that one way to address these issues and to create a more level playing field would be to allow PRS schemes to benefit from a separate use class. This would give recognition to PRS and ring-fence the  schemes as a specific form of tenure. This would perhaps alleviate the concerns that local authorities might have about whether the benefits of the PRS model would be properly realised without just securing a traditional form of “for sale” units through the back door, as well as making PRS schemes more viable as a result of reduced land values. If permission was granted for a PRS scheme (which had been relieved from some of the usual section 106/affordable housing obligations) within its own “PRS use class”, it would prevent developers from then converting to other traditional forms of tenure/build for sale without obtaining the necessary change of use consent. However, as momentum has grown for PRS models, it has transpired that investors have issues with the separate use class concept and that in some ways it would undermine the investment model. This is because much lending into the build-to-rent market is predicated on funders’ desire for flexibility, which will help protect them if the relatively new market does not deliver the returns expected. Essentially, funders want to ensure that, in the event of a changing market, they have the flexibility of a general C3 residential consent. The death knell for a separate use class came in the form of the government’s recent consultation paper, Planning and affordable housing for build to rent (February 2017), in which the government stated that it did not consider the creation of a specific planning use class desirable or workable and that it had no plans to implement such a proposal. The reason cited was that “this option is likely to have perverse outcomes and would limit the flexible use of land for housing”. Are specific build-to-rent issues being addressed in other ways? While the general consensus is that PRS schemes should be supported, there is no formal approach or recognition as to how such models should be secured/promoted. The housing white paper (February 2017) provides nothing more than a broad aspiration that the government wants to attract more institutional investment for building more homes for private rent. It recognises that one of the key methods to support PRS growth is to “change the National Planning Policy Framework so authorities know they should plan proactively for build to rent where there is a need, and to make it easier for build-to-rent developers to offer affordable private rental homes instead of other types of affordable housing”. The government’s consultation paper on build to rent reinforces this aspiration and seeks to provide some broad parameters as to how the government sees the PRS model operating, but is largely an exercise geared towards seeking the views of the industry and local authorities as to how the delivery barriers could be overcome. The mayor of London’s draft Affordable housing and viability supplementary planning guidance 2016 is yet to be adopted and, in large part, sits at odds with that which is being proposed under the government’s consultation paper (for example, in terms of how discounted market rental units are secured and what schemes could qualify for a build-to-rent designation). There exists a policy vacuum in support of build-to-rent delivery; the NPPF is yet to be updated as referred to in the housing white paper and, generally speaking, local authorities do not have detailed PRS policies in adopted development plans. More guidance needed In the absence of any firm guidance on how build to rent is to be secured, local authorities continue to struggle with the best way to ensure efficient delivery of PRS. We are presently advising on two large PRS schemes for the same institutional investor with different local authorities; each authority takes a different view on the length of rental covenant, what clawback provisions should apply to a conversion to “for sale” units and how discounted market rental units should be secured (in terms of amount, nominations and levels of affordability). This uncertainty severely impacts on timing for delivery. Until there is detailed guidance issued to local authorities as to how to deal with these matters, the efficient and timely delivery of PRS schemes (and much-needed housing) is not likely to be realised. Hayley Cole is a senior solicitor and Anthony Burnett-Scott is a partner in the commercial real estate team at MacFarlanes