PRS not a solution to the housing crisis? I beg to differ

Last week, EG wrote a piece entitled PRS will not solve the housing crisis. With such a blunt title, I feel – as a PRS developer and landlord myself – I should clear a few things up, writes Harry Downes, founder and managing director of Fizzy Living For starters, I don’t believe anyone who is passionate about driving forward a professionally managed build-to-rent sector in the UK (and I would put myself in that category) has ever suggested PRS will solve the housing crisis all by itself. Instead, what PRS can do is act as a class of rental property (similar to what is already commonplace in the US, Europe, Scandinavia and Australia) seen as a good long-term institutional investment that can ease supply in the UK’s housing sector. The EG piece pushes an argument that PRS is too expensive to become a mainstream mode of living. However, it’s worth pointing out exactly why BTR schemes are currently a little less affordable than other rental models: the cost of delivering such developments is higher than build-to-sell developments. This is due to unique overheads such as extra space requirements for an onsite management team, extra lift capacity to handle the higher rate of tenant turnover and the maintenance-friendly specification adjustments. These outgoings add about 25% to the cost of delivering a building for sale. I would agree that some BTR schemes are more expensive than the average because they include services and amenities in their rent – but what is the suggestion being made here? BTR developers are free to put up whatever they want. If they choose to give each tenant a free Bentley because that is what delivers their target income (such as with One Hyde Park) then that is the market they are in. If you want to introduce PRS to a whole new income bracket outside One Hyde Park, then the government needs to step up to the plate. The punitive extra SDLT payable on multiple home ownership, which simply increases rents since PRS developers (given their tight margins) cannot absorb the costs themselves, needs to go. Planning rules must also change to formalise the limitations to rental income, which in turn drives the residual land value. Only then can expensive new-build developments begin to match the median local rents. As the piece alludes, the British Property Federation is working tirelessly to rectify the housing crisis. Together with the London mayor’s team, the housing minister, the team at DCLG and those of us actively driving the sector, we are attempting to put in place an investor-friendly structure which will deliver tens of thousands of top quality new buildings across the country. But first we need to address the hurdles. We then need to use the tools available to us to deliver financially viable and appropriate buildings. Institutional investors need long-term stable income, so they are happy to trade a long-term covenant covering an obligation to hold the asset as a rental investment with a proportion of the flats to be let at discounted market rent. Once these matters have been remedied, I am confident the data will show that PRS is filling the gap at the lower end of the market, which has the added benefit of removing the risk of another sub-prime mortgage crash. As BPF chief executive Melanie Leech says in the EG piece, BTR is “not going to solve the housing crisis on its own, but it’s a significant contribution”. I couldn’t have put it better myself. Harry Downes is the founder and managing director of PRS developer and landlord Fizzy Living Click here to read the full analysis.