PRS units start to stack up

The new breed of rental investors have still only deployed a fraction of the capital they intend to commit to the private rented sector, according to analysis by Estates Gazette. However, five of them now have more than 1,000 income-producing units apiece, with thousands more under construction, and pipelines are expanding at a prolific rate. Despite stamp duty changes and Brexit uncertainty, 2016 has seen a huge number of deals and players come out of the woodwork, and 2017 could be better yet, though there remain many pitfalls. Economic advantage For years, rental developers in London and the South East have suffered from high land values. “Very low entry yields place significant emphasis on rental growth to achieve overall returns. This is in the context of a rental market where affordability is already stretched,” says Tom Henry, residential transactions director at LaSalle Investment Management. The referendum led to uncertainty for housebuilders in terms of sale prices and balance sheet risk, which did not solve this problem, but did go some way to levelling the playing field. It also brought forward more opportunities for partnerships, particularly when it allowed housebuilders to de-risk sites. Alex Greaves, head of residential investment at M&G Real Estate, says its route forward will be through more of these opportunities. “Our residential strategy has identified partnerships with housebuilders as a way of providing scale to M&G Real Estate’s portfolio and speeding up the delivery of much-needed housing stock,” he says. On the other hand, the same issues for housebuilders hit the PRS. Ana Nekhamkin, managing director of Inhabit, points out that high construction costs and the labour shortage remain an issue. “Companies at the front of this development cycle must keep the dialogue open with the rest of the industry and government – both locally and nationally – to ensure what’s working and what’s not is communicated clearly,” she says.  Planning changes Despite recent victories, Harry Downes, managing director at Fizzy Living, says the elephant in the room remains planning. “Residential development schemes which are technically and legally compliant remain at the mercy of nimbys, who are able to deliver politically motivated decisions which take no account of local need,” he says. The sector has, however, received recognition in the London Supplementary Planning Guidance, which accepted it could not provide the same affordable contribution as housing for sale. Changes in mood music The SPG ties into hoped-for wider government support, which has shown “a welcome shift away from the relentless focus on homeownership that marked the Cameron-Osborne years”, according to Jean-Marc Vandevivere, chief executive of Platform. The hope is that government will make the SPG’s suggestions national policy. In particular, it is vital to recognise that build-to-rent schemes are not as financially viable as build-for-sale schemes, despite the apparent wall of money targeting the sector. One investor, who asked not to be named, points out that “over-exaggerating” the amount wanting to invest acts against the sector’s interests and gives the government less reason to provide incentives and breaks for developers. A unified voice for 2017? This ties into the unified voice the sector needs to continue successful lobbying, with areas of conflict including whether a separate use class is needed, rental covenants, or even a name for the sector.  Previous housing minister Brandon Lewis claimed the government would listen more to the sector if it could speak with a unified voice. BPF research to be released with Savills claims there are five different business models. For further expansion in 2017, the players need to get their ducks in a row. • To send feedback, e-mail alex.peace@estatesgazette.com or tweet @EGAlexPeace or @estatesgazette