COMMENT: The residential sector will be wondering what’s next as the political chaos ensues. Prime ministerial race to one side, Michael Gove’s departure and the appointment of Greg Clark is a significant one for a number of reasons.
Gove has undoubtedly left his mark on the national cladding conversation, and ruffled a few housebuilder feathers. In the rental sector, he was just getting started. How the remainder of his premiership would have played out is anyone’s guess, but there is a sense that Gove had begun to illustrate a subtle but growing confidence for a BTR sector that the government has ignored for so long.
There were no explicit references to the benefits of BTR, the role of institutional investment or professionally managed renting, and why we need it to level up – but he made clear that the rental market must reform.
Tenets of reform
Central pillars of the rental reform white paper are the need for more high-quality rental homes, better customer service, more responsible landlords, and a green housing revolution. Those objectives are also the most central pillars of the BTR proposition, where institutional investors realised a long time ago that stable income could be secured if renters were offered the standard of product and service they have come to expect and deserve in the professional world.
Gove has arguably been the most vocal supporter of the rental sector as far as housing ministers go. At the same time he has continued his predecessors’ moves against private landlords, acutely aware that the inevitable exodus – up to 50,000 rental properties will be sold by BTL landlords in 2022, says Hamptons – will open the door for a new kind of landlord to take up the mantle.
Going against the grain of the Conservative Party’s home-owning voting base reflects logic as much as courage. He recognised that the growing popularity of renting – supercharged by post-pandemic consumer trends such as the work from home revolution and the importance of community and social interaction – and a weight of patient capital ready to drive the levelling up agenda, speaks directly to the next generation of voters his party must reach, and the promises it has made to them.
We will soon discover if Greg Clark’s strategy for the PRS will adopt a similar tone, or engage with the BTR sector at all. But it is an inescapable truth that he will need to reckon with it sooner rather than later.
All about additionality
Surging demand for better rental housing, increasing institutional penetration rates, and the race to net zero – a far more realistic prospect for institutional investors/developers – will become too hard to overlook. Institutional investors are best placed to carry out the ESG agenda given they have stringent criteria to meet, and the long-term hold means they invest in both building and community.
Q2 investment into BTR posted a 36% year-on-year increase despite the headwinds, while the likes of IMMO have just announced a £1bn retrofitting programme to upgrade second hand stock – proof that existing rental homes will fall into the hands of those who will use it for good purpose, and complement new development. It’s all about additionality.
There is also a growing chorus of local authorities adopting a more favourable stance towards BTR, with almost half of all local authorities now having pipelines in place, according to the BPF. Many are following the likes of Manchester in creating their own BTR planning policy as a means to unlocking a planning system designed for build-to-sell, where de-risking can significantly speed up delivery and investor demand. It is logical to assume that as more stock becomes operational, and BTR’s enabling of the levelling up agenda becomes more widely recognised, central government planning authorities will take note.
Like him or hate him, Gove made an impact during his short premiership, and sowing the seeds for a transformation of the rental sector may well become his lasting legacy.
Mary-Anne Bowring is group managing director of Ringley Group
