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PRS - its the FutureCIH Annual Harrogate Conference 2011

Wednesday 22nd June 2011Louisa Darian

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• On low-to-middle incomes who are largely independent of state support

• Face unique – and often overlooked – challenges because too rich, too poor

Low-to-middle income: the RF concept……………………………………………………………………………………………………..

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Low-to-middle income: profile……………………………………………………………………………………………………..

Family types

Couple wi th chi ldren 2.2m

Single male without chi ldren 1.9m

Single female wi thout chi ldren 1.4m

Couple wi thout chi ldren 1.3m

Lone parent 0.8m

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Home ownership is moving out of reach

16%

44%

60%

50%

32%

18%

43%

67%

77%

65%

42%

27%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

16 to 24

25 to 34

35 to 44

45 to 54

55 to 59

60 to 64

Figure 2: Households owning their home with a mortgage by income group and age of head of household:

UK 2008 -09

Low earners

Higher earners

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Increasingly reliant on PRS to provide a long-term home……………………………………………………………………………………………………..

All rented51%

49%58%

40%29%

27% 31% 30%

14%28% 41%

Owned

Private rented

Social rented

Tenure mixLow-to-middle earner households under-35

1978 1988 1998 2008

15 17

9

15

7

19

32

25

45

0

10

20

30

40

50

1977 1982 1987 1992 1997 2002 2007

Figure 1: Number of years required for LME households to save for a typical first time buyer deposit:

UK 1977 - 2009 (based on saving 5 per cent of disposable income each year)

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Why PRS?• Substantial supply of houses needed to address affordability

– 240,000 built per annum would still mean prices at 8 times earnings by 2016

• Mortgage market unlikely to recover to what it was

• £4 billion cut to social housing grant

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What role for PRS?• Delivering new homes to meet need and tackle affordability

– Rents rose by 8 per cent in the last year in London– 65 per cent of LMEs in London could not afford LHA rates

• Providing a long-term housing option:– Quality product – Greater security – More control – Opportunities for asset accumulation

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How can institutional investment respond?

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Delivering new homes ...

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Providing a different product• Potential to deliver greater security of tenure – 10 year

contracts

• Professional management

• Below market/ LHA rents in London and SE

• Small equity stake in fund for tenants

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Total returns there ...

IPD: results for year ending 2009

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Barriers well cited• Lower income returns to commercial eg:

– Maintenance– Voids/ shorter tenancies

• Scale

• Reputational risk

• Tax

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New models emerging to address old problems

• Public land invested into JV• Reduced/ lower levels of S106• LA/ provider guarantees rents• Not held in perpetuity for rent • Other things that could help

– SDLT changes reduce transaction costs– REITs

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What does this mean for LAs?• Good investment at time when land prices low• Deliver affordable housing to local people• Relieve pressures on social housing list• Deliver jobs• But requires some prioritisation of LME groups• And wont work everywhere – where land prices high/ unsuitable for

residential

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Next steps..• We are in the process of writing up more detailed findings

• Working on a model that we can present to investors in September

• For more info: louisa.darian@resolutinfoundation.orgwww. resolutionfoundation.org