Residential planning rarely grabs the attention of readers, but could a tweak to the UK legislation provide a much-needed supply stimulus? It could and the debate needs to be opened up.
Planning permissions granted for residential property currently make no distinction between the nature of the tenure. An owner-occupied property is considered equivalent to a rented property – this is under Planning Use Class Order “C3”.
But a specific use class order could provide stimulus to that side of the market. It would assist the development of an institutional ownership model, a common form of residential provision in much of the developed world.
The professional, long-term institutional owners of residential rental blocks are a major benefit to the residential economy, a potentially significant supplement to the UK’s established buy-to-let, private rental market.
A restriction of properties solely for rent might help generate the supply, and bring about the acceptance that renting from a professional long-term landlord is a fair and appropriate tenure.
The current government’s actions suggest that this is not widely understood: the “stick” to the buy-to-let landlords seems out of balance with what a “carrot” to the institutional landlords could deliver. Both are important sources of investment in housing.
Some will argue that a specific rental planning use class might lead to a lower development value than if the block could be sold off piecemeal to individual occupiers and investors. This is short-sighted. It may limit the near-term gain for a specific developer, but there are benefits over the longer term.
It could be a mechanism under which, say, publicly owned land can be utilised for housing without a fear of excessive short-term windfalls landing in the lap of private developers. It could be a catalyst for the creation of an institutional market for wholesale rental blocks. Ultimately this might widen the scope of potential buyers; it may even serve to limit the speculative pricing cycle that many see and fear.
Technically, there isn’t a reason to prevent a local authority from adopting such provisions. The practical reality is different but there needs to be a proper debate.
The point is that UK housing policy needs to be set free of political influence and have clear and strong long-term strategic guidance. This is already established for monetary policy, increasingly appears to set the tone for infrastructure, and there is no reason housing should be treated any differently.
There is some precedent. In Germany, planning requirements sometimes demand a proportion of social housing restricted to such use for a fixed term of 15 to 20 years, potentially meaning that the much-needed homes are built and that the long-term free market value can be realised in due course.
Ultimately, the UK’s economy will be constrained by the price and inflexibility
of its housing market, and this flies in the face of the considerable interest among institutional investors for wholesale rental blocks. Surely it is time to open this debate up.
Defining a new use class for build-to-lets: the pros and cons
Andrew Allen is the head of global property research at Aberdeen Asset Management
