The private rented sector could be – and should be – the way in which the UK’s housing gap is plugged.
That was the view of a panel of experts at a debate hosted by Estates Gazette and MacFarlanes on delivering PRS at scale.
Elliot Lipton, chief executive of First Base, the developer behind the transformation of the Athletes’ Village in Stratford, east London, into one of the largest private rented schemes in the country, said: “We need to think of a different way of supplying the market. Institutional finance can provide that. It can plug the gap.”
Bill Hughes, managing director of Legal & General Property, agreed.
“PRS is an important part of our future,” said Hughes. “It is underdeveloped in the UK and is an exciting opportunity. It should represent 30% of all forms of tenure in the future. It is principally an urban phenomenon and L&G would absolutely expect to be at the vanguard of that investment.”
L&G is already £15bn committed to real estate in the UK and could allocate a further £10bn-£15bn “with a bias towards social infrastructure, of which residential is a major part”, said Hughes.
He said L&G had invested around £2bn into residential over the past 18 months, including in PRS.
Barriers to investment in PRS by the institutions have often been centred on income and being able to value assets.
“If you are a long-term investor then the income profile is very attractive,” said Hughes. “The triple net yield may be relatively low but that doesn’t matter too much because the inflation marker attributes are very strong and managed well, the retention rates are strong.”
He added: “This isn’t short-term income. It’s very long-term income and should be where long-term capital wants to invest.”
Ryan Prince, vice-chairman international at Canada-based asset manager Realstar Group, said: “The challenge for scale today is that when you do the maths, the housebuilders are right to build for sale as that is where the inherent value is.
“The way to correct it is by turning the PRS sector into a commercial, cashflow, asset class, not a traditional residential-for-sale asset class.”
For more on the debate and to watch a video from the event, click here.
