Eureka! A way to build thousands of affordable homes for rent in London without a penny of public subsidy has been constructed by Harry Downes, managing director of one of the capital’s most successful PRS companies, Fizzy Living.
There is, of course, a catch. But one that can be lifted by extending the Permitted Development Rights regime in the Housing Bill, currently grinding its way through Parliament.
Downes thinks a few things will sort it out.
PDR will be granted on urban centre sites where the following criteria can be met:
• Development to deliver at least 70 units built to London Design Guide standards;
•l Building not to exceed eight or nine floors, or can match taller local buildings;
•l Building to be held as a single PRS development for at least 25 years; and
• 20% of the flats to be let at 80% of market rent to qualifying tenants.
“These four simple conditions will enable the presently stalled PRS sector to build viable, long-term bespoke buildings, at affordable rents, without government subsidies,” says Downes.
“There is currently £90bn of institutional equity trying to invest in the UK PRS through established landlords. The proposals in the Housing Act will have absolutely no effect in the short term,” he adds.
The Downes model is founded on the simple but hard-to-swallow precept of differential density, allowing more PRS units per acre than private sale and traditionally subsidised housing.
It is achieved by using PDR to bypass planning. The existing PDR regime allows developers to simply notify a council that it wants to convert offices to flats. The Housing Bill will extend PDR, allowing the existing property to be demolished.
What Fizzy wants is a PDR clause allowing a minimum of 70 units, up to nine floors high, on sites where the planning system would only permit half that number of units. The extra density allows the PRS buyer to compete with the housebuilder on the price of the land, says Downes. Grant differential density to the professional PRS sector and you get affordable homes. Without subsidy.
“High density cannot be avoided if we are to balance demand and supply,” says Downes. “Town centres are the places to group taller buildings. Government policy already supports taller buildings up to nine or 10 floors in town centre locations. The 25-year hold clause ensures this policy isn’t a quick way to put flats into the sales market. Having a minimum of 70 units locks out the amateur landlord and makes professional management viable.”
Downes has done more than think about the idea. He says 600 suitable sites in London have been identified by data provider Molior.
For example, a disused filling station in south-west London, five minutes from a tube station. A developer has submitted an application for a four-storey block of 32 residential units, including seven “affordable”. The gross development value is £17.5m, based on £850 per sq ft for the 18,750 sq ft of private units and £350 per sq ft for the 5,250 sq ft of affordable units.
What is the land worth at those sales values? About £5.5m, calculates Downes. “Assume a PRS provider could acquire the land for the same price but could build up to, say, seven storeys. Then we would be able to deliver 70 PRS units on the site, which would be subject to a 25-year covenant, meaning tenants would have the security that is not available from buy-to-let landlords,” he says.
“On that basis it would be possible to deliver 20% of the units at affordable rents – 14 units instead of seven,” he adds. “A two-bed flat that would usually cost over £2,000 per month could be let at £1,650. This would be easily affordable to two young professionals earning £35,000 per year.”
Easy, yes. The hard bit will be convincing anyone with a vested interest that differential density can deliver unsubsidised, truly affordable homes in London.
But, as Downes says: “The housing crisis means we need radical solutions, immediately.”
