Almost 10 years ago, the government launched a PRS task force dedicated to promoting and improving the sector.
Under then housing minister Mark Prisk, the group brought together industry experts championing PRS and BTR, led by Andrew Stanford as chair. It was launched alongside the Ministry of Housing, Communities and Local Government’s landmark £3.5bn PRS guarantee scheme, with government-backed bonds to support industry expansion.
But the task force was disbanded in 2015 and efforts were slowly wound down. Over the course of nine different housing ministers, five secretaries of state and four prime ministers, priorities shifted. In 2021, prime minister Boris Johnson has made it clear that home ownership comes first.
For Stanford, the industry has demonstrated the value of its investment case nonetheless. “Without a shadow of a doubt, BTR has proven the theory since the days of the task force,” Stanford says today. “You have substantial institutional investors that are investing in the sector and you have developers that are increasingly understanding what it is that the investment managers, pension funds and other entities want to invest in.”
That work isn’t done. Although investment has surged to new highs, clocking more than £5.1bn in the past 12 months, new taxes and tenure reform threaten growth. That has put pressure on companies to re-engage with the public sector at a time when many in the industry worry that the government has forgotten about BTR.
Level playing field
“Housing policy never stops evolving,” says Stanford. He adds that although the task force is no more, various groups from the British Property Federation to the UK Apartment Association continue to lobby for the sector.
Most recently, their focus has rested on the sector’s inclusion in the residential property developer tax, which would see BTR owners cough up notional taxes on a for-sale market model. “I still can’t quite get my head around why it is that a new industry in BTR is having to contribute to that,” says Stanford.
Ed Crockett, head of residential investment at Aberdeen Standard Investments, notes one silver lining: the fact that the government has carved out a section of the proposals specifically addressing BTR shows recognition, he says. “In a bizarre way they have recognised that we exist, and they recognise the importance of the volume of units that are being delivered,” says Crockett. “Have they recognised it in the right way? They absolutely haven’t.”
Calls for BTR to pay this tax appear to stem from a government effort to ensure a level playing field with housebuilders. “If you are comparing owner occupation versus BTR, we are already paying a 3% surcharge, and where we own buildings that have had cladding replaced, we are paying for that – that’s not coming from the cladding fund,” Crockett says.
His own conversations with HMRC and central government are encouraging, he adds. “It does feel like the mood music is changing, but this is politics, so that can change in an instant, with a single housing minister.”
Because of the misunderstanding at all governmental levels about what BTR is, there are these constant barriers being brought in
Rebecca Taylor, Long Harbour
Embracing reform
When it comes to the government push for tenure reform – specifically around tenure length and evictions – Crockett agrees the system is failing and needs to change.
Current proposals would see no-fault evictions under section 21 banned and aim to strengthen section 8 evictions by fault. This upheaval has split the industry, creating uncertainty that risks deterring new investment. But Crockett is urging BTR to engage with government. “Some people have said we mustn’t change anything because we will scare off the investors that we have,” he says. “Those that we act for and those that we talk to are generally open to the idea that there is a continued debate about housing policy. It comes with the territory, being a multifamily investor globally.”
Crockett would like to see greater security of tenure for tenants, including open-ended tenancies, but also the right mechanism to enforce against unruly tenants. “The utopian model for the investor shows the larger the market is, the more likely you are to deliver that profile of steady income,” he says.
This is what happens in more advanced markets in Europe and Canada. Realstar has been investing in Canadian BTR since 1973, working with tighter regulation and rent controls. Kate Freer, executive vice president for investment in the UK for Realstar, says: “You have a wealth of investors because it is a safe asset class, and you have a mature tenant base that actually stays in these buildings for 10 to 20 years.”
The group would support this in the UK too, Freer adds. Most UK BTR landlords provide discounts and incentives for customers to sign up to longer tenancies. However, nervousness around the current regime of assured shorthold tenancies means there is often low take-up.
“Lots of the regulation that the government is talking about – open-ended ASTs, rent control, fixed uplifts – we already as an industry provide, and people quite often don’t take us up on it, because they don’t understand what it means,” says Freer. “Maybe they have been burnt by private landlords, they don’t know what they are buying into, or they don’t know whether they want to stay.”
BTR, not PRS
A large part of the challenge is recognising BTR as being different to PRS. Rebecca Taylor, head of multifamily at Long Harbour, says during the pandemic the industry has proven the benefits of a professional landlord, with the focus on ESG, service and community that sets BTR apart from the rest of the rental market. But still there is confusion, not just for the man on the street, but ministers in Whitehall too.
“Because of the misunderstanding at all governmental levels about what BTR is, there are these constant barriers being brought in,” Taylor adds. This includes policy like RPDT and also the late-stage viability reviews in planning, alongside general problems in perception. “I think there is a bit of a misnomer about BTR creating exclusive enclaves, where everybody used the word ‘premium’ and therefore people associated it with high-end residential, which didn’t deliver any affordable,” says Taylor.
“One of the things we are doing across all of our assets is designing a building that is for residents but also local people.” This investment is what makes BTR different. But it is becoming harder to provide as development costs rise.
Taylor says the sector has to communicate this value more effectively, but that government can also support this financially. “Look at the SDLT holiday, first-home buyers and other taxes proposed to come in – it just seems to be very one-sided. If we get the messaging around the long-term benefits right, then I think the financial incentives will be easier to come through,” she adds.
As the government seeks to flip housing policy on its head once more – with question marks raised over the 300,000-home annual housing target – this creates an opportunity, Stanford says, “particularly around regeneration of city centres, but also in the future development of single-family housing, where we are seeing a wall of money coming in to invest in that sector”.
Communication will be key, Stanford adds, and the industry and government have to get talking to support new investment as the sector evolves, task force or no task force. “That is something the industry can work with government on – how can we unlock that?”
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