The new buzzword: build-to-let

Have you ever asked yourself where do the key workers – those low-paid but vitally important public sector employees who teach our children, drive our trains and buses and tend to our sick and injured – live in places such as France, Germany, North America and Australia?

Have you also asked yourself why we in the UK seem to be the only place suffering a long-term affordability crisis coupled with an obsession with house prices that seem to be on a permanent roller-coaster and no stability in prospect?

The two issues are, of course, linked. And the answer is that in most developed countries the majority of young (24-34 years old) working people rent their homes from private landlords, mostly corporate ones. They do not struggle to buy a home when in their 20s, saddle themselves with crippling debts or agonise endlessly when they can’t borrow enough to get on the property ladder. Indeed, the expression property ladder does not exist anywhere but in the UK.

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No – once ready to leave the parental nest they go forth and peruse a normally large selection of property available to let in all sizes, locations and price ranges. They will rent unfurnished homes on leases of up to five years giving them the stability they need to concentrate on their careers. They will only buy when they are truly ready to settle down in terms of family commitments and long-term employment prospects.

Indeed, many French, German and American families remain in rented homes all their lives. They do not feel deprived or stigmatised. They view their monthly rent not as ‘money down the drain’ (how I hate that silly expression!), but as a fair price to pay for an essential need: a roof over one’s head. They do not question the rent any more than they would if hiring a car. They enjoy the absence of the onerous responsibilities associated with ownership. And when they need to move house, it is a relatively quick, cheap and painless process.

Wrong-headedness

So why are we so out of step with other countries – and with common sense? The answer, as is so often the case, is well intentioned wrong-headedness.

At the turn of the 20th century around 80 per cent of the British lived in privately rented homes and it was not a pretty picture. Horrible slums and horrible slum landlords gave the system a deservedly bad reputation. The situation improved slowly but after the second-world war conditions were still difficult and the activities of some bad landlords made appalling headlines. Post-war Labour governments tried to help hard-up tenants by imposing strict rent controls. The consequences were inevitable: as it was no longer profitable to let, owners simply waited for their properties to fall vacant – and then sold them for owner-occupation. The results were equally inevitable: a reduction in the size of the private rented sector to around eight per cent nationally and 12 per cent in London. Even after the relatively recent and much-hyped buy-to-let boom the national figure is now only around 11 per cent, and the London one is nudging 20 per cent.

The enormity of this can only be assessed when comparing the UK with other countries. In Western Europe, North America and Australia the overall figure is around 45 per cent, while in the major cities it goes up to 65 per cent. No wonder we have a chronic first-time-buyer crisis, not to mention the economic problems associated with insufficient mobility of labour due to people being stuck in homes they cannot afford to move from because of the cost of agent’s fees and stamp duty is now in the thousands of pounds.

So what is to be done? I first used the expression build to let in a submission I made to the Select Committee on the ODPM (as it then was) more than two years ago. The committee was discussing access to housing, and I was convinced (as I have been for at least the past 15 years) that the only way to prevent a catastrophic housing crisis in London is to persuade serious financial institutions to invest in the rented sector. Buying to let has hardly dented the problem, because buying what is already there is not actually adding to the total stock. In addition, given the general forecast of a few years (at least) of small house price rises or none, or even price falls, the attractions of buy-to-let are fading fast. What is needed is something quite different: more stable, more professional, more long-term.

Not fully refined

There is no reason why financial institutions should not invest in building properties dedicated to the private rented sector, given proper government support for the concept. This will have to include some financial incentives and a new legal framework to make private renting fair and viable to both sides.

My proposals are, of necessity, not fully refined. But the basic idea is that developers should covenant to build blocks of flats that may not be sold but only let for a long period of time (25, 50 or even 100 years). In return, they should be able to negotiate higher densities to create more units.

As the flats would be effectively affordable – and without public subsidy – developers also should be able to negotiate reductions on the affordable housing requirement of developments, which in London are an impossible 50 per cent at present.

As this type of housing is intended for young professional key workers at pre-family stage, it would make sense to build mostly studio and one-bedroom flats, but also have an additional stock of en-suite rooms that can be let to residents on a short-term basis for the accommodation of family and guests. At the same time, the central location of these developments should make provision for car parking unnecessary. However, a stock of vehicles could be kept centrally, available to hire by residents, as required. If the vehicles were to be electric, the whole concept would become irresistibly green, sustainable and media-friendly.

The government also will have to do its bit. The Justice Department needs to rule that all landlord and tenant disputes in the assured shorthold sector should be taken out of the courts and settled instead by a new Housing Tribunal, or an expansion of the current arrangements for leaseholders. This will give institutional investors the confidence of being able to get quick possession when the tenants breach their tenancy agreements, without which they may well decline to invest.

At the same time, however, it would enable tenants to get quick justice – including rent reductions and compensation – when landlords misbehave. This will create incentives for good behaviour for both landlords and tenants that is sadly lacking in the current private sector letting jungle.

After several frustrating years of trying the get people to listen, think and do something, the time may now just be right for a major initiative along these lines. I hope so – I think it is very much overdue.

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