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Under the skin of the letting market

Here we share news and views on both the local letting market in & around Oxfordshire and all planned and recent legislation.


The FK Guide to Govt. Rental Policy and Spin


When the economy gets tough, new policies start flying out of10 Downing Street.

Build on the green belt…build more houses…the Montague Report…reduce Section 106 payments…16,500 more 1st time buyers.

What is going on? What are the implications? How does this policy-announcing square with existing policies, some on a local level?

 

We’ll do our best to decipher the announcements:

 

1.The Montague Report.

Announced in August, this report by Sir Adrian Montague was meant to outline how large financial institutions could be persuaded to invest in large-scale new build housing for renting, not selling

a. The Report recommended:

i.      Using covenants to restrict selling in the first 10 years

ii.     Reducing Section 106 payments if the developer is ‘renting’
iii.    The Govt. should release land for up to 100,000 homes by 2015, starting with a test case in London

iv.    Offering more incentives to developers / investors

v.     Creating a build to let ‘Task Force

vi.    Creating some way of defining the quality of rental accommodation and the quality of the management service

        b. Since then, the Govt. has decided to:

i.      Spend £200 million on un-named housing sites

ii.     Guarantee £10 billion of debt for those who invest in built-to-rent

c. Our view:

i.      You can’t argue with Sir Adrian’s logic or his recommendations, but they slightly pull their punches. The language is ‘could’ rather than ‘should’.

ii.     The covenants issue is interesting but is too decentralised given that councils determine planning decisions. How can the Government affect this?

iii.    The ‘incentives’ are so important and it is disappointing that more consultation is recommended rather than proposed ideas.

iv.    The £10 billion of debt could be great, but it is a guarantee, not hard cash. The challenge remains that the barriers to investment (lack of liquidity, low yields, unproven business model) may be loosened by this guarantee but they will not be swept aside.

2. Section 106’s to shrink?

Developers can pay less for their Section 106 agreements, potentially meaning less affordable housing. They can renegotiate such agreements if they were signed before April 2010.

a. A figure of 75,000 homes is mentioned, where the S106 policies make the sites unviable. The Govt. wants to “unlock” these 75,000.

b. Our view:

i.      In theory a good idea, but the big question is how it will intersect with councils’ own policies.

ii.     For example, in Oxford, how will reduced Section 106 payments square with proposed increases in the Community Infrastructure Levy, due to be announced this autumn? It would seem that these contradict each other and might cancel each other out, perhaps wasting everyone’s time?

iii.    Given the influence that Section 106 clauses have – they often determine whether a development is financially viable or not – expect this issue to run and run.

3. Conservatories for all.

You will be able to extend your home by up to 8 metres without planning permission. It seems this will be for single-storey extensions.

a. Our view:

i.      Be careful what you wish for. Expect some badly designed extensions and conservatories to spring up soon.

ii.     You still have to notify your neighbours and they can still complain if they think you are breaking the rules.

4. Build on the Green Belt, maybe. 

The Govt. wants to persuade councils to reconsider or reclassify how the Green Belt is used. George Osborne clarified this by saying that you can un-protect part of the Green Belt if you protect another area.

a. Our view: one of the least-defined new policies and one of the most emotional. We expect any project of scale to meet legal opposition.

i.      In Oxford, expect more discussion over the use of land around Begbroke / Yarnton and immediately south of Blackbird Leys

5. Planners hurry up or else

The Govt. press release is slightly ominous, “where councils are poor at processing decisions” the developers can go instead to a central planning decision-making body.

a. Our view:            

i.     This seems to be at odds with the Localism Bill which aimed (aims) to empower local communities in the planning process.

ii.     This might be a political move, a stick rather than carrot from Westminster   to the councils.

6. FirstBuy scheme to grow and £300m of new investment.

a. FirstBuy gives those who can’t afford a home locally an equity loan of up to 20% of the property’s value, with a max. house value of £280,000. Six mortgage companies are involved with 70% of the market. The buyer needs a 5% deposit.

b. The £300 million will offer guarantees to builders to create 15,000 new affordable homes and also bring 5,000 empty homes back to life.

c. Our view:

i.      The FirstBuy extension has to be good news.

ii.     The £300 million funding sounds good, but it is unclear how this breaks down between debt guarantees and actual capital investments.

 The bottom line:

We have to try to be positive. We hope that the policies have actually been thought through and they will happen. The long-term (large scale investment in the private rental sector) is far more important than the short-term, electioneering policies (extend your home by up to 8 metres).

The elephant in the room is the availability of finance. If people (consumers and companies) cannot borrow funds then it does not matter how slick the planning process becomes.