News and Press releases

Rental market offers a new opportunity for housebuilders

30/04/2010

Socially, it gave millions of families the freedom to improve or move without seeking the permission of some local authority bureaucrat, plus access to a capital asset previous generations could only have dreamed about.

Commercially, it opened up a whole new consumer market because many former tenants then went on to “trade up” to conventional private housing, a demand that obviously had benefits for newbuild developers.

However, that was 30 years ago and, while the right-to-buy legislation has proved overwhelmingly beneficial, the time may have come for housebuilders to consider providing homes to rent with the same zeal that they once sold their products to inspirational former council tenants.

Owner-occupation will almost certainly continue to be the preferred choice for most people in this country, but “preferred” is not always the same as “most appropriate”.

The credit crunch has led to a sizeable increase in demand for rented accommodation – not because it is the option of choice, but because it’s the one most suitable to many people’s circumstances, given the difficulties in obtaining mortgages and fears about static (or even falling) capital values.

An increasingly transient population will need more flexible housing options, which means owner-occupation, part-ownership and renting being part of a wider choice of tenure.

Unfortunately, while the private rented sector has responded magnificently in accommodating mainly young people, it is much less able to cater for families. Therefore, with most of the best local authority houses gone, those families on modest incomes who seek back-and-front-door accommodation on a long-term basis must brace themselves for many years on the council waiting list.

This is where newbuild housing has a clear part to play. It is known that, as a result of the current crisis, some housebuilders have been prepared to offer new homes for rent as a temporary means of easing their cash flow.

Yet developers behind high-quality city centre apartment schemes have had no problem with their properties for owner-occupation or as letting investments because these attract professional, high-earning occupiers. There is no reason why mainstream builders of family homes could not balance tenancies with owner-occupation on suburban developments.

Although it’s been largely forced on them by the credit crunch, a growing section of the population is becoming used to renting once again. Indeed, even when the housing market fully recovers, there will still be a hardcore of people who will prefer renting over buying in the long term. This could be seen as an opportunity rather than a threat by the newbuild housing sector.

Hopefully, in rising to the challenge the industry will not go down the route of building “suburban ghettos”, which separate rental and owner-occupied homes, the preference being a mixed portfolio rather than “one street owner-occupied, the other rented”.

I can appreciate why some housebuilders may be reluctant to leave the “comfort zone” of exclusively dealing with an owner-occupier clientele, but it need not be necessary for them to become landlords. Given incentives from the UK government, there will be companies – backed by financial institutions – who will purchase (or part-purchase) stocks of family homes for long-term renting, mainly to people who are no different in their social and family aspirations to owner-occupiers.

These rental properties, I must emphasise, would be offered for rent at market rates and not be akin to the “social housing” that some local authorities – prior to the recession – tried to foist on developers in return for planning permission.

The financial world underwent a seismic change during 2007-8 and with that has come an increasing requirement to think outside the box. Given the monetary size of their average product, this applies particularly to the housebuilding industry.

• David Alexander is proprietor of rental and estate agency DJ Alexander

THE SCOTSMAN, 30 April 2010

Housing market can be helped by not interfering, writes David Alexander
31/12/2010

The Guide Top Ten: Avoid the renting pitfalls to secure a happy home
11/12/2010

Sealed bid system has not afflicted city's rental market
03/12/2010

Rent bills on the increase
29/11/2010

Buy-to-let up as rental demand grows
13/11/2010

A GRAND GEORGIAN GEM
12/11/2010

Property ‘gap’ prompts switch from commercial to residential
09/11/2010

Rental 'gazumping' on the up as demand rises
08/11/2010

The hard sell: how solicitors and estate agents are coping with the harsh new realities of the property market
01/11/2010

Burnett off to DJ Alexander
29/10/2010