Today’s publication of the Montague Review into institutional investment in build-to-let addresses an important gap in our housing market. Large numbers of people, and a growing number of families, who would have bought homes in the past are now shut out of ownership for the medium to long term.
Dominated by buy-to-let landlords, the private rented sector currently offers them variable quality and limited security at a high price. These working families represent a new form of housing need but they risk being overlooked if the Review’s recommendations get caught up in a conflict between affordable housing (or social housing as it used to be called) and the private rented sector.
The recommendation causing all the consternation is the Review’s proposal that local authorities should have greater flexibility in negotiating affordable housing requirements on build to let schemes to help them get off the ground.
The Review proposes that build to let developments should contribute a level of affordable housing commensurate with the returns that can be expected from such schemes. These will always be lower than the returns developers make on homes for sale. But nowhere does the Review advocate waiving affordable housing requirements on all market developments as much of today’s coverage suggests it does.
The housing associations that have come out against the Review largely because of its proposals on affordable housing are right that we desperately need more affordable homes. The stock is declining and policies such as right to buy will lead to further declines, regardless of what the Government says.
However, more affordable housing will not meet the needs of working families who are shut out of ownership. They will never qualify for an affordable home. Waiting lists stretch into the millions and the sector rightly prioritises the most vulnerable. Build-to-let creates the opportunity to provide these low to middle income individuals and families with a purpose built, professionally managed, secure rented home.
The economic rationale for build-to-let is strong too. House building could help kick start the recovery, much as it did after the 1930s recession. The Review sets out evidence of its potential contribution to growth. Right now, lack of mortgage finance is the block to this growth. House builders will not build homes that no one can buy. Build-to-let has the potential to draw a new source of private finance into the sector to get building going while the mortgage market continues to struggle. The pilots on public land proposed by the Review could provide the catalyst for institutional investment to take off in the UK.
Of course, opponents are right that build to let is only one part of the solution to our chronic housing shortage. We also need greater investment in social housing and a return to sensible mortgage lending. But Britain needs to get building and to meet the needs of the growing numbers in the private rented sector, a new type of long-term rented home must be a significant part of our future housing market.
Vidhya Alakeson is director of research and strategy at the Resolution Foundation.
More Spectator for less. Subscribe and receive 12 issues delivered for just £12, with full web and app access. Join us.