OUTPUTS FROM "BUILDING HOMES FOR THE FUTURE WORKING GROUP" July 2014

Transcription

1 OUTPUTS FROM "BUILDING HOMES FOR THE FUTURE WORKING GROUP" July 2014 Topic: PRIVATE RENTED SECTOR AND SUPPLY CHAIR: PHILIP PAMMENT, PRP Working Group represents cross-industry practitioner views and experience on this topic-our priorities are set out below with a list of contributors Key strategic priorities are: build an increased housing supply over longer time frames with improvements in quality and range to meet demographic pressures continuity in future supply to move away from stop-start development cycles and support delivery through developer-led models, JVs with local councils and institutional investors Online Commentary we encourage contributors to the work of The Housing Forum to post their work on-line and generally promote what we are doing as widely as possible. We ask if this can be attributed to a Forum Working Group wherever you can, provide links to the Forum website and notify Laura Waind. This focus on the Private Rented Sector includes contributions from Nicholas Falk, Urbed Andrew Screen, GVA Financial Consulting, and Richard Harvey, PRP. Presentations available here. Featured topics are: * How housing associations approach PRS- examples from Fizzy Living and A2 Dominion * An examination of the ongoing land issues * Increasing supply through PRS initiatives * Design principles for PRS schemes- Case study of 101 George Street, Croydon The Working Group conclusions are: *PRS has the potential to make a significant contribution to new housing supply and needs to be recognised as an important strand of housing market. *The next 18 months are a time of opportunity for investment with funds available * A lack of clear and consistent planning requests on s.106 and affordable contributions affects viability of PRS schemes. *Different management and service offerings are quite possible & viable within PRS *Designing a thoroughbred PRS development will give benefits and efficiencies but clients are often unable to commit to a PRS outcome at the start and may flip a scheme into outright sale.

2 How housing associations approach PRS- examples from Fizzy Living and A2 Dominion drawn from The Housing Forum CEO Forum " Fizzy " from Thames Valley Housing is a new approach to renting, responding to the wishes of a new generation of renters by shaping a service which is welcoming, informative and backed by a 24hour service offer. There is choice, flexibility, an annual spring clean and instant connectivity for Wi-Fi packages. Fizzy undertakes its own marketing and the focus on customer service has achieved 96% satisfaction. Renters can access as many service as they want on line. Fizzy began with 2 schemes, in Canning Town and in Epsom - a deliberate plan to explore different locations and markets but always within 5 minutes of a station and now has 5 schemes of around 100 homes each, some smaller and some bigger. Funding came from private capital so the scheme has to work in commercial terms. Currently, flats are not specifically designed for PRS but In the longer term, the Fizzy portfolio will expand - with a purpose built range including garden flats, 6-12 storeys and 12 storeys plus. Flats will be designed for renters, with emphasis on defect-free construction and reducing costs on interior services to ensure maintenance costs are predictable. A2 Dominion aims to expand their PRS business within A2Dominion s student and key worker accommodation area. When total PRS numbers reach 1,000 later this year, they plan to launch it as a brand into the market. Customers will be able to begin accommodation searches on line or at A2Dominion sales complexes with flexible multi-tenure options from a range of homes for sale, rent or shared ownership at each location. Examples of schemes being built or in rental already include Bristol, Southampton, Ashford and Middlesex - generally preferred locations are within a ½ hour commute to central London or in London on good transport links. An examination of the ongoing land issues: Nicholas Falk, Founding Director, URBED Obtaining permissioned land at scale is critical to delivering the doubling of housing numbers that are generally regarded as needed to meet growing demand. Case studies of successful expansion of housing supply in Germany and Holland and Denmark have common features which we need to learn from. The best model for the UK is the VINEX housing programme in the Netherlands, where nearly a hundred urban extensions were built over a ten year period, typically averaging around 1500 units. The programmes focussed on swell-connected cities of over 100,000 population where there is strong demand. The local authority takes a lead by designating sites, setting up a joint venture with housebuilders, and pooling the land. A good example is the city of Amersfoort, near Utrecht, where there have been three planned urban extensions in the last few decades, the most recent of which Vathorst, is for 10,000 units plus a shopping centre and business park. Local authorities are able to purchase sites with low cost loans from the state investment bank BNG, draw up a masterplan, install the basic infrastructure, and then sell sites onwards to housebuilders at prices that are based on a proportion of the expected sales value (20-30%) on a sliding scale. Local authorities can benefit by securing a proportion of the housing for renting out or sales at below market prices. Typically, developments will be of 80 units, 30% will be affordable with housing associations accounting for half of the homes built. Numbers of purpose built private rented housing will be significant in this model, as it helps to speed up development and also reduces risks.

3 Strategic considerations * designate sites: a strategic process which identifies where housebuilding should be and should not be- and at a "neighbourhood scale of 1,500 homes -plus schools and shops * freeze land value: to prevent land price escalation * state investment: local authorities collaborate to set up a body to raise funds on the bond market to purchase land. * charge undeveloped sites which have planning permission - at council tax rates *Understanding the financing of PRS, Andrew Screen, Head of GVA Financial Consulting, Structured Property Finance In terms of the funding market, we have moved from a 2008 position of shortage of bank finance and a huge reduction in housing supply to a surplus of funding but still little housing development. However we now have the emergence of a private rented sector in the UK but there has been poor institutional investment. There is a strong US and German track record of PRS, however this is a new concept in the UK. The requirement for PRS is typically residential units with bespoke design for easy maintenance, so finishes and materials are important. However the key issue is that most schemes are too small for funders who typically want 3 or 4 sites in the pipeline and ready to develop with an investment of approximately 100m over 2 to 3 years. There is also generally a tripartite arrangement which underpins PRS between the investor, developer and operator/manager. In the case of the developer /contractor, their aim is to build and then exit at Practical Completion by selling on. In the case of the operator/ manager, they are planning for the long term (however there are few large scale PRS managers in the UK with a nationwide PRS operation). In the case of the institutional investor, they are looking for low risk and seek to mitigate any construction and future management risks. In the current market there is a huge supply of funding for PRS however there are very few oven ready schemes with planning which can commence on site. Government funding stimulus was stepped up 2 yrs ago: In terms of PRS funding, the HCA made 1bn debt and equity funding available from Build to rent - in Round 1 and have recently launched Round 2 which has had a successful take-up. We have also seen DCLG launch its PRS debt guarantees for up to 80% of the development value with a potential benefit of 10bn across multiple tenures. We have also seen the formation of the Government PRS Task Force to encourage private and institutional investors into the PRS market with great success. Private Sector funding Potentially 10bn private sector and 10bn public sector is available through pension funds and overseas investors. The funding packages are generally opportunistic capital - investing for 2 years, awaiting stabilisation and then exiting to annuity/pension funds. This model operates on the basis of discount for bulk sale at 6 %-15% of GDV (depending on location, from e.g. London to Manchester) and looking for an annual return of +9.5%.

4 Design principles for PRS schemes- Case study of 101 George Street, Croydon Richard Harvey, Director, PRP Background: The client brought the site as a 16 story office building. It has been on the market for 6 years but values are not high enough to make office use viable. The brief was to come up with a viable residential scheme for PRS, or potentially for sale. This has required a design and layout that take account of this specific and distinct market. 101 George Street, Croydon The site is close to trains and trams and is town centre close to a busy main road. The designer has used pedestrian desire lines from the station to set out the main pedestrian approach. Croydon design guides specify a 3:1 ratio in height and to create a more elegant form, 2 tower blocks were proposed for the site,one at 16 stories and the other at 32 stories with cut offs at the end of blocks to create a slanted form. A shared concierge suite will offer food drop off and other services for the proposed 305 flats. Servicing :3 lifts are planned for the higher block, 2 at the lower, calculated on a 30 second wait. Wheelchair parking has been requested at a ratio of 10% to occupancy. Plant is provided on the roof of the tallest building. A different refuse collection service will be offered with daily collections. All servicing, including plumbing and metering is from communal corridors. Flat types: 6 standardised types are offered to feature throughout the buildings and the internal layout is open plan (a sprinkler system is installed throughout). Large built in storage is provided in all bedrooms. The "wow" factor- the view straight to the outside from opening the front door is dominant, so living space is central with kitchen and bathrooms to the corners of flats. Shared ownership units will be on lower floors and be "tenure blind" Materials: standardised robust construction with bronze metal finish cladding and brick every 3 floors and full height safety glazing for communal garden spaces. Strategic considerations: design needs to "partner " with management 3 bed affordable family units were required by the local authority but there is a view that PRS product should be regarded as an exception to the affordable requirement. The PRS model allows for different approaches to service offering, charging and choices- funders will have expectations Strategic considerations operators will only go for a "brand" for over 1,000 units. If selling on, brand is not relevant as annuity funds will have own brand.

5 * Investors seek "oven ready "development sites *there is a huge supply of funding but the equity investors could move away from PRS in 18 months * The market is changing as more young people in large cities go for housing that conveys their lifestyle e.g Fizzy Living * locations close to main transport and employment hubs within 10 mins walk of station *preference is for 1 bed units -as when people down sell in recession go for this * 2 beds units have equal size bedrooms * parking servicing is important as is the quality of materials to reduce repairs and maintenance * revenues are calculated from potential rent with a voids rate 4%-6% * additional revenues -attributable service and maintenance charges - may also include lifts, lighting, cleaning, wi-fi and operating expenditure equivalent to 30% of Gross Potential Revenue * yield shift which loses value over time as your product not as modern as nearby competitors will affect long term returns * design issues facilitate maintenance issues e.g. providing another goods lift. LIST OF CONTRIBUTORS on 10 TH July Philip Pamment, PRP (Project Services) CHAIR DR Nicholas Falk, URBED- Andrew Aldridge, Hill Pete Bailey, Northern Consortium of Housing Authorities Andrew Screen, GVA Financial Consulting- Richard Harvey, PRP- Tracy Bradwell, Rydon Paul Butcher, MDA Consulting Limited Simon Hay, Brick Development Association Dee Dixon O'Neill, Willmott Jonathan Dean, Durkan Gordon Fusion21 Ronald, Stephen Spall, Balfour Beatty Isabella Slattery, CBRE UK Dave Woods, Octavia Housing Group Gary Wreford, Silver Chris Rutter, Fusion21 Ben Wiltshire, Baily Garner Shelagh Grant The Housing Forum -HOST Laura Waind, The Housing Forum- HOST Next meeting: 10 th October am pm :Topic; Housing in later life