An innovative approach to addressing the housing crisis CIH Eastern Region Conference & Exhibition Master Class 10 November 2015
Why do we need a new Affordable Housing option?
Why do we need a new Affordable Housing option? Nationally and locally the demand for affordable homes far exceeds supply Grant funding to Registered Providers (RPs) has significantly reduced over past decade Changing profile of RP Investment Partners and risk appetite for new affordable housing development activity most recently following Summer budget, Housing Bill and further Welfare Reform Fresh approach to reinvigorate delivery at scale Create greater choice for local people and the opportunity to live in a new affordable rent-to-buy home Affordable rent-to-buy is complementary to starter homes, replacement of homes bought through right-to-buy, existing development programmes and the need for accelerated supply.
The housing crisis
The housing crisis In excess of 200,000 homes needed each year - Government target of 1m in this SR period Only 100,000 to 150,000 built each year over the past five years Housing benefit bill > 25bn Based on household projection numbers and recent housing supply rates, the NHF estimates that by 2031 England will face a shortfall of 2.5 million homes Across England an additional 78,000 traditional affordable homes are required each year Constraints include: Fear of rising interest rates, MMR and mortgage regulation Affordability remains stretched Land supply and planning Rising build cost inflation, supply chain shortages, availability of labour and materials
Barriers to Home Ownership 80% of people in England think it is harder to own a home now than it was for their parents generation (NHF) Average house prices continue to rise: across England now > 200k - up 8.6% in the year to September 2015 (Halifax) However, 200,000 starter homes for under 40 year olds the right to acquire - extending right to buy discount levels to HA tenants both provide an opportunity for more to access the housing ladder
Barriers to Home Ownership (2) Halifax s Housing Market Confidence Tracker found that in Q2 2015 55% said raising a deposit was the main barrier to buying a property PwC finds that average first time buyer deposits have increased almost five-fold since the 1990s, from 10,000k to 50,000k Only 10% of renting households have considered applying for a mortgage the main factor stated for not applying was that they did not have a large enough deposit CML analysis shows more than half of first time buyers in 2014 had to rely on funds provided by relatives to afford a deposit Low interest rates on savings extends length of time required to build a deposit from taxed income - however, the Help-to-Buy ISA starts to widen the opportunity for households to access the property ladder
Affordability in 2019 PRS sector set to exceed social housing across England and Wales by 2019: PRS 6.04m : Social renters 4.04m Owner-occupation reducing to 14.67m and age of first-time buyers increasing: Under 35s will reduce from 28% to 16% 35-49 year-olds will see private renting increase by 31% (Savills) Despite the growth of the PRS sector and potential Government intervention (including HMRC tax changes), the lack of supply continues to result in significant rent increases in parts of the country
Tenure of choice If you were told that you had to rent rather than buy a house or flat for the rest of your life, how would this make you feel? Unhappy 61% Neither 19% Happy 13% -Source: ComRes for BBC June 2013 Poor people in rented accommodation are more likely than poor home-owners to be dissatisfied with their neighbourhoods and to experience social exclusion on all dimensions considered by the survey: they smoke more, report that their general health is not good, lack adequate social support, and vote less. (Joseph Rowntree Foundation)
How does Rentplus work?
How does Rentplus work? (1) Seek to identify suitable sites for Rentplus homes directly, in partnership via S106 or through JV Local Authorities Rentplus homes are included as a new option to improve the mix of tenures as part of Section 106 requirements HCA Rentplus Housebuilders & Land promoters Rentplus homes can increase the % of affordable homes on new developments Registered Providers Rentplus villages provide early delivery of flexible tenure affordable housing, at volume, creating sustainable communities
How does Rentplus work? (2) Homes built to building regulations and local authority agreed space standards Rentplus homes are leased to local partner RPs for up to 20 years Homes are made available at Affordable rents to those in housing need through LA waiting list, Home Choice and/or Help to Buy Agent Rentplus homes are available for a period of between 5 and 20 years, on 5-year renewable tenancies
How does Rentplus work? (3) Tenants are supported and enabled to move to home ownership by our partner local RP Through a phased approach, beginning after five years, a proportion of Rentplus homes are released for purchase by tenants A gifted deposit is provided upon purchase As homes are sold, Rentplus intends to replace them to maintain the number of affordable homes for rent (MOU)
Developed by a regional developer, a local authority and a housing association and now growing across the country No capital grant sought and attracting substantial pension scheme and ethical institutional investment New homes managed and maintained by an approved local RP Highly regarded board and strong governance
Ambitious initial business plan approved to deliver a minimum of 5,000 completed homes as part of an 8,000 home pipeline nationally Working with Government and Local Authorities to accelerate deliver to 15,000 Rentplus homes alongside starter homes nationally Delivers new affordable homes for rent for up to 20 years A new option to complement existing models of affordable housing and home ownership to promote mixed tenure, at scale and improve choice Provides real opportunity to local people in housing need who aspire to home ownership and are unable to save a deposit from taxed income, for example: those in (i) existing affordable housing unsuitable for their needs or (ii) private rented accommodation
Ethical Investment Pension funds and ethical investors have previously been reluctant to invest in the affordable housing sector Rentplus offers the mixture of rental income and capital return necessary for a viable investment product The Rentplus model can be grown steadily, and through further investment of capital, create a virtuous circle of investment in a local authority area
Rentplus for the community Rentplus developments will: be designed with and for the local community be built to high quality standards promote community safety help tackle fuel poverty provide resident choice be attractive for ownership provide an opportunity to rent, save and own be made available to those in housing need and priority groups such as those in training, working families, key workers and armed service personnel
Rentplus for Registered Providers? Rentplus homes are leased to an approved local RP: To deliver organic growth for the RP To significantly increase revenue income without additional borrowing Increase the range of housing offer and expertise To enhance value for money and efficiencies To complement and support new development activity in line with Government objectives Within Regulatory Framework & HCA SFA for Affordable Rent
Opportunity for residents A new home at an affordable rent with support and guidance from the partner local RP to achieve home ownership An opportunity to demonstrate creditworthiness through a five-year tenancy of rent payments to help mortgage application A gifted deposit at the time of purchase combined with savings made on discounted rent A home which is planned and integrated as part of open market housing and designed with the future in mind
Opportunity for tenants RENTplus provides an innovative affordable housing product delivered in partnership with a local housing association. You rent a new home for a minimum of 5 years at an affordable rent and then purchase 100% of the property with a 10% gifted deposit. Here is an example of likely monthly costs to rent and to BUY a 2 bedroom property valued 250,000: The tables below are an example of acquiring a RENTplus property. Estimated monthly cost : Market rent (incl. service charge) 1,000 20% Discount 200 Monthly rent payable 800 On Purchase Current Market Value 250,000 Gifted Deposit of 10% 25,000 Potential deposit from Mini Cash Isa 12,000 Tax saving 3,000 Mortgage required 210,000 On this basis the purchaser will have a total saving of 40,000 or 16% of the market value available for a deposit at year 5. *Rents are planned to increase by CPI plus 1% each year (excl. 4 years of -1% from 01.04.16). Market value will be determined at time of purchase.
Opportunity for tenants (2) Location Monthly cost for private rented three bed house (Rightmove) Monthly cost for RENTplus three bed house (at 80% of market rent, or, at/or below local housing allowance levels) (directgov.uk LHA rates) Household saving (per month) Southend 900-1,250 800 200 (based upon 1,000) Chelmsford 825-1,350 802 248 (on 1,050) Maldon 875-950 740 185 (on 925) Harlow 1,000-1,400 860 340 (on 1,200) Colchester 750-900 680 170 (on 850) Norwich 675-850 582 168 (on 750) Ipswich 575-850 557 193 (on 750) Household saving (over 12 years) 28,800 35,712 26,640 48,960 24,500 24,200 27,800
Opportunity for tenants (3) Location Monthly cost for private rented three bed house (Rightmove) Monthly cost for RENTplus three bed house (at 80% of market rent, or, at/or below local housing allowance levels) (directgov.uk LHA rates) Household saving (per month) South Cambs 895-1,195 723 227 (on 950) East Cambs 750-895 660 165 (on 825) Huntingdonshire 745-850 627 173 (on 800) Forest Heath 750-1,200 645 305 (on 950) Bury St Edmunds 850-1,100 645 290 (on 935) Bedford 625-1,100 677 198 (on 875) Luton 750-1,350 735 215 (on 950) Dunstable 850-1,250 735 190 (on 925) Household saving (over 12 years) 32,700 23,760 24,912 43,920 41,760 28,512 30,960 27,360
Benefits for Local Authority A significant increase in the number of homes available at affordable rents and New Homes Bonus payments An approved S106 affordable housing tenure Promotes mixed tenure and accelerates delivery of supply to meet local housing needs Can add value to council owned land and may attract a capital receipt for the local authority Each home built creates >1.5 full-time jobs* Takes tenants who purchase, off housing lists or if the home is sold on the open market, 7.5% of the sale proceeds passes to LA to invest in future affordable housing Generates local investment in new homes if property is purchased or sold *Labour Needs of Extra Housing Output Michael Ball Professor of Urban and Property Economics at Reading University, 2005
Working with Plymouth City Council Plymouth City Council Plan for Homes: 5,000 new energy efficient homes over 5 years to support the population and meet the housing needs of the City: Stimulate growth and inward investment- 45.3m into the local economy Create 2,000 new jobs, training and apprenticeships Rentplus and Section 106 Agreements Memorandum of Understanding Working together to meet the Plan for Homes Minimum of 500 new homes within 5 years
Working with Sedgemoor District Council Core strategy 2010-2017 identifies demand for nearly 500 homes pa: Strong focus on delivery in Bridgwater Despite rapid growth of PRS, displacement of existing households on lower incomes through arrival of skilled workers for Hinckley C Sustain growth of commercial sector Require rapid supply of new forms of affordable housing Rentplus and Section 106 Agreements Memorandum of Understanding Working together to identify sites and S106 opportunities Minimum of 400 new homes within five years
Thank you for listening and let s talk! Richard Connolly CEO Rentplus 07478 703766 rconnolly@rentplus-uk.com