PRS - its the Future CIH Annual Harrogate Conference 2011 Wednesday 22 nd June 2011

1. ……………………………………………………………………………………………………..…………………………………………………………………………………………………….. PRS - its the Future CIH Annual Harrogate Conference 2011 Wednesday 22nd June 2011 Louisa Darian

2. Low-to-middle income: the RF concept …………………………………………………………………………………………………….. • On low-to-middle incomes who are largely independent of state support • Face unique – and often overlooked – challenges because too rich, too poor

3. Low-to-middle income: profile ……………………………………………………………………………………………………..

4. Figure 2: Households owning their home with a mortgage by income group and age of head of household: UK 2008 - 09 16% 16 to 24 43% 44% 25 to 34 67% 60% 35 to 44 77% 50% 45 to 54 65% Low earners 32% 55 to 59 Higher earners 42% 18% 60 to 64 27% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Home ownership is moving out of reach

5. Increasingly reliant on PRS to provide a long-term home …………………………………………………………………………………………………….. Tenure mix Low-to-middle earner households under-35 Owned Private rented Social rented 1978 1988 1998 2008

6. Why PRS? • Substantial supply of houses needed to address affordability • 240,000 built per annum would still mean prices at 8 times earnings by 2016 • Mortgage market unlikely to recover to what it was • £4 billion cut to social housing grant

7. What role for PRS? • Delivering new homes to meet need and tackle affordability • Rents rose by 8 per cent in the last year in London • 65 per cent of LMEs in London could not afford LHA rates • Providing a long-term housing option: • Quality product • Greater security • More control • Opportunities for asset accumulation

8. How can institutional investment respond?

9. Delivering new homes ... Source: IPD pan European index 2010

10. Providing a different product • Potential to deliver greater security of tenure – 10 year contracts • Professional management • Below market/ LHA rents in London and SE • Small equity stake in fund for tenants

11. Total returns there ... IPD: results for year ending 2009

12. Barriers well cited • Lower income returns to commercial eg: • Maintenance • Voids/ shorter tenancies • Scale • Reputational risk • Tax

13. New models emerging to address old problems • Public land invested into JV • Reduced/ lower levels of S106 • LA/ provider guarantees rents • Not held in perpetuity for rent • Other things that could help • SDLT changes reduce transaction costs • REITs

14. What does this mean for LAs? • Good investment at time when land prices low • Deliver affordable housing to local people • Relieve pressures on social housing list • Deliver jobs • But requires some prioritisation of LME groups • And wont work everywhere – where land prices high/ unsuitable for residential

15. Next steps.. • We are in the process of writing up more detailed findings • Working on a model that we can present to investors in September • For more info: louisa.darian@resolutinfoundation.org www. resolutionfoundation.org