Investors must learn

The government’s announcements to cut the social housing budget to £4.4 billion will hit many low earning households. Coupled with already low rates of affordable house building under the previous government, these proposals will mean that more and more low earning families will be forced into unsuitable private rented sector accommodation. Those fortunate enough to be offered a social home will be faced with a much worse deal – shorter tenancies and higher rents.

The coalition is hoping that this new type of tenancy will attract more institutional investment into the social sector – fixed-term contracts will allow for properties to be ‘churned’, enabling an investor to get a return from the sales. At the same time, longer term tenancies than those commonly offered in the PRS will limit potential voids. Housing associations and councils will need to be open and flexible to new funding models.

But lessons need to be learnt from efforts made in the private rented sector first. The appetite from investors is there, despite government support being little more than lip service. The Treasury’s cursory response to its consultation on this subject over the summer did not bode well with many of the suggestions made to increase large-scale investment dismissed out of hand.

One thing is certain: if private finance is to help fill the hole left in the public purse it must be targeted where it is most needed. This means the lower end of the private rented sector rather than the young professional market. Squeezed between social housing and homeownership, the 740,000 low earners in the private rented sector have no other option but to rent. Educating investors about the demand and nature of this market will be an important first step for housing associations.

This blog first appeared on Inside Housing