Affordable private rent and the build to rent sector - new tenure, new opportunity?
Housing associations and local authorities have watched the emergence of the build to rent sector with interest, with some of the earliest housing association and local authority led schemes now starting to come to market.
Although the buoyancy of the outright sale market has limited the speed at which the sector has developed, it is clear that the build to rent sector is now starting to form a key part of the market and this was recognised by the Government in the new National Planning Policy Framework (NPPF) published in May. It is also no longer just a London based 'product' as figures issued in August showed that for the first time ever, build to rent homes either completed, under construction or being planned across the UK regions are equal to those under way in London.
The NPPF included for the first time a specific definition of build to rent establishing it more firmly as a separate asset class. Following on from the proposals in last year's Housing White Paper and the accompanying build to rent consultation, the NPPF also confirmed the creation of a new affordable tenure, specific to the build to rent sector, badged 'affordable private rent'. The rationale behind affordable private rent is to create a new type of affordable housing which streamlines delivery and encourages more development of build to rent schemes.
Affordable private rent units will be available to rent at a 20% discount to open market rent and the default position is that affordable private rent will comprise 20% of the overall development. Build to rent developments are exempted from the new expectation that all new build schemes will provide a minimum of 10% affordable home ownership. The key difference between affordable private rent and more established affordable tenures however is that there will be no requirement to involve a third party housing association to take ownership of the affordable units. Single ownership and management of a scheme is a fundamental feature of build to rent as an asset class and the resultant flexibility and efficiencies this provides is the driving force behind this change in approach. This is a distinct shift in policy which will require a step change in the way local authority planning teams approach affordable housing for developments of this type.
Housing associations, particularly, are likely to be concerned about the potential reduction in available Section 106 stock as a result of the change. The new tenure should however also provide opportunity for the sector. In looking to diversify their portfolios, many housing associations are looking at expanding into the build to rent sector and by promoting affordable private rent as part of a wider build to rent scheme, an housing associations affordable housing expertise may well provide an edge when progressing through the planning system.