Britain, despite being the biggest property market in Europe, has yet to enjoy a developed private rented sector (PRS) to match other parts of the Continent and the US, which has long enjoyed one. It is an anomaly that institutional investors have had to deal with, although a few such as APG Asset Management and the Abu Dhabi Investment Authority have decided to dip their toes in PRS in the UK, recognizing that the sector still needs to be overhauled and professionalized before it truly can become a scalable investment proposition. Perhaps that is why investors have been unsettled recently by politicians hell-bent on introducing laws that market proponents suggest could kill the nascent sector before it even takes off.
Ed Miliband, leader of Britain’s Labour party, said last month that, if he were to get into power, the government would cap rent increases in the private sector and scrap letting fees for estate agents in order to provide a “fairer deal” to tenants. The idea is that, while landlords would be allowed to hike rents if market conditions changed, an upper limit would be placed upon owners to prevent rents from escalating far beyond.
As a vote-winner, the idea is clear. “Generation rent is a generation that has been ignored for too long,” said Miliband in a speech trumpeting the policy last month. However, newspapers on the right have wasted little time reporting how the idea is “in turmoil” after The Royal Institute of Chartered Surveyors appeared to cast doubt on Miliband’s assertion it was working on establishing an “appropriate benchmark” for the private rented sector.
Labour’s proposal follows efforts in Ireland to introduce a similar model, and there are moves afoot in Scotland as well. Following the Labour leader’s intervention, two amendments to Scotland’s Housing Scotland Bill have been tabled, which will introduce three-year tenancies and a cap on rental increases immediately.
The move drew a note of caution from the Scottish Property Federation, which issued a press release stating: “The [federation] is concerned that the notion of ‘rent controls’ and inflexible tenure regimes could make major institutional investors looking to invest in the private rented sector nervous and threaten interest in a large-scale build-to-rent sector.”
Naturally, the Conservative government, which currently is sharing power in the UK with the Liberal Democrats party, lampooned Labour’s policy idea. It said evidence from other countries suggested rent controls lead to poorer quality accommodation, fewer homes being rented and ultimately higher rents.
Professional investors seem to agree. Ryan Prince, London-based vice chairman of Canada’s RealStar Group, is busy building a PRS business in the UK capital. The company entered the market in 2009, when it bought several completed projects such as Thornton Place in Clapham, south London, from Ireland’s National Asset Management Agency on behalf of a closed-ended opportunity fund backed by pension plans and high-net-worth individuals.
More recently, RealStar has been investing on behalf of an evergreen partnership. The firm just bought another property, a 220-unit apartment building in Stockwell, boosting its holdings to between 700 and 750 units.
Prince told PERE that rent controls and political interference would “scare off a lot of capital from the sector.” He echoed arguments that rent controls historically have proven counterproductive and pointed to Canada’s experience, where such a policy caused new construction to dry up.
“No one likes rent controls,” said Prince. “Capital doesn’t like regulation.”