HCA asks pension funds to build rental housing

The Homes and Communities Agency has today asked for expressions of interest for a new initiative which could attract institutional investment into the housing market to fund new homes specifically for private rent.

The HCA said it wants to work with financial institutions and other investors to develop a long-term funding model for new private rental housing in England. It is anticipated that the potential investment could come from sources such as pension funds or overseas investors which have not traditionally been involved in UK residential letting.

Ian Fletcher, British Property Federation residential director, who has led the BPF's lobbying work on housing, welcomed the announcement: "It's great that policy makers are alert to the need to continue to expand the private rented sector and support development through these difficult times. But it's vital we look at what we can do to make the numbers stack up. It's now or the never for the professional rented sector and it's essential that ministers do not loose sight of the opportunities here."

Peter Cosmetatos, BPF director for finance, added: "One positive to emerge from the current downturn is that the fall in property prices has made the yields offered by residential property, which are typically modest, much more attractive. There is a rare opportunity at this point in the cycle for institutional investors to invest in an asset class that provides an excellent hedge against inflation at a good price."

Nick Jopling, head of residential at CB Richard Ellis, said: "With the future of public funding looking rather bleak, and buy-to-let not likely to expand at the same pace, it's essential we look at alternative sources of finance for housing. A well-managed, large-scale rental sector would enhance our social mobility and provide security for many caught between social housing and ownership. The Treasury's decision to, at the eleventh hour, remove stamp duty changes from the Budget which would encourage institutions into the sector was nonsensical, and we urge ministers to look again at this measure. Ensuring the large investors pay stamp duty at the marginal, 'per unit' cost, would not dent our tax take and it would go a long way to providing quality homes for rent and thousands of jobs along with way, through constructions and development."

The HCA will consider supporting funds to ensure that new investment into the sector is viable, which may involve some form of limited financial support to stabilise the portfolio and create confidence for investors during the initial years.

It is anticipated that development risk for schemes supported by any new investors would remain with the housebuilders. Private rented funds could provide a source of pre-sales for projects with suitable product, which in turn could help to reduce the speculative nature of housebuilding and unlock funding on stalled schemes.

The HCA has appointed DTZ as a specialist advisor on the investment scheme.