The Housing White Paper has met with criticism from the property industry, but what does it mean for Build to Rent? Olivia Tassell examines its proposals.

The hotly anticipated Housing White Paper, released on 7 February, has met with mixed reviews within the industry; some welcoming its apparent determination to get to the heart of the housing crisis, others criticising it for raising more questions than answers. For the emerging Build to Rent market, however, the paper provided clear support, with the government demonstrating full understanding of both the benefits of the Build to Rent sector but also the issues affecting its growth.

The White Paper recognises that the current housing crisis can only be properly addressed by increasing the number of homes across all tenures. Within the private rented sector, Build to Rent developments provide good quality homes at scale, whilst also helping regenerate local economies, for which reason the government is seeking to reduce the current barriers to institutional investment in the sector.

Proposals for Build to Rent

The government's three key proposals for Build to Rent (BTR) are: (i) to change the National Planning Policy Framework so local authorities are encouraged to plan for B2R where there is a need; (ii) to make it easier for B2R developers to offer affordable homes for rent and (iii) ensure that those running B2R developments offer family-friendly tenancies of three years or more to those that want them. A consultation paper was published alongside the White Paper, asking for detailed views on a range of measures designed to further these aims.

Treatment by the Planning System

Being a relatively new industry, the route through the planning system for BTR remains uncertain and unpredictable. For example, the financial s. 106 obligations typically imposed on build to sell are not generally suitable for BTR, where profits lie in long term income rather than up front capital payments. The consultation paper seeks to resolve these barriers within the planning system; looking to provide a clear definition of BTR and to set out how it differs from other residential developments, how it should be handled by local authorities and how those authorities can retain control over the tenure once permission is granted.

Build to Rent defined

The definition of a BTR development proposed by the consultation paper comprises: a single building, with 100% of the units privately rented, professionally managed in single ownership and offering tenancies of 3 years or more. On the whole, these criteria should prove uncontroversial, although it is unclear how the three year tenancy offer would be assessed or policed and some developers may find this unduly restrictive. In any case, although longer tenancies would provide stability for renters, especially those with families, experience would suggest that, particularly in Central London, the majority of tenants, particularly "Millennials", favour flexibility and tend not to want to commit to a tenancy for longer than a year.

Affordable Housing

The obligation to provide affordable housing, or a financial payment in lieu thereof, creates a viability issue for many BTR developments, where margins are tight and division of management within the block may reduce efficiencies. The consultation paper suggests that BTR developments should satisfy this obligation by ensuring that at least 20% of its units are let on Affordable Private Rents (defined as rents at least 20% below local market rate) at all times. This seeks to bring clarity to this difficult issue and is likely to be welcomed by developers but, as with many of the proposals, the effect of this policy will only really be seen once it has been implemented, or at least assessed, within live examples.

Planning for the future

If BTR developments are to be given such different treatment at the planning stage, local authorities will want to be able to retain some control over its future tenure. Over the past few years there has been much debate within the industry as to whether a specific Use Class should be introduced for BTR, but this is generally viewed as too restrictive for such a nascent market. There has also been talk (and some evidence) of "rental covenants"; planning covenants requiring the development to be 100% rented for a minimum period.

The Government's proposed solution of a "clawback" mechanism is robust but sensible, recognising that too restrictive a policy may deter newcomers from the BTR market. The consultation paper suggests that, if a developer wishes to sell off unit(s) within the development, it will be required to pay an appropriate contribution towards affordable housing in the area, defined by reference to a formula set out in the s.106 agreement. This has the advantage of protecting the interests of the local authority whilst also allowing flexibility and certainty for the developer.

A step in the right direction

In conclusion, the White Paper (together with the consultation paper) deserves to be welcomed by the BTR industry. It provides a clear statement of support from the government for the BTR product whilst demonstrating a real understanding of some of its viability issues and suggesting practical policy changes to help address these. Let us hope that the consultation provokes real engagement by the BTR community, to ensure that the future framework is fit to support this emerging industry along the road to success.