Private Rental Sector Initiative
A large scale Private Rental Sector Initiative (PRSI) to attract new investors into the new build private rented housing sector, could play a significant role in rebuilding the housing market. Discussions between the Homes and Communities Agency and Government indicated a preparedness to explore the concept further, and the HCA consequently invited Expressions of Interest from the private sector in June.
The principal focus of the PRSI is on new build, with the potential to consider newly built housing product as “seed assets”. Development risk will remain with the house builder. Housing product is principally for private rental with possibly an element of intermediate rent. The Initiative’s investment return profile is primarily income focused, as opposed to capital growth.
The HCA’s PRSI is intended to:
- Establish a viable, robust and attractive financial opportunity for investors and to attract new sources of private sector funding to the housing development sector;
- Help simultaneously stimulate housing supply and meet demand;
- Provide house builders with an opportunity to acquire additional pre-sales of stock
- Helping to reduce the speculative nature of house building and attract development facilities, thereby helping to kick start stalled schemes and maintain house builder capacity and activity during the downturn and after the market recovers;
- Renew confidence in the housing development market and help stimulate the wider economy; and
- Longer-term, help stimulate fundamental change in the housing market, making private rental a tenure of choice and offering a broader range of options to consumers.
A total of 64 expressions of interest had been received by the HCA when the EOI process closed on 1 June. These were from household name UK pension funds and other investors, property developers, fund managers, housing associations and property managers.
Of the submissions received several strongly met the HCA core brief, focusing on the capital (investment and fund management) elements of the initiative. The remainder related to two other relevant components: product – the supply of land and homes; and property management. Several of the submissions received were from consortia, and a number were from overseas institutions.
Along with our property advisors, DTZ, has evaluated the submissions based on the outlined approach, including deliverability and value for money, and each organisation’s:
- Financial strength and standing, resources and relevant experience;
- Ability to invest and/or raise third party capital;
- Capability and track record in the creation of new investment funds; and
- Willingness to be flexible and innovative.
In particular we have been encouraging the submitting organisations to work together, particularly where their submissions are well aligned, to create a focused number of propositions at scale. Given the scale of the interest, there may be a number of funds and more than one fund partner.
We have also begun an exercise to identify a potential pipeline of stalled housing schemes ripe for investment. There is also a clear cross-over in terms of identifying potential product for the PRSI through other HCA programmes or initiative, particularly the Kickstart Programme designed to unlock stalled housing sites, and the new Public Land Initiative.
The attached progress update gives more information on the HCA’s engagement with front-running consortia, particularly around the form of support offered by the HCA for funds in the early years and the identification of sites.
For more information on the HCA’s Private Rental Sector Initiative, interested parties should contact:
Charles Whitworth at DTZ (HCA advisors): 020 7643 6485 / charles.whitworth@dtz.com
Last updated: 8 October 2009