Private Rented Sector – Who Are the Market Makers?

Whatever your view on economics I believe it’s a fairly safe contention to make that in order for any market to work you need someone whose vested interest is to make the it work. To take one example, the stock exchange makes it possible to buy and sell shares in a company which provides much needed capital to fund business growth and create jobs. The stock exchange does not do this out of a spirit of altruism but because they create a spread i.e. at any point in time they will charge you more for an equity than they will pay you for it; in fact this ability to make a profit underpins our whole society.

The housing market is exactly that – a market. Building houses for sale creates this spread or profit for house builders because they sell them for more money than it costs them to build them. However, who are the market makers in the rented sector?

House builders’ business model is to turn over their capital as often as possible and so tying this up for the long term, as owning homes to rent does, is not for them. Registered Providers are different, of course, mostly their business model is to create homes for rent in the long term. Their strategic plans often identify the need to create long term rental income streams in a way that is consistent with creating community benefit; their interests often lie in creating long term mixed income communities. This latter goal is also part of a Local Authority remit.

So will the government’s private rented sector initiative work? They are putting their money where their mouth is via a £200M Build to Rent Fund and £10bn in loan guarantees to those funders who will loan long term for private rented sector homes.

In addition they are creating a Private Rented Sector Task force whose role will be to facilitate and educate the market as to what is possible and hence deliver more homes for rent.

Whilst I can only applaud this action, facing up to the housing crisis that we have in the way that it is doing, inevitably I’d like to see more. On an apparently minor, but I believe important point though, I do believe that we should address this issue as a housing one not a private rented sector issue separate from an affordable housing issue separate from a housing for sale issue; this splitting into separate issues creates different and not necessarily joined up strategies. Our goal should be the creation of mixed income communities which needs joined up initiatives.

The private rented sector task force with the initiatives above will create some momentum and really do need to focus on creating a business model for the rented sector where there is a market maker with a vested interest in keeping the market going. I guess that I see two possible places where this might come from:

  • Funders or intermediaries to funders whose long term interest will be long term safe return on their assets
  • Registered providers or consortia of RPs and Local Authorities whose long term interest is the health of their communities alongside long term rental income and capital growth.

UK Housing

2 thoughts on “Private Rented Sector – Who Are the Market Makers?”

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