11 March 2015, It is well documented that the solution to the Capital’s housing shortage is through the construction of more affordable homes. However, according to Carter Jonas’ latest report on ‘The Future of PRS in London,’ the PRS (Private Rented Sector) can play an important role in contributing to the increase in housing supply, as well as addressing pricing issues in the housing sector.

With increasing differential between house prices and income, so many young professionals are being priced out of buying in the city where they work. But the PRS can offer a bridge or transition for some people between the current levels of unaffordability of buying property and a longer-term re balancing of the house price/ affordability ratio.

For the sector to be successful however, local planning authorities and major landowners need to engage. And Carter Jonas’ report advises these parties on how they can better facilitate institutional quality PRS activity: namely through ‘financing, planning and engaging.

Tim Shaw, head of Central London Development at Carter Jonas, said: What appears critical to securing greater levels of PRS provision ideally as a net addition to housing supply - is greater institutional interest, support and activity.

“PRS meets many of the requirements of the institutional sector in terms of providing secure, predictable revenue-based returns, although there are matters relating to provision of a suitable track record for funds to benchmark investments that need to be tackled.

Over 50 developers and companies are currently delivering institutional quality schemes but in order to further stimulate institutional quality PRS activity, Carter Jonas’ London-based planning & development team believe that there are various incentives in play on the planning and political landscape.

Tim Shaw said: “Whilst site specific and individual development characteristics will decide an opportunity, it is essentially the demand for housing that will attract interest from institutional investors and therefore facilitate opportunities for viable PRS schemes.

The Mayor of London has confirmed proposals for 20 housing zones which aim to deliver 50,000 homes in which all areas are likely to have a particular focus for the PRS.  And with control of over 15% of rented stock in London, the Housing Associations must also play an important role in expanding the PRS sector and setting up PRS portfolios would help in cross-subsidising their core renting activities.

The financing of PRS is still rousing much debate.  Pension funds are an ideal source of funding given their lengthy investment periods but the lack of investment track record for the sector is currently off-putting. But support from these funds should be encouraged, especially given M&G’s planned £1bn investment.

Another means to create better security for the sector is  through enabling public sector equity and generating additional public sector income streams, which would help prevent public sector landlords using a ‘preference for ‘a sale option.

This could be in the form of the local authority, or other public body, taking an equity stake through land contributions and relaxing the ‘best consideration’ requirement,” says Shaw. This would enable local authorities to use rental income from the PRS scheme to provide a new finance stream, often secured on the back of under-utilised land.

“Furthermore a high standard of design and quality control is imperative to encourage institutional investment. This can be reinforced through promoting and endorsing agreed standards across the sector.

“All of these issues need to be high on the agendas of local authorities in London in order to ensure the success of the Private Rented Sector, but their first priority remains to be the provision of housing supply in order to address the current crisis.

You can download a copy of the research by clicking here.