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Private sector stepping up as the public sector steps down

Roger Hollis's picture
Thu, 08/05/2010 - 17:13 -- Roger Hollis

The proposed end to lifetime council tenancies, as announced this week by David Cameron (and ably defended by housing minister Grant Shapps on Wednesday’s The Today Programme), is sure to divide opinion. But, if approved, it will also undoubtedly present an opportunity.

The stated aims of these proposals are to boost social mobility while at the same time ensuring only those that truly need housing assistance – ie: where they can’t afford private sector accommodation – are granted council properties.

The new guidelines will take some time to work their way through Government – a fierce debate can be expected – and they may eventually take a quite different form to what was announced this week, but this strikes me as a policy that Cameron will ensure is enforced.

So, as and when the proposals are implemented, there is likely to be a glut of new tenants in the market looking for private sector accommodation. Deemed through means testing as able to afford living space in the private sector, these new tenants are, however, unlikely to have the budget available for existing available stock.

Initiatives like the one undertaken by Birmingham City Council – providing low-cost accommodation on a private rented sector model – will need to be undertaken across the country to meet this new demand. Private companies, either completely independently or in joint ventures with local authorities, have the opportunity to supply the necessary accommodation and create investment-grade portfolios that provide the income streams institutions require.

But for the yields to be sufficiently large to attract institutional interest, more discretionary items and income streams need to be employed. Furniture rental, either to boost occupancy or as a service to be sold on to tenants without furniture, is a key element of this strategy. By considering furniture rental as a utility service to be provided to tenants – in much the same way as telephone and television services are often provided in managed blocks – the figures can be made to add up. Such an approach has reaped rewards in the USA.

At the moment, institutions are asking themselves “Can we make the numbers work with this model?” But increased demand, created in part by these proposals, alongside extra revenue streams such a furniture will make the proposition that much more viable. For my money, it won’t be long until the question they are asking change to “Can we afford not to be active in this sector?”