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In this third article, Sebastian Moritz – Director of MORICON, will highlight issues around the affordability in BRT, look at its definition, causes for the undersupply of units and how to create more affordable housing and highlights possible solutions.

MORICON Consultants shares thoughts on the Build to Rent market in the UK over a series of 5 short articles. The topic was part of the IRPM Build to Rent Level 4 course assignment and reflects only the authors’ opinion.

Why is there an affordability question?

One of the pressing issues in housing is the rising number of tenants that experience economic and basic hardship due to issues such as below and the availability of affordable accommodation:

  • Income is not sufficient to support decent accommodation
  • Looming redundancies because of COVID-19[i]
  • Tenants on Universal Credit scheme experience pay-out delays[ii]

“Affordable” accommodation is frequently synonymised with “inferior quality” or “housing estate”[1] and creates apprehension with tenants and developers alike – especially with section 106 planning requirements for affordable housing.

1.1. What are the causes for the undersupply?

In most cases the tenure-blind housing planning strategy of the borough, enforced via Section 106 requirements, will be the reason for the backward trend in provisioning of affordable units. A developer will adhere to the mandated requirements primarily to secure the scheme’s approval. Paired with a certain reluctance to mix tenancy typology within a scheme, will not allow for additional units and therefor contributing to the situation.

The rigid application of the nationally described minimum space standards[iii]can deprive a development of valuable affordable accommodation that could ease local housing pressure, help developer margins and allow a more flexible approach.

An example of allowing flexibility is show-cased at the Addiscombe Grove site (Opitva & Pocket Living) near Croydon:  the original specification called for 12% affordable housing, after a revision of the plans the new permission granted 100% of affordable housing![iv]

1.2. How to create affordable housing (“Additionality”)

Being very close to your Local Authority is paramount to influence planning in a positive way, a more flexible less policy driven partnership can yield extra units, as demonstrated in the following:

  • in Crawley – at the ‘Platform_ Boulevard’  – smaller unit-design helped with affordability and more units being provided
  • forward thinking collaboration between Havering Council and Waters Residential[v]
  • Addiscombe Grove scheme: the mix between shared ownership via  Optiva and Pocket Living 

Finally, there is the question of which system is better– affordable vs. discounted market rent (DMR)[2]? Whilst the affordability is always integrated with housing strategies and to some extent inflexible, it is a rather prescriptive way to get units built. Therefore by default, only the required number planned will be built, strictly following planning obligations…

The advantage of DMR to complement BTR is that it is tenure-blind, which supports social integration and allows the developer to manage the property seamlessly. Covenants would ensure a long rental period; allow for a “staircase” between rents – i.e. via periodic income assessment the tenant can move within the rental discount brackets or even initiate a rent review in special circumstances.[vi]

This allows better and more flexible control over housing stock and building targets. Furthermore, it incentivises investors when the flats are released back to the private sector : full market rents can be charged once the covenant expires.

1.3. Conclusion

To enable more lower income family’s access to quality accommodation the DMR program is worth pushing forward. Partnership with the Local Authority will alleviate the fear of not meeting “affordability targets” or to continuously stigmatise those tenants. It should result in the provision of good housing stock as fair prices targeting the local applicants thus helping to avoid uprooting families because of housing shortage. There are many ways to answer the affordability question in BTR – it takes an open mind and good will from both – private and public sector – to make a dent into the undersupply…

[1] According to the UK government the definition of  affordable housing is as follows:

‘Affordable housing is social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision.’

[2] Discounted market rent (or DMR for short) is a new type of affordable housing for the rental market. It allows build-to-rent developers to offer affordable apartments to rent at a large discount to the market price. This means that rental developers can fulfil their obligation to provide affordable housing without having to build a separate block and hand it over to a housing association. Instead, developers can focus on building one development with the same specification and quality throughout and then earmark certain apartments for the discounted market rent scheme.

[i] https://www.landlordtoday.co.uk/breaking-news/2020/6/sharp-rise-in-rental-arrears-as-300-000-tenants-fail-to-pay-on-time

[ii] https://www.independent.co.uk/news/uk/home-news/coronavirus-universal-credit-payment-delay-dwp-lockdown- a9459226.html

[iii] Ministry of Housing, Communities & Local Government  (MHCLG): Technical housing standards – nationally described space standard (March 2015)

[iv] https://www.optivo.org.uk/Property-home/News-developments/addiscombe-grove-croydon.aspx

[v] https://www.constructionenquirer.com/2020/06/10/plans-in-for-east-london-1380-home-estate-rebuild/

[vi] https://www.arla.co.uk/media/1046326/london-first_build-to-rent.pdf

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