At last - a private institutional rented sector in Britain

A recent news article in Building points to mounting evidence for the rise of the commercial rented sector in the UK.  This is something I've been banging on about for years - and very welcome indeed.  In this case, the pension funds are finally getting in on the act.

I'm becoming convinced that one of the great problems for the built environment in the UK is that land values are too high; that another issue is the relative balance of homeowners to renters; and that the two are related.  First, the British culture of homeownership fuelled the drive to see the house as a repository of household savings; then, the good people who had seen the value of their houses rise thought 'if one house is a good investment, surely two houses is a better investment!' - and thus were born the hordes of small-scale buy-to-let landlords whose speculation led to the building of masses of small, poor-quality and badly-designed city centre flats, built for childless professionals without a nod to social infrastructure, in cities such as Leeds.  Over time, the population's distrust of traditional investments, leading to complete reliance on housing to create value and savings, has led to a property bubble of astonishing proportions.  Soaring land values have fed back into the mix, with the result that new-build housing in Britain is some of the smallest in Europe.  Even the current economic climate and concomitant falls in house prices have not brought property values within reach of first-time buyers.  And many British city centres continue to be largely child-free zones, as new parents head straight to the suburbs for an impression of safety and good schools.

There is another way, though.  Look to the rental-heavy property markets in Continental Europe, where large investors - insurance companies and pension funds, for example - add long investment horizons and the ability to fund large capital costs to the mix.  Their objectives are not quick profits but steady cashflow and lasting value, massively increasing the importance of high-quality, re-usable, adaptable buildings and good social infrastructure.  They know that in order to build assets which will continue to perform, with minimal maintenance costs, in 50 or 100 years - and while private individuals won't be concerned with such a criterion, what pension fund wouldn't? - they will need to get it right the first time.

Could the institutional private sector be the way forward to bring house prices down and invest in a more socially sustainable, higher-quality built environment?

Update on Thursday, August 27, 2009 at 10:00 by Eli

Of course, the story isn't necessarily as simple as that.

In some cases, positive intervention in cities is only made possible when a single enlightened developer gathers together a sufficiently large parcel of land to foster a large-scale intervention, e.g. King's Cross Central in London; or technical improvements, for example to energy distribution and consumption, only become feasible with scale.

But one could also argue that many of the problems to do with the built environment in the US and Britain are actually a result of having large corporate landlords - take megamalls, for example, or the rapidly-growing category of mono-use 'managed' quasi-public-but-really-private spaces, which quietly subvert the priorities afforded to civic space for profit.  That's a topic for another post, though...