The UK residential rental sector needs vast institutional investment to help alleviate the issues affecting renters and homeless people, according to G2M head of corporate, James Lancaster.

Speaking at the Pensions and Lifetime Savings Association’s (PLSA) Local Authority Conference, Lancaster highlighted the issues facing the sector, particularly in the private rental space.

“Under every social and environmental metric we looked at, the private rental sector underperforms the social sector,” he stated.

“The social sector is governed by a very detailed decent home standard regulation. The impact of the absence of such regulation in the private sector is seen in a recent English housing survey, which showed the private sector has a significantly higher percentage of homes that would fail this standard compared to the social sector.

“Likewise with energy efficiency; despite an onslaught of media focus on issues within the social sector, particularly around damp, the private sector actually lags well behind the social sector when looking at EPC profiling.”

He argued that, by increasing the number of institutionally owned homes, much of the affordability, homelessness and substandard housing issues could be alleviated.

However, Lancaster said that pension schemes and other institutional investors cannot simply build their way out of the problem, as the UK is likely to move to an ‘upgrade and replacement cycle’ as population growth slows and ongoing homebuilding projects are completed.

“Recognising this possible outcome makes it essential that as country or community we are clear what type of remaining stock we build and where it is,” he continued.

“In terms of changing the rental market, any central government policy that negatively impacts the future value of our housing infrastructure, including extensive regulation of the private sector, will never be popular, and is therefore unlikely to come into effect. Even if it is in the long-term interests of the sustainability of the market.

“The sector needs vast institutional investment. The residential rental market is an attractive sector, particularly for patient capital providers. The fundamental dynamics of residential rental income are strong because they are driven primarily by wage growth and closely aligned with inflation. It is a highly defensive asset.”

Lancaster urged institutional investors to focus on redressing the balance between the private and social rental sectors with a far greater institutional presence, which he argued cannot be done through building alone.

He warned that a preoccupation with building homes to rent could ultimately lead to an erosion of the established communities within local authorities.

“We are not saying we do not need to build homes, of course we do, but we are simply saying that the greater institutional ownership of our national renting infrastructure, whether that is through building or buying it, brings with it better governance, financial stability, risk management, and a focus on environmental and social sustainability,” Lancaster said.

He continued: “It will create a more sustainable and affordable rental housing market. Any solution has to be economically viable and sustainable. As technology improves to understand the market better and data sets get deeper and broader to provide confidence in deliverable yields, it becomes very possible to look at our vast fragmented market and identify better outcomes per pound of capital invested.

“Working collaboratively between local authorities, patient and other capital providers, we can find innovative solutions to solve these issues.”

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