Traditional models for delivering affordable housing have seen a massive shakeup of late with cuts to funding and new definitions proposed for what constitutes an affordable home.
However there is still a definite need for these affordable homes traditionally provided by housing associations and councils. Especially when the market has seen private rents rising to as much as 40% of people’s wages in the last year according to The National Housing Federation.
Could Flexi Rent be the answer? Mark Henderson from The Home Group explains.
Home Group’s Flexi Rent is an innovative product that has been developed to address the housing problems and provide a range of affordability levels for households on a variety of incomes.
The approach lays out a blueprint for driving housing growth without the need for a penny of government funding, offering strong appeal to the type of institutional investor that needs to be enticed to the sector while returning the level of yields that will make Flexi Rent an attractive proposition.
In a Flexi Rent development project, of typically 300 units, people move in and out of a scheme ensuring a decent level of turnover and flexible rents. These rents can move up and down as appropriate for new tenants to ensure a defined income for the scheme is maintained.
In a rising rental market this will deliver income above the agreed yield which can be used to subsidise additional units below market rents as they become void. Similarly, in a falling rental market, subsidised units will be rented out at market rent as they become void to sustain the level of defined income.
This ensures the investor who owns the scheme benefits from a sustained level of pre-defined income while enjoying exposure to capital growth.
Unlike the USA or mainland Europe, private renting in the UK has been dominated by amateur landlords and the buy to let sector. Large institutional investment companies have tended to stay clear of the private rental sector due to perceived high levels of risk in rents.
Flexi Rent addresses those issues by providing investors with a defined income across the whole of a development rather than individual properties. The flexibility to issue new tenancies on large scale schemes allows housing providers to fine tune the number of full market rents and guarantee a return to an investor even against a fall in rent levels of as much as 20%.
Flexi Rent would allow Home Group to build homes for those who are able to pay 100% market rent and also cross subsidise rents to levels as low as 65%. The new strategy widens the scope for home ownership to include those in their 20s and 30s who have become known as ‘Generation Rent. This group has effectively been locked out of home ownership due to rising rents – levels of home ownership among 25 – 34-year-olds have fallen from almost 60% to 35% over the last 10 years.
By Mark Henderson