Tesco-isation of Landlords

‘Tesco-isation’ threatens landlords

Nelson once described the British as a nation of shop keepers. Well looking at the number of small retailers that have gone out of business during the current down-turn, that may well be a little optimistic.

However, over the last decade with the buy-to-let initiative we have seen a revolution amongst the private rental sector. Latest government statistics suggest that there could be up to a million UK landlords. Therefore maybe Nelson would have been more accurate to describe us as a nation of landlords.

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Historically, renting out property has been the preserve of the small landlord, who has rented out one or a couple of properties as a way of supplementing other income and providing for their long-term future.

Big boys to enter the rental market.

However there are several developments in the private rental sector that could undermine this along with the fortunes of the small landlord.

Firstly proposals by the Government could result in a “Tesco-isation” of the rental market with big companies coming to dominate rental property markets and squeezing out small landlords.

The Government aims to attract large financial institutions such as pension funds to invest in the private rental sector in a bid to boost the housing market and the supply of rental accommodation. The Homes and Communities Agency (HCA) has recently announced an expression of interest for organisations wishing to be involved in their Private Rented Sector Initiative (PRSI) is to create .

Sir Bob Kerslake, chief executive of the Homes and Communities Agency responsible for driving the initiative forward said: “Our initiative is one of many innovations we have used to attract new investment, kick-start stalled housing schemes and mitigate against the effects of the market downturn.

“To date, achieving scale has been one of the main barriers to attracting institutional investors into the housing sector. We believe there is an opportunity now for the HCA to work with developers and house builders to offer a pipeline of projects for the PRSI, which could result in a positive outcome for all stakeholders.

“But it is only potential at this stage. We will engage with the private sector to develop a market driven proposition which is attractive to investors. Projected rental yields and the current market suggest that the time is right, and that is why we are engaging with the market to develop the proposition further.”

Liz Peace, chief executive of the British Property Federation, said: “This paves the way for a new kind of private renting that could support new development as the housing market recovers and offer the public real quality and choice in private renting, at little or no cost to the taxpayer.

“The task now is to stimulate interest in the HCA’s proposals, encourage some innovative bids and ensure that we create some attractive proposals that provide solid returns for investors and more importantly, tenants.
“To make this work, we do need to reflect on the different financial structures of private rented housing, ensuring that we do anything we can to draw in this vital new funding.”

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Small landlords could be ‘squeezed out’

The concern for many landlords, who have invested their savings in a long term buy-to-let is whether this initiative will ultimately squeeze out small scale landlords who do not have the access to the resources available to large scale institutions. Large scale institutional investment could also increase supply of accommodation and put further pressure on private sector rents.

Larger scale institutions will have better access to cheap funds and loans something that smaller landlords are finding increasingly difficult since the credit crunch.

A recent report about the current state of the buy-to-let property industry by Professor Leyshon of Nottingham University highlighted this fact.

The worry for smaller landlords is that in an effort to encourage institutional investment the Government will introduce an unfair playing field within the private rental sector. The result being that small independent landlords are further disadvantaged and are unable to compete.

Landlords are already reeling from a series of additional regulatory requirements such as the Tenancy Deposit Scheme and now the proposed landlord licence.

Property Hawk hopes, that in their dash to attract the big landlords, the Government don’t forget about us small guys; whose thrift, sacrifice and entrepreneurial zeal, mean that almost 12% of living accommodation in the UK is provided at no cost to the taxpayer. It’s a shame the same can’t be said about our MP’s.

Author – Chris Horne