Christine Wyken (9:19)

That, on the earned outright, how much.

Kathleen Scanlon (9:21)

Of that do you think takes into account cash buyers?

Christine Wyken (9:25)

Because if this is the longest historical.

Kathleen Scanlon (9:27)

Okay, I mean cash buyers would be a little extra bit in it. But it is true that in 2009 cash buyers were the majority, but then the number of transactions was minded. But the big issue in terms of the private rented sector is basically what are our landlords? They've come out of history, they've Come out of mistake, come out of inheritance, they've come out of small investment by individuals. The result is that in the landlords owning one property, nearly 80% of landlords own only one property, which means that there are something like four and a half to 5 million people who are landlords. Landlords are not a sort of thing differently. Landlords are part of the system. Of course, if you do own more, then it means that in proportion dwellings will be down around 40%, 2 to 4, 5 to 9, still some, and then by the time you get to 10, you can hardly see them in landlord terms. And also the landlords haven't been in the game for very long. Historically we've always seen that landlords turned over quite quickly, they came in because mother died, they sold after a couple of years, other things of that sort. But 48% of them have been between 4 and 10 years and 22% have been 3 years or less. So there is no long term stability in the system. There is no great professionalism in this system and that I think is fundamentally what we're trying to change. If you compare the UK to the USA and this is capital, the perception, perception in America is that there is a large proportion of corporate landlords, in fact the majority is still individuals, but there are very large numbers of small firms, small companies owning. While in the UK it's definitely individuals, they mostly own a small number of units, as we've already proved. While in the USA they're likely to own multi family developments which are all rented in the same unit, the same building. The dwellings were originally built for sale to occupiers or as social housing and they've become private. Renting a particular part of a private rented sector in London and elsewhere is ex. Right to buy council's property which turns out to transfer into the private rented sector. While the USA will be mostly purpose built, UK is funded by these buy to let mortgages, while the USA is funded by commercial loans. We're seen as amateurs, they're seen as professionals. It's not the truth, we've got some professionals, they've got quite a lot of amateurs, but it is the perception and it is basically the thing we're trying to change. So the government and I think doesn't matter whether it's the current government or any of the parties, the policy direction is to try to get new build and we think we're going to get that new build more easily in the private rented sector and therefore they're going to encourage the construction of rental developments to Provide big investments for institutions. What have we had of that sort in the immediate past?

Christine Wyken (13:24)

Nothing.

Kathleen Scanlon (13:24)

In the mainstream of private renting. We have had it in the provision of student housing, which is fundamentally blocks of apartments which are wholly private rented and which are built for a specific group of tenants and which are institutionally funded in a commercial way. But we want to provide big investments for big institutions. We want to provide faster construction on large sites because if it's going to go into private renting, you can build more and let them more quickly. While the owner occupied market, you tend to build out relatively slowly and you want to introduce specific features which are suited to rentals. Now, if you're a consultant in this world, that tends to mean the gym, the cafe and other leisure activities. But that may not be. Mostly what we actually mean is rooms which are fundamentally the same size. So you don't have one big bedroom and two tiny bedrooms. You have bedrooms which are suitable for the rental sector. So you encourage the construction. You want to attract more institutional investors, not just because of the money and because it's equity, or it can be equity, but because it will provide professionalism, it will provide reputation. These people do not want to be all over the front pages for evicting people or for having rats running around their housing. And it provides financial stability because once they have invested, they tend to stay in that process. And the government is supporting this by national subsidies or guarantee. Specific to the private rented sector. Build to rent fund is a national version of a policy which failed in the London context five, seven years ago, by which funds are made available for people to enable this construction to take place and must be paid back. Once you have sold the property on, you sell the property on to the institutions and the institutions can borrow the money to buy it and get guaranteed by the government. So there's a guarantee for the investor as long as they're borrowing. And there is a fund to enable building to take place. And these come out of long discussions under Montague. And there is a private rented sector task force whose job in life is, is to facilitate, to remove barriers, to make individual actions which can speed up the process. So what are the barriers which have to be overcome? Thanks.

Christine Wyken (16:24)

Well, getting institutions to invest in the private rental sector is not a new idea. It's something that various governments have been in favor of for many years and have introduce policies to try to bring it about with so far a major lack of success. The institutions have argued that the yield on private rented property is too low compared to the alternative investments for their money and that owner occupation. Developers who build property for owner occupation will always make more profit than those who develop for private rental. And so in the competition for land, developers who are building for own occupation will always be able to pay more for the land because the price of the land is determined by the developers profit after construction. So has the world changed? Is there something that's different now given the current crisis in London's housing market that will make it possible for us to see a resurgence in development specifically dedicated to private rental? In order to answer that, I think we need to look a little more carefully at how developers and investors make their decisions. Developers and investors say the yield is too low on private rental. What, what does that actually mean? Let's unpick that. So I put a couple of very easy equations on the board. The only equations we're going to look at today, the developer, these are, Christine and I have presented some of this research to developers and finance people and they're a little bit insulted when you put something like this up because they say this is so self evident and so trivial that they can't believe that it's even worth stating. But I think it is worth stating so that everyone agrees that these are the factors that go into the decision making. So I said before that the price of land that the developer could pay was determined by what they got for the end product. So the gross development value, which is what they can pay for the houses that they build or the blocks of flats that they build, less the cost of construction, less a required profit. Every developer has a kind of target profit margin, gives a residual and that residual is what they can afford to pay for the land. So the price of land is determined by the end price of what they're building. That's how the developer sees the world. The investor, the person who we're hoping is going to come in and buy these rental units and rent them out, looks at a different equation. They're not the developers, they're not the people in general who go out and build these units. They're going to buy completed units from the developers and what they want to know is how much will be the return on investment, what's their yield going to be? And the investor is looking at a yield equation of income over asset price. So let's look a little more closely.

Kathleen Scanlon (20:08)

Landlords enjoy massive capital growth. So the asset price is one consideration. But the long term growth which results in the landlords are looking at rather than rent and rent the would seem to be an important part of Our.

Christine Wyken (20:27)

It is certainly the case that particularly for small landlords, many of them on paper make a loss from their actual rental activities, that income that they get from rent is not enough to cover their cost of running the unit. And their expected return comes in the form of capital appreciation. They expect to make a profit on the appreciation on the unit and sell in five or ten years or something. That's absolutely right. And with London property prices the way they are, that most landlords buying now with a loan wouldn't be able to cover their costs. That's true.

Kathleen Scanlon (21:08)

The institution is expected to be there for a long term.

Christine Wyken (21:11)

That's right, yeah.

Kathleen Scanlon (21:12)

And therefore is, at least at its simplest, looking at the yield on that asset, that asset price will go up over time, therefore rents will go up over time to get the yield out of it. But it is one of the issues that Kath is talking about is that everybody has got actually a different interpretation of these things.

Christine Wyken (21:37)

So in the simplest form, we're going to assume that this potential investor is looking for a perpetual asset they're not intending to sell and realize their gains. So their net income is made up of revenue, less costs. The revenue depends on how many apartments or houses they own, how much they can get in rent on each one, and how much the rent goes up every year. So I hopefully put our little equation down there at the bottom so we can see what we're talking about. We're talking about determinants of income. So that was the revenue side, the cost side. Oh, there are a lot of costs. And every time you talk to landlords, they want to tell you about all the terrible costs that they bear. Voids is one of them. Every time an apartment falls vacant, the landlord has to absorb the cost of lack of rent revenue during the period of vacancy, any expenditure they have to make to advertise the unit and so on, as well as refurbishing the unit if necessary, painting it, putting in a new kitchen and so on, which can be significant depending on how the tenants have treated the property and what the expectation is for that kind of rent level. There are the ongoing costs of management, so collecting the rent, dealing with arrears and bad debt, repairing any problems with the plumbing or the washing machine needs changing or something like that, which is, you know, one of the. There was a wonderful article in the Financial Times weekend section a couple of weeks ago saying, why would anyone own their own home? You can rent a fabulous place and the landlord takes care of all these things. When they go wrong, you just call them and you don't have to do anything. So those all feed into income. What about yield? We said that institutions have a yield that they're looking for. They obviously want to get a yield that compares favorably with what they. The other possible things they could invest their money in. And if there are risks involved, the yield has to be commensurately higher. There are a lot of risks involved in investing in rental property. The colors here, you've got kind of light to dark from top to bottom, correlate with the timing of the risk in the development process. So we said that most institutions don't see themselves as developers. They don't want to go out and buy land and build housing on it. So planning risk and development risk are actually something that investors are not very interested in. But if they were to take them, they would require a very high risk premium on their investment. Once they have acquired the property, they have to rent it out. And if we're talking about investment at scale, so big blocks of flats that are all going to be released onto the market at the same time, that's something that there's a lot of experience with in some markets like in the States, particularly in places like Germany. But in this country, it's a model that hasn't really been seen for decades. So there isn't a lot of experience with how long it takes to. To rent something if you're releasing everything onto the market at once. So investors don't really know how to price that risk. Operating and management risk. It is something that is better understood partly because of the experience of social housing. There are large social landlords who have experience dealing with thousands of units, and they can very accurately price how long a refurbishment will take, how much it will cost, how much voids they can expect, and so on. So that one is pretty well understood. There are other risks that are a little more nebulous. First of all, there's exit risk. We heard that a lot of landlords want to take their income in the form of capital gains at the end of the period that they hold the asset. And if you only own one or two flats or houses, then you can expect to be able to sell those within a period of weeks, normally in a market like London's at the moment. But if you own a block of 200 flats, the market demand for that is very uncertain. Are there a lot of investors who are going to be interested in buying an asset like that? It could be on the market for years. So that's something that makes investors leery. Reputational risk. Christine Alluded to that we have been doing research in this area over the past year or 18 months. And I initially thought when we started this that this was. References to reputational risk were really a kind of hangover from the days of Rackman in the early 1960s when landlords had a reputation, you know, down there with the devils as kind of evil, nefarious, mustache twiddling bad guys. But actually, when we went out to talk to investors, it is a very real issue. And people from big institutional investors said that at board level it was something people were concerned about. Is this a business we want to get into? Do we want to have our name associated with private rental? If there are potential problems with tenants, asbos vandalism, you know, it's just not something we want to be into. Is a perception in some places still in the city. And finally there's policy or regulatory risk. The headlines that we put up at the beginning of the presentation reflect a little bit of the debate that's current at the moment about whether rent control should be reimposed. I mean, I think in the current political. Under the current political regime, it's very unlikely, but things could change in the next five or 10 years. And if you have institutions who are looking to come in and hold something for 20, then this is a serious issue that they have to look at. But it's not just the big issues of rent control and security of tenure. There are a lot of other regulatory questions that affect landlords. Requirements for gas safety checks and electrical checks and so on. These things all add costs. So we've gone through the kind of thought process that an institution might go through if they're looking about looking at the question of whether to invest. Let's look now at what barriers exist to provision of the kind of new housing that these institutions might invest in. We've thought about what the institutions might consider, but as a matter of fact, there actually isn't much on the market now that an institution could go out and buy because these kinds of products have not been built. The mayor and the central government is trying to encourage them to be built. What do developers face when they are considering building at scale? Well, first is the issue of the value of land. And we talked about this. Value of land is driven by owner occupation. So if there's a parcel of land for sale where a sizable block can go up somewhere in a high value. Well, somewhere, anywhere in London, actually, not just a high value of a high value area of London, almost inevitably the developer can make more money by selling the units than they can by developing them as a single private rental only development. Second is the question of the supply of land. Private renting at scale doesn't work everywhere. It works only in specific locations, particularly where transport is good, where there's already relatively high density development, where there are good local services. There isn't that much of that kind of land available in London. And what there is, there's a lot of competition for it. Third, local authority policies. The Mayor has just published his draft housing strategy which calls for 5,000 private rented owned specific homes to be built over the next 10 years. But the Mayor cannot force the London boroughs to do what he says in his strategy. And many of the of the boroughs are have planning committees that are not as receptive as the Mayor would like to this kind of development. And finally, lack of development finance. In the wake of the financial crisis, many developers, even very large ones, who previously had no problems getting commercial finance to build a development and then they would repay it on sale, have found that it's much, much more difficult to get money from the banks. The interest rates charged are much higher and the conditions that the banks put on the loans are very onerous. So very large construction companies, those that are part of bigger corporate groups, are turning more and more to self financing and small to medium sized firms just can't get the money to build. There are barriers related to yield. First is the general illiquidity of residential property. And particularly as I said in these large blocks, the market is very thin and there's a lack of good market information about the private rented sector, the kind of information available for owner occupied housing. I mean we've all looked at hometrack and rightmove and the DCLG publishes lots of marvelous statistics. The IPD Institutional Property Data bank publishes data on the holdings of institutional investors in the residential property market. But most of the IPD data refers to commercial property. The residential property data is recent. The sample size is small. It is almost exclusively related to London. So for cities outside London there's very little information. And it's, you know, financial institutions thrive on huge amounts of data. So when there isn't any data they get a bit nervous. The other thing that makes them nervous is the question of management. The reputational risk issues where the institutions prefer to not be associated in the public mind with problems in the private rental sector can be obviated by good management. But the institutions themselves have no experience in this field and they don't really want to develop in house experience in working with private renting they prefer to buy in expertise from outside managers. There is a fair amount of that in the housing association sector. They been running large property portfolios for decades. But a lot of people in the City think that it's not directly transferable to the private rental sector because standards aren't the same and the clientele isn't the same. And finally, the scale of potential investment. When we say institutions, it's usually shorthand for things like pension funds, insurance companies. They are looking for investments of an average size of 50 million pounds and up. Probably the minimum they'd be considering is 20 million pounds. And this is something that the market is not producing in great numbers. Investors.

Kathleen Scanlon (34:59)

Are.

Christine Wyken (35:04)

Part of the issue that we found when we started to go out and talk to investors is that compared to. It's often said that in Germany, in the United States, institutions are much more involved in the market. So what's the difference? Well, one of the big differences is that institutions in the States and in Germany have decades of experience in this market. They're familiar with it, they have rules of thumb, they have implicit knowledge about the way the market works in a way that investors here just don't. They don't know whether demand is going to be sustained over the long term, whether the decline in owner occupation rates and the rise in demand for private renting is something permanent or just a blip. And the UK will go back to the previous pattern of rising owner occupation. They're not willing to take planning and development risk now. Now, this isn't necessarily a problem. It might be just the way the world works. But some of the developers we saw, we talked to did see this as a problem and said that if institutions were willing to get in there earlier, they could customize things to their own specifications and potentially make much bigger profits. Investors mandates. This is an interesting one. A lot of pension funds have a sort of list of approved things that they are allowed to invest in that their board revises regularly with the assistance of specialist outside consultants who advise them on these things. Commercial property is on the list for almost all of them. Residential property is on the list of almost none of them. There are individuals in the city who are taking a special interest in this market and are actively trying to get the mandates changed in their own institutions. But it's not something that is widespread across the city. And it will take some people, you know, making the first move on this before others follow. And I've spoken about regulatory and policy risks. Well, so that was a huge list of barriers and maybe it explains a Bit about why we haven't seen this kind of investment much on the ground. But the mayor and central government is hopeful that things are starting to change. They've appointed a task force. The Montague Review has identified a lot of these problems and one by one they're trying to address them. There have been very few dedicated new private rented sector developments to date. The few that there are have almost all been in London, although there is now some interest elsewhere, particularly in some parts of Scotland. But government programs are starting to bear fruit. There are institutions like M and G who have been leaders in getting into this market and they think that they'll have a first mover advantage and be able to put their brand name on new products and get the cream of the market. The draft housing Strategy calls for 5,000 homes. Sorry I said in 10 years, 5,000 per annum out of a target of 42,000 homes of all sorts per annum, specifically for the private rented sector. It also talks about the possible introduction of covenanted PRs. Now this is something that is a system similar to how social housing is built in Germany. Where the apartments are built, the developer agrees in writing in a contract to keep them as private rented for a period of time, say 10 years, in exchange for a tax break or a loan guarantee or some kind of incentive from the government. The benefit on mixed sites is that private rented housing can be built at scale and brought onto the market all at once. Whereas developers who are building for owner occupation don't want to flood the market because if they bring hundreds of homes onto the market at once, then the price of each individual house falls. Their overall rule of thumb is that on a big site, 100 homes a year is what can be brought brought out without flooding the market. So everyone in policy and financial circles in London is very interested in this. Everyone is watching with great excitement to see what happens on the first few sites that have been brought forward. And those are two that I'll show you here. This is East Village right next to Stratford DLR station. This was the former Olympic Athletes Village. It' 3,000 units. Half of them were sold to a consortium of social housing organizations and half were sold to Qatari Dr. Delancey, which is the Qatari sovereign wealth fund and UK company that specializes in private renting. They're being rented out now. The model home and the marketing suite is right next to the DLR station and they're specifically targeting families. There's a brand new academy school on site and they're hoping that they will get middle income families which would be a real departure for London private renting because it's mostly at the moment, couples and sharers. Very few families live in private renting. And this is also in Stratford. This is Stratford Halo, which is the developers Genesis Housing Association. The architectural critics have not been as kind to this one as to the other. So the conclusions are that many of the barriers that I went through reflect very specific and detailed features of the British planning system and the property market. So kind of broad pronouncements about the desirability of getting more investment into the sector and so on are not going to go very far until those specific problems are dealt with. Even so, I think the policy wave now shows that this is the best opportunity in decades for a genuine shift in the private rental sector in London. But it will only be at the, the margin, even if the mayor's ambitious target of 5,000 new homes per annum is met. That, you know, compared to the overall stock of private renting in London, that is a tiny, tiny amount. Maybe these will be beacons of good practice, but they're not going to change the broad spectrum of the market and the champions in the city. The first movers on the ground in places like Stratford will be key. Everybody's watching them. Many of them are from overseas, one because they have experience in other places like New York and Berlin in doing this kind of investment. And they're comfortable where UK investors aren't. And also in the case of people like Qatari doctor The Qatari sovereign wealth fund, because their yield requirements and their time horizons are different from UK investors and they maybe see an opportunity in their portfolio where UK investors wouldn't.

Kathleen Scanlon (43:23)

Thanks.

Christine Wyken (43:26)

So we can open up to questions from the floor.

Kathleen Scanlon (43:33)

Thank you. Thanks, Christine and Kat, I've got several points of clarification actually, rather than anything that's going to really challenge you, just some things I didn't quite understand that came right from the end of your part of the presentation, Kath. The first of them was why would the release of a large volume of private rental onto the market in the same development not be subject to the same downward pressures on rents as the release of units for sale? And then I've just had some questions because I know very much about these developments in East London that you were describing. I mean, clearly in the case of the athletes village, it's. This is possible because it's a quasi public asset. It's been, you know, publicly developed. But why has it been secured for private rental? Is there something in terms of the deal between the vendor and Qatari DI Delancey or simply that this is the investor that was interested and they have made the decision. And also in the case of the Stratford Halo, you said it's a Genesis housing association, so. But it's not a housing, it's not social rent. It's either. Could you just say a bit more about how they. How they come to be?

Christine Wyken (44:52)

Yeah.

Kathleen Scanlon (44:53)

So the first one was why would.

Christine Wyken (44:56)

Releasing a lot of rental property. That's a good question and we've asked developers that and they don't seem to have a good response. It's just that's what they know as developers. That's their.

Kathleen Scanlon (45:11)

I think the argument is that renters are actually more flexible about where they go. And to go back to your point, the owner occupiers are looking for potential capital gains. An owner occupier doesn't therefore want to see a lot of other properties around which might be going to be resold, etc. So there's always an issue with new builds that the potential owner occupier doesn't seem the equivalent type of gain tools where. But the answer on the private rating is well, you could at the living and this is not what QDP is doing. You can an awful lot of PhD students coming in every year and they all need to go somewhere and you can they all come in October. You can get a lot of things done together. It's still a bit counterpretative because you think there's more supply, the cost should go down. I'm sorry.

Christine Wyken (46:17)

You asked if QDD if there was something specific in the deal that said that they had to rent it privately. No, my understanding is that there isn't but that they saw that as a business opportunity and they want to be seen as the leaders in this kind of. They want to create a new market in London and so they are making a big play that this is something completely new on the London market and they want to be the leaders.

Kathleen Scanlon (46:45)

And then in the case of Genesis, it's a passing association that's not providing. No, it's doing both right and doing both in the same place. But a proportion of it is market rent because the housing association wants to realize the capacity, the rental capacity.

Christine Wyken (47:05)

So that would be another potential model.

Kathleen Scanlon (47:08)

Many housing associations are now doing market rented property on their developments. So their development will be made up of of social rent, affordable rent, intermediate and market rent. And of course that is the exact opposite of the starting point of all of the discussion about institutional investors which they want their block which everything in it is Going to be the same and will be fragmented. But in the housing association case you're actually looking at a mixed development that buy a non profit by a non profit by a profit making subsidiary of a non profitable. But the income is not profit. The income is to go back into their other activities.

Christine Wyken (47:55)

Absolutely.

Kathleen Scanlon (47:58)

Just going to the point of the housing association. Many of the housing associations inherited these properties very very cheaply. Now depopulating social tenants and putting in markets. This is shrinking the amount of social housing available. If there is subsidy involved at any time then they cannot transfer it to the market sector. They can do all sorts of complications by which it's new build or they purchased it without a subsidy. Then it can be market rented. But they can't just take the subsidized unit and let it out at market price. It's certainly happening on a very big scale. Back to this question of regulation. Now there is a big market in elderly regulated tenants. Not a lot of people buying organic sales. Some of them are perfectly respectful who looks at it as avoiding freedom opportunity regulator tenants pay the rent because it's not too terrible and they don't expect much because they're used to having fairly bad landlords for a very long time.

Christine Wyken (49:23)

The fact is that in Europe the.

Kathleen Scanlon (49:25)

Regulatory regime is far more at a particular Holland and Germany, Sweden I guess. And yet institutional investors are very big in those markets. Well, they're not actually very big in those markets and that's one of the issues. They are big as a proportion of the private rented sector in the Netherlands, but the private rented sector is tiny and they all want to get out that they can't get out because of renting. That is oversimplified. But the tendency is downwards because there is no mechanism outside the very high rental by which landlords can come in free market. So there is an institutional market in the Netherlands, but it is not a sustainable functional one in Germany. In individual landlord is the majority. There are institutions. Of course there are institutions and they've been in it for a very long time. Much more than here. Much more than a year. Much more than a year. And they have got a regulatory framework which is structured round a market rent at the point of delivery which may be 20% above the guy next door because it allows for the fact that the rent may not go up as rapidly as the market. And yes, they do have a regulatory framework but actually on evictions they're actually slightly more generous than we are. I don't have them very often but part of that is because I'M being a little bit negative here. A large number of people are actually in a segment of the market which is not defined as the private rented sector may be defined as lodging houses or in other ways, but there is a whole deregulated aspect of the market in which poorer and migrant households tend to live. So each of the Sweden I know very little about, apart from the fact that everything we are complaining about is going into an occupation at the moment. But the answer is we have got a dysfunctional system, but we are, we have a dysfunctional system which will find it extremely difficult to take lessons from an entirely different system. And whether that helps or not, I don't know. But certainly the question of regulation is normally seen in this country. When you use the term regulation it usually meant throw control and security of tenure, but actually matters just as much as all the other framework regulations which determine standards and feelings of home. And all those types of things which clearly do are lacking in our system.

Christine Wyken (52:22)

Can I just make one other quick point? Another thing that makes that's interesting, that's important to take into account when you look at other countries, is that in many other countries, Denmark is one example, you are not permitted to break up the ownership of a block. A block of flats must be sold as a unit and so there isn't any competition with the owner occupied market because you can't sell them into owner occupation. They're two separate markets and that's in many cases policies designed for those markets just don't make any sense here. I think we had Duncan then Alex. Yes, and then.

Kathleen Scanlon (53:02)

Thanks. I just wanted to pick up on the point raised by a colleague from Camden because I mean housing associations are disposing of street property all across London in order to rationalise their assets that need to be invested. But that's actually something they'll be encouraged to do by both regulator and also we need to remember that as part of getting funding from the HCA for so called affordable rent structure, every association has to agree a contract about how many of their existing vacant properties they move on to. Affordable rent associations doing agreements on 30, 40, 50% plus of their vacancies. So that's producing social housing that way. But I wanted to come back to the research. I mean two questions really. And the first thing, to what extent do you actually differentiate the market in terms of. I mean the private benefit section in London is variable. Anything for people renting to people who are dependent upon housing benefit, where there are all sorts of risks involved with policy changes up to the top of the Market where people are renting, you know, 20,000 a week or above. So in terms of where you're going to get the investment, clearly the target group and the affordability is absolutely critical. And clearly, you know, you might actually get more investment at the top of the market. The question is getting investments in the middle of the market and at the bottom of the market on the way that actually achieves quality of standards and whether any of these investors are basically prepared to sign up to a certain extent as to sort of a certain amount of tenancy, a certain quality of these things depart from a regulated system. Which brings me on to the second point. I mean, surely Chris would be analyzing what kind of investment and barriers to investment. There are the issue of future policy changes, whether it be the end of direct payment on housing benefit or as you touched on into introduction of rent control, which certainly opposition parties are floating though beginning to hesitate about. But it's often being raised as a very simple solution. Surely part of your analysis should be actually looking at the impact assessment of that and where it would lead to withdrawal from the market or whether possibly you could switch investors who would operate within some kind of a rent control system. Because that's surely the fundamental policy issue that we facing in the next few years. And just on the first point, obviously you're quite right, but they're being asked to rationalize their portfolios and they're selling stuff out. But it is a different owner that is selling it than renting it at the market. Rent. You can't take a subsidised property yourself and rent it out of market if you're a social landlord. The I was, I have to say, amazed but not informed by the Minister's statement which he made to the select Committee that a large proportion of the built rent services and stuff would include not just social housing, some aspects in the site, but also properties which would be privately rented at prices which would be generally affordable by lower income tenants. He didn't go on to give me examples of this because I wasn't asking the questions. But if anybody knows of them.

Christine Wyken (56:30)

The number I recall hearing is that the bulk of the market there are thinking of is the market of about £2,000amonth rent, which is not the affordable rental market.

Kathleen Scanlon (56:47)

But I mean, are you differentiating? You do different investors Are the German pension funds that are interested in looking at that market. Is any of you getting below that? Because bluntly that helps a certain part of the market, but that means we sort of mars will triple down effectively. I think that the Starting point for all of this sort of after the failure of the equivalent type mechanism in London to get off the ground, even with public land and a large ish amount of implicit subsidies thrown in, is simply institutional investors have been prepared to bring down the which they want because they see it as a less risk market than they did. So what was usually quoted as 10 or 8 and don't ask me what makes up these things is now being quoted as being between four and five. So there has been a shift in what institutions will be prepared to take, but I don't think that they are differentiated. I think they are looking at blocks, new blocks of vats which meet certain criteria. I don't think that there's any evidence that one particular set of institutions would be looking at a different market from another. I don't think they're that sophisticated because you remember when the RIA report was launched which mentioned private rented provision as the solution. When I asked the question whether any of this would be affordable to Middle England households, the response was that's not an issue we considered and we probably should also move. We're architects. Maxim Donald was on commission. Indeed, we've got at the moment. Alex and then Judith, thanks. Remarkably ASM, just how interesting is that you alluded to RSL's several points like this experience and also transacting of course among themselves. So pure is really passing. It is a version that is why RSLs don't want to move into this large institutional market. But my question was, I mean you established quite clear in the beginning that this ownership structure is quite peculiar to Britain and I wasn't quite clear why. What problem this is proceeding to cause and what problem are we trying to solve here? Is it. I mean, it's certainly in this phase of policy anyway. But is it affordability? Is it the nature and volume of supply? Is it the quality of management? Why is it sort of certainty that this ownership structure is brought. How is that sort of established? I think it's the second and the third and I would agree with the second and disagree with the third. It is very clear that private renting is capable of generating existence additional units out of the existing stock. It is not clear that rents alone are capable of generating new supply except in rather small amounts. So it's the new supply story which lies at the core. I think the management story and Cass can disagree with me because she knows far more about this than I did, especially in the American context. I don't think the management story is core to it will be done by Somebody else anyway. And that somebody else can exist in many different frameworks but it's not going to exist for the average buy to let landlord with three units. And so the argument is that you will get professionalism in there but what you will get from that is a segment of the market which might be very small, very small indeed which will be professional, which will be seen, et cetera, which will be giving a good and at a level we actually need that because if you go into any meeting, however senior the people are, however expensive they are, they will say our management is.

Christine Wyken (61:02)

On the question about the housing associations and why don't they want to move into this? Some of the big housing associations are very interested in moving into this. They see opportunities in two areas. First as hiving off a kind of management separate PRS management arm that uses the experience they have in managing their own stock and sells it to investors but also as being the institutions themselves.

Kathleen Scanlon (61:30)

I wanted to make a bit of comment about various 10 years. A lot of countries are developing a board action and the German case is quite interesting because all their furnished are 30 years effectively because that's where the rate clause is. So but the differentiation with the poor sector is done on furniture in English purposes. We used to have furniture prior to 1957 because the interviewer wants the furniture because dishes and service. So we abolished the distinction through furniture and non furniture not very good effect it still exists. So a French furnish is a commercial operation so you can have business which is business taxation. Taxation and incentives. And the unfurnished 50 is nine years so it's longer and safer. In Germany nearly all ordinary lettings are unfurnished as long as you can afford them. You try offering an unfurnished house to a poor person. So that's where the difference is. But the 30 year is interesting because it crops up in Roman law and all over Europe.

Christine Wyken (62:36)

And as we look at the last.

Kathleen Scanlon (62:38)

Century most countries In Europe had 30 year building leases and ours sort of grew into the 99 year lease. Oh, 999. Well yes, that's very much history.

Christine Wyken (62:50)

I love that.

Kathleen Scanlon (62:52)

But unfortunately those leases they're in your attack at the moment European Court of Human Rights couple cases where the union of proprietors were quite united in various European institutions. Didn't have Norway, they made it so at the end of the 30 year construction lease you have to.

Christine Wyken (63:11)

You can't buy and you have to.

Kathleen Scanlon (63:13)

Have a market rent immediately. That's that. Yes, I was coming back on to her question why there's such a dichotomy between the owner occupation expectations of investors and the rental market. And you pointed out several times that there are differences in the UK and continuing to confirm that. But it's really entrenched, long term cultural, you name it. And so pragmatically where I stand I said well why do we try to imitate the Germans or whoever it is? Why don't we try to build on our own idiosyncrasies? For example, I can't see why housing shouldn't be able to be securitized like office blocks. If you give it over to the corporate investor henceforth you no longer have this one to one relationship so that you can have the, the intermediary, just the management, completely professional, different trade, different jobs and also. And that would actually probably facilitate the regulatory aspect of it all, it seems to me. Because if you still own the block then you want to dominate who comes there, etc. Etc. I think maybe that could be a way into. And I can see the point if you have a rental, of course you want the more the merrier, you want it rented out quickly. So there's a very different thing than to wait for the appreciation of the asset value to sell to a lot of patients. It's quite a different scale, is completely different as well. And it's one to one with the other ones. There was no doubt that institutions would sell it on in one way or another. So that would happen but their name would still be somewhere near to more reputational risk. Story does not go away. A property management portfolio, I mean I wouldn't know what's in there. That's exactly what most people think was wrong with all the back security. And I think we get a long way before we get to that situation. Yes, but there is a real sense in which the institution should want to know only Barista Reserve and it shouldn't matter what the hell it was in. But in fact institutions are siloed. They've got this group of people who invest in this type of thing and that group of people who invest in that type of thing and absolutely nobody invests in residential and that itself. So you're lucky to get it if there is a real master.

Christine Wyken (66:01)

And it's surprising because there are a huge amount of people who are experts in commercial property but even they agree that that expertise is not transferable to residential. Residential is different.

Kathleen Scanlon (66:16)

Just a comment about a couple about regulation. First of all, there's many sorts of regulation. One is about standards, one is about rates of cash return and some boroughs are, I think Doing quite well dealing with standards might be newer than others when you get into regulation on controlling rates of return, which we did almost exactly 50 years ago in this country with the rent Regulation act of 65 adapts associated with enormous amount of bureaucracy and tried the unus to argue what a reasonable rate was going to be. And also as a time, as you well pointed out, when occupation was growing and since BRS didn't kind of structural decline anyway. And so in a sense that could be absorbed as a major change or the rent regulation will result in diminutive supply in the current context with fast growth in population, very limited context of supply, it's not surprising that both the main parties have been very hesitant about when they want to introduce that kind of regulation as opposed to suddenly on standards which people are prepared to think about quite seriously. Second, quick comment. One of the things we don't when we're doing international comparison, I think I saw this in one of your own LSE publications a few years ago. But things do change with tax regimes. Depreciation allowances across national boundaries make an enormous difference. And so one's got to take in kind of taxation treatment about the impact on landlords collectively. And my actual question is, you talked about the buy to let mortgage being introduced. I think you said the late 90s it really got going. What is the buy to let mortgage? Is it institutions collectively deciding as lenders there's a market here they ought to get into? And second, does it simply involve a relatively high level of equity being provided by the forum? It is institutions deciding that they wish to get into this market. It has some odd attributes like everything else in this country, up till recently and probably still it's been mortgage institutions which restrict the lengths of tenancy, they will not lend on a tenancy longer than a year. So although an AST can be any length you like, if you're doing a buy to let mortgage, you will have to do it under a year. And there is this odd thing which I didn't know about until my niece got caught, that you can't neglect yourself, you can't rent yourself, so to speak.

Christine Wyken (69:12)

Yes, understood.

Kathleen Scanlon (69:15)

Because the security is the rental supreme. But it is a slightly odd question. Well, I mean they're just going out category that itself illustrates that if you try therefore regulate return, given that tradition, you know what that's going to do to the mortgage mortgage market, it may well be that the landlords, and we know that in the case of perhaps Hedda and others, they've been prepared to give longer Leases and so on for zero cost. And interestingly over 50% of the tenants took the shortest possible lease even though there was no cost to them doing anything else. Which is I find quite amazing but. But real. But it's going to be the financial institutions, the debt institutions which pull out, not necessarily the land which pull out in this context. Could I just quickly come back to the QDD case because Casper actually says the mission and model which won them the contract and which as far as I know take totally genuine wasn't a straight competition contract. It was a set of criteria was one which 80% would be private renting and in part because of the built form of the village was meant for families which is totally atypical world. Everybody do about 14 things at that time at I have a simple prediction which will probably turn out to be wrong, but not by an enormous amount that a third of the burdens will be taken by PhDs students or their equivalent in shared accommodation because families can't outbid that time for me. And it helps to be a sovereign wealth fund. It does help. All of the evidence from family associations for getting involved in the production side of it is that they're going to sovereign well fund because they only want 2, 3% and so they get a possibility of green.

Christine Wyken (71:34)

Unfortunately we're right at the end of time but we can do because you've.

Kathleen Scanlon (71:38)

Had your hand up Robbie Brown. I come away from today 22nd with a long shopping list of risks and barriers provision of PRs which makes it all the more surprising when I look at the mayor's further alterations to Another Plan Policy 3.8 to quote the Planning system provides positive and practical support to sustain the contribution of TRS to address housing needs and increase delivery and there is nothing more to that. Further alterations because there seems to be advancing models of implementation which are unspecified, unsubstantiated, untested and so far not scrutinized. We've heard about housing zones and the high density town centre mixed use development model that John Laird referred to earlier on in the seminar series. So I don't know where we're going to go from but I think we'll have a 58 September. Indeed you will. Thank you. All right.

Christine Wyken (72:56)

That leaves us just to thank you very much.