Reviewing Montague: create an investment class for private rent

There is evidence that residential property reaps the highest returns, but will the government realise Montague’s vision?

Last week’s Montague report was positive news for the private rented sector but will it really be enough to deliver a growth in investment? That depends on whether Sir Adrian Montague’s proposals are acted upon by government.

Clients are telling us that – at least in the medium term – they still see the best opportunities for residential investment in the affordable housing sector with registered housing providers. Social landlords such as housing associations offer quasi-government backed covenants with the potential for index-linked secure rental streams.

A recent Resolution Foundation report echoed this theme, but highlighted the potential for housing associations to kickstart the build-to-rent model by using their ability to raise finance to develop more homes that could be sold on to large private rent investors.

It’s a good idea to address the circular problem of institutions not wanting to commit to new build, especially when the development process can last up to two years.

But there are still tax issues to be addressed around stamp duty, capital gains and VAT if the playing field is to be levelled between residential and commercial investment for institutions. Whether public sector land will be released quickly enough is also an important question, given the restrictions public bodies face when selling assets.

The Homes and Communities Agency could provide much-needed assistance to local authorities, particularly given its experience in promoting the housing sector by designing new equity models and expanding on the Get Britain Building campaign.

Critics will question whether planning changes that reduce affordable housing provision are a good thing but the industry has been calling for change for some time. If more build to rent properties are constructed will this really mean that less private homes will be built for sale and hence less affordable? I doubt it.

There does not seem to be a final view on exactly how long the planning system might require housing to be committed to private rent to achieve favourable treatment. Investors have debated this already. They need to know that there is a defined point at which they will be able to improve capital values through sales.

There is growing evidence that investment returns on residential property can exceed those on commercial, especially in the long term. I hope that the Montague review will add momentum to the drive to make private rent an investment class in its own right.

Andrew Yates is a commercial real estate partner at Berwin Leighton Pasiner

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