Housing associations with long-term finance tied to private rented homes could be forced to hike rents every three years, under Labour plans.
Ed Miliband pledged this week to make three year private rented sector (PRS) tenancies the norm, with annual rent rises pegged to the consumer price index (CPI) of inflation.
Landlords have built PRS housing using long-term funding deals such as sale and leaseback and have anticipated, in some cases, a higher-than inflation annual return. This would leave them with no option but to hike rents every three years to ‘catch-up’, experts warned.
‘If you had set out thinking market rates would go up by more than inflation, the only option would be to go up by inflation for three years and then a large increase to correct back to what you had assumed,’ said one investor who preferred not to be named.
A finance director at a housing association with one-such deal said: ‘This would be an issue for PRS [schemes] funded via long term models where there is indexation.’
Housing associations made £65m of leaseback deals for social and PRS housing in 2013/14 according to the Homes and Communities Agency’s global accounts.
M&G Investments has substantial PRS investments with Genesis in London, RCT Homes in Wales and Wilmott Dixon’s Be:Here PRS arm. All the parties involved in the deals declined to comment.
In an exclusive Q and A for Inside Housing to be published later today Mr Miliband says his party’s PRS rent plans would ‘achieve a much more professional private rented sector which will create the conditions for further investment’.