Lower value markets

The largest concentrations of excluded households are found in the North West, North East and Yorkshire and the Humber. Although the South East has suffered a similar shortfall in the number of transactions since the credit crunch, the decrease represents a smaller percentage of the total market.

We have taken a closer look at six different markets where the numbers of excluded households are significant – these include Manchester, Leeds, Swindon, Peterborough, Greenwich and Medway. The six markets we have profiled have a large percentage of people renting privately. With the exception of Greenwich, property values are all still well below 2007 peak levels.

The rents that these households can pay under normal affordability conditions result in a rent that is competitive with market rents in our six sample markets. The average rent that they could pay sits between the median two bed and median three bed rent in all markets except Leeds, where it is actually in excess of the three bed market rent. These rental levels equate to a gross yield of 6.0% which is very similar to the national average yield of 5.8% and so offers a competitive return.

When considering the issue of development viability, in reality a detailed site-by-site appraisal would be required. However, in lieu of this we have simply compared the house price profile of the excluded households to the profile of recent new build sales. It is encouraging that there is overlap between the shortfall and recent delivery, indicating that it should be possible to viably build new supply to meet this shortfall.

Additionally, the lower risk profile of and hence funding costs of the registered provider sector should help RPs to compete for land in these markets. Building for demand in the private rented sector should also remove any risk around sales rates inherent when building for owner occupier demand.

Taken from
Spotlight: Bridging the Gap in Housing