The Subplot | PRS crisis, Northern Powerhouse Rail, Fawlty Towers

THIS WEEK

• Private rental agony: why the North West’s soaring private rental homes will not be getting cheaper
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

PRIVATE RENTAL, PUBLIC PROBLEM

Why rents won’t be going down

The private rental crisis in the North West’s towns and cities is not going to end any time soon. A failing government scheme adds to the gloom.

Once again, the data on Manchester’s private rented sector is painful to read. A mighty international city, attempting to attract and retain global and local talent, ought to offer more than 360 properties to rent. Yet, according to the latest Urbanbubble data, as reported by Place North West, that’s all there is to offer in the city’s central markets. It’s no surprise rents rocketed by as much as 38% in a year.

Expectation management

For the reasons canvassed earlier this summer (Subplot, 25 August), this isn’t going to change. It will, in fact, get worse as many buy-to-let landlords find it increasingly difficult to service the mortgages they used to buy rental properties, and withdraw from the market (or are forced to withdraw). UK Finance figures for the second quarter of 2022, published in August, show that there were 5,640 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2022. That was down on the previous year, but we can be pretty confident the trend now will be the other way.

Local heroes

What about the public policy response? Manchester City Council has launched a housing development arm, This City, and has borrowed generously to get it going (see Elevator Pitch, below). The first scheme, a 128-unit project at Rodney Street in Ancoats, won planning approval in September. Liverpool City Council’s ambition to provide 10,000 new homes via its own housing development business, Foundations, has fallen to pieces and is to be liquidated, it emerged this week. In four years, the supposedly £500m project managed to create just 18 homes, none of them for social rent.

Unbalanced funding

So it’s been hit and miss locally. But the central government response might surprise you. Analysis by the National Audit Office, the body responsible for checking government isn’t wasting our money, shows that the Affordable Housing Programme spent about £20.7bn between 2015 and today, measured in 2021-22 prices. Of this, £8.5bn was in Greater London – a number to pause and reflect upon, because 41% of spending in the capital is a heavy London weighting.

Wrong places

Yet regional disparity in funding isn’t the only problem. The proportion of housing for rent delivered by the scheme has gone down, sharply. Originally 80% of the housing supported was for rent; this has fallen to 51%. The NAO concludes that it “does not expect the programme to fully deliver on its targets. Even if the targets are met, the way the programme is designed means homes may not be built where they are needed most.” Two fancy charts – figures 13 and 14 – show what the NAO coolly describes as “not a strong match between these areas of high housing need and where housing providers are completing affordable homes under the programme..” Ultimately, said the NAO, “housing providers are not concentrating on building homes in the more unaffordable areas”.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Investing in hotel property may not be the hot ticket it has been; a return to the reception desk may be looming. But do-it-yourself infrastructure could be going up now Chancellor Hunt is in charge.

DIY NPR

The omens for Northern Powerhouse Rail do not look good: levelling up is ancient history, the Truss Plan for Growth has been replaced by the Hunt Plan for Stability. Asked in the House of Commons whether NPR was still a commitment, the new Chancellor Jeremy Hunt said he could make no promises. So that’s it, NPR hits the buffers. Unless…the North stops waiting for London to sort this out, takes inspiration from the Manchester Ship Canal, and does it itself?

The maths are challenging. The 2021 low-fat version proposed by the government, the one that included a new high-speed line between Warrington, Manchester and Yorkshire, ending near Marsden, was costed at £17.2bn at 2019 prices. So easily £20bn today. Could that sum be raised by the region’s local authorities and business partners?

Answer: maybe. The Public Works Loans Board makes available some very large sums of money for investment purposes. For instance, early last month, Manchester City Council borrowed £100m (in three loans) maturing in 2028/29 (see the September report from the PWLB). The council’s This City housebuilding arm is likely to be a beneficiary of PWLB funding, the town hall says.

There are plenty of very large local authorities along the NPR route, so £100m each from the 10 largest gets you to £1bn fairly quickly. Use this as leverage, and maybe you could get a long way down the track. If the business case for NPR is as good as proponents claim, then other options open up, too. It is possible that local delivery could make less of a hash of implementing the Transpennine route upgrade than the government: a report from the National Audit Office on progress so far was not complimentary. Read it and weep.

Subplot asked Transport for the North if it had looked at self-funding or local funding options. It said funding frameworks had been considered as part of the 2020 Northern Transport Charter. Among other things, this raised the prospect of devolving tax raising powers, or hypothecating existing taxes.

Outstaying your welcome

The hotel property sector has defied gravity over the last few years. The pandemic was meant to deal it a deadly blow but, by and large, it thrived, and developments around the North West have been the beneficiaries. That may now be changing, and in the process putting at risk the regeneration schemes that hinge on new hotels.

Finding a buyer for the recently refurbished 131-room Bliss Hotel in Southport is a case in point. As Place North West reported, the hotel is key to plans for a £73m events centre next door, the cornerstone of the local regeneration strategy. The timing is poor: figures from GlobalData show hotel investment – comprising mergers and acquisitions, private equity, and venture financing – has plunged for three months in a row. The extent of the fall in deal-making is staggering: volumes were down 21% in September compared to August.

These are, as the name suggests, global figures. The UK did a shade better than the trend. But the big picture ultimately controls the local market, and suddenly the bull run on hotel property looks to be over.

Get in touch with David Thame: david.thame@placenorthwest.co.uk

The Subplot is brought to you in association with Oppidan Life.