Changeable, unpredictable and harsh regulation is the fly in the ointment of a booming residential sector, experts agreed at Real Asset Media’s European Residential Investment Briefing, which was held last week at TaylorWessing UK’s London offices.
‘The real estate industry shouldn’t be antagonistic to regulation but should embrace it, provided it is fair and stable,’ said Andrew Allen, Global Head of Investment Research Real Estate, Aberdeen Standard Investments. ‘It is the nature and stability of that regulation that is important, because investors need clarity’.
A negative example is the UK, said Allen, ‘with an appalling history of political flip-flopping on rent regulations. Even controlled rents can be fine, provided there is certainty’.
Sweden and Denmark, by contrast, are a positive example. ‘We invest a lot in the Danish market, which is highly regulated but stable and clear, so it works well,’ said Hugo Black, Partner, Acquisitions, Europa Capital. ‘I fear that in the UK regulation will choke off supply and exacerbate the problems it is trying to solve’.
Regulations can have unintended consequences. ‘In the UK family offices are selling entire portfolios because of Government measures that have come in to regulate private landlords,’ said Elaine Dobson, Partner, Co-Head the Real Estate Sector Group, TaylorWessing UK. ‘Developers also complain about planning rules, long delays and changing requirements’.
Housing shortages are a feature of almost every large European city and high demand has led to sharp increases in rents, which in turn have prompted local authorities to react by imposing rent controls. The most recent example is Berlin.
‘Stability of rent is a reflection of stable regulations,’ said Marcus Cieleback, Chief Economist, Patrizia Immobilien. ‘Regulation per se is not an issue for an institutional investor, but it becomes a problem if it changes too much. Look at how the predictability of the Berlin market has deteriorated recently because of new rules’.
According to Allen ‘Berlin, with its clumsy repositioning, is an example of how regulation can scare away capital, even though it could accelerate the provision of housing’.
Investors in the rental sector are well advised to pay close attention to regulation, ‘which is getting stricter because affordability is becoming an increasingly important issue,’ said Cieleback.