What is Private Sector Leasing?
Private Sector Leasing (PSL) is a way for councils and housing associations to increase their pool of housing stock by taking on private rental properties.
Why? Quite simply there is a massive need for social housing, and, with the credit crunch resulting in fewer new homes being built, the housing waiting lists are set to lengthen.
PSL housing fulfils a slightly different role to the council-owned stock, as it is used for people in critical need who have presented themselves to the council as homeless.
So far there are about 40,000 homes in London alone under PSL schemes, and the number is growing fast.
Scottish Scheme Success
London is not the only capital in need of emergency housing. Edinburgh council receives some 5,000 homeless presentations a year.
A few years ago, the decision was made to launch a large-scale drive to encourage private landlords to offer their properties to a new PSL scheme.
The scheme, which is now approaching its third anniversary, is run by managing agents Orchard & Shipman, and they believe it has been a great success.
Andrew Morrison, Director of Policy & Business Development at Orchard &
Shipman, says, “It works particularly well in Edinburgh because there is a large private rented sector here anyway. Within the first year we had 602 properties, now we have 1,386.”
While the landlords involved are a mixed bunch, from large investors to people who have been left a single property in a will, about half the homes offered have been bought specifically for the scheme.
As well as receiving a reasonable rent, a lot of landlords like the scheme because of the altruistic aspect of offering a home to people in need.
Morrison is keen to dispel any worries potential landlords may have about the type of tenants who will be living in their properties. “The tenants we get are people who the council feels will be able to maintain the tenancy,” says Morrison. “They don’t deliberately set up people to fail, and most people don’t cause any problems.”
Currently landlords in Edinburgh are signing up for a minimum three-year contract at a rate typically 10-15 per cent below market value, while landlords who commit to a five-year term receive guaranteed retail price-index linked rises.
“It’s a great deal,” says Morrison, who is now involved in a second wave taking on hundreds of new properties in East Lothian and Midlothian. “It’s hassle-free letting.”
PSL: the advantages for the landlord
- A guaranteed rental income:
With a PSL voids are eliminated. Rent, sometimes paid three months in advance, is guaranteed to be paid monthly, whether or not there is anyone in the property.
- No agency fees:
However, this saving is negated by the fact that the rent you receive will be lower than the open market value.
The Fund hands over the property and any routine maintenance or damage of the building will be taken care of by the council, housing association, or management company. However, the fabric of the building remains the responsibility of the Fund and is included in the financial assumptions.
- Vacant possession at the end of the tenancy:
If the tenants refuse to leave, the council, or whoever is managing the property, will take legal action to remove them, but meanwhile the Fund will continue to receive the rent.
- Ethical benefits:
Many people view property rented out through a PSL as an altruistic and ethical investment because they are providing housing to people in dire need.