Investing in affordable real estate
With our investment objective in mind, our ambition is to have 60% of the total acquisition pipeline consist of homes in the affordable mid-rental segment category (€ 737 to € 1,027). We are currently heavily involved in the ongoing national debate on affordable housing and we have looked at what we can do with our current housing stock. One of the measures taken to keep our current housing stock affordable was to moderate our annual rent increase. In 2020, we capped our rent increases at inflation plus 1%, after limiting increases to inflation plus 1% in 2018 and inflation plus 0.5% in 2019.
Following the Covid-19 outbreak in early 2020, the Fund responded quickly to help tenants affected financially by the outbreak. We postponed our annual July 2020 rent increase to October 2020, waiving these rent increases for the months of July through September 2020. For a number of tenants with older contracts, this resulted in an increase contractually limited to inflation only. We also reached both standard and tailor-made rent deferral arrangements with a small group of tenants across our portfolio.
In 2020, we participated in a pilot project with the Utrecht city council, renting out new mid-rental segment homes to people who left their government-regulated social rental homes, and freeing up social housing for the people who really need it. We believe that everyone should have the opportunity to live in their city of choice, as limiting urban living to a select group will have a major impact on the vibrancy and liveability of cities in the long run.
Last year, we also worked closely with the municipality of Haarlemermeer to allocate a number of homes in our new-build project De Monarch in Hoofddorp to middle-income households. Half of the new mid-rental segment homes were allocated to starters and two to people who had left social housing. On top of this, well over half of the 212 highly sustainable homes in the Binck Blocks development we acquired in The Hague in December 2020 will be in the mid-rental segment.
All of these initiatives are part of our effort to be a partner to various local authorities. We want to build reciprocal understanding between local authorities and institutional investors. We hope this approach will help us to avoid further regulatory measures from local governments, which could severely weaken the residential investment climate. Only when local authorities, housing corporations, institutional investors and project developers are prepared to join forces, will we be able to develop a structural solution to the serious shortage of mid-market rental properties in urban areas. Any excessive regulation is likely to hamper institutional investments and slow down the construction of much-needed new homes.
We have also noted that an increasing number of investors are taking this issue of affordability seriously and are looking to invest in ‘impactful’ residential projects. Given that the biggest challenge is to increase the supply of affordable homes, we believe the best way to maximise our positive societal impact is to invest in more affordable mid-market rental homes. This is why the Fund now focuses even more explicitly on affordable mid-rental segment homes when considering or making acquisitions.
Focus on liberalised rental sector
The Fund sees the liberalised sector (rents of € 737 and above) as particularly interesting, as demand is set to increase, while supply is lagging, especially in the Holland Metropole region. With more than 90% of its properties in the liberalised segment, the Fund’s focus continues to be on this segment.
In the graph below, we have added the mid-rental segment for liberalised properties with special agreements related to the likes of the rental level and rent increases.
Allocation of investment property by type of rent based on rental contract
The following five cities account for almost 90% of the rents above € 1,500: Amsterdam (66%), Rotterdam (7%), Utrecht (6%), Diemen (5%), Amstelveen (5%).
Around 65% of the current portfolio has a monthly rent under € 1,250. Despite the Covid-19 crisis, house prices continued to rise in 2020 and individuals, couples and families who no longer qualify for government-regulated rental housing are still finding it difficult to buy homes due to high house prices and a growing lack of affordable supply, especially in the Holland Metropole region. In addition to this, the rental market gives tenants greater flexibility. This is even more appreciated right now, given the current market uncertainty, growing unemployment and the fragile Dutch economy. The Residential Fund’s sharpened focus on affordable housing in the mid-rental segment has given it a solid portfolio of prime properties perfect for this target group.