You may not know Bruce Rauner, but he’s a brave man. The Republican was elected the 42nd Governor of Illinois during this month’s mid-terms.
Brave? Because four of the previous seven governors have been imprisoned.
That ignominious record has resulted in more than typical controversy surrounding some Chicago real estate projects, not least the 1980s redevelopment of West Madison Street from Skid Row into a dynamic residential district, supported by federal subsidies and tax breaks.
At the heart of this transformation is Presidential Towers, four vast blocks of over 2,000 apartments recently refurbished for multi-family housing. This ‘value added’ development represents one of the more extraordinary parts of the Windy City’s rental market. It was one of several schemes visited by UK-based developers and investors as part of an Urban Land Institute tour, exploring why we haven’t quite cracked purpose-built rent here. The ULI will be publishing an updated version of its influential best-practice rental guide following the visit.
There are many aspects of residential development where the UK excels in comparison with the US. Large-scale regeneration like West Maddison is infrequent. The materials and unit design are sometimes weaker. Zoning is under pressure as government attempts to extract more affordable homes. These are areas where the UK performs better. But we’ve still a lot to learn from the US rented market.
The prospect of a UK purpose-built rented market has been talked up in recent years. There have been promising deals. Kickstarted by Qatari Diar’s investment in the former Olympic Village three years ago, we’ve seen pension funds invest from Washington State to the Dutch APG, and the birth of new providers like Essential Living competing successfully in the land market. Public policy has encouraged this growth (including land and planning at the GLA) and generally there’s recognition that when the market cools, long-term rent could accelerate further.
Yet we are still far from the institutional-grade, mind-blowing management that US cities offer. There are three aspects the UK is missing. The first is management, where tenants are consumers, pets have their own parks and the concierge is replaced by a indispensable block manager responsible for everything from letting to parcel deliveries — and are justly rewarded at $80,000 a year. This level of service reflects the competitive nature of their multi-family market. The UK needs to think how we deliver this, especially in mixed-tenure developments.
The second is building amenities. The mantra in Chicago and Washington is that residents sleep in the unit but live in the building. This results in an astonishing range of facilities, with as much as 50,000 sq ft being dedicated to communal space for a single block. Crucially, this range of facilities - from indoor cinema to dining rooms for hire — is not restricted to prime locations. It’s fair to ask whether our planning system would make this amount of communal space viable, or whether there would be demand to pay for it, but, nonetheless, the sort of provision we have seen in student accommodation here should be reflected in market rent too.
And, finally, US providers utilise extraordinary revenue-management systems, pioneered by organisations like Yieldstar, maximising returns without necessarily increasing rents through sophisticated real-time pricing software. This approach to optimising gross-to-net yield is far ahead of anything operating here.
The result is an intensely competitive market that has has encouraged long-term investors in North America. Something similar is required in London to help to double housebuilding and complement the staple output of volume housebuilders. It isn’t the only thing we need to do — we need a more liberated land market, more competition among builders and new construction methods to address capacity problems. But it would mean that, like other global cities, London had a solid, professional long-term rent offer.
Richard Blakeway is London’s deputy mayor for housing, land and property.