Coronavirus shock shows TfL right to diversify into Build to Rent
Facing a potential £500m loss thanks to the mass disruption caused by COVID-19, Transport for London (TfL) has asked the government for financial assistance to help plug the gap left by falling passenger numbers.
Stern warnings telling the public to avoid non-essential travel and to work from home where possible combined with a global slowdown in tourism has massively reduced demand for TfL services across the board, resulting in lower ticket sales – TfL’s main source of income.
As more and more travel restrictions come in and as TfL strips back operations in a bid to help combat the spread of the virus, passenger numbers will only fall further. There will be close to zero if we end up with the type of curfews seen in Spain, Italy and France.
Given the unprecedented nature of today’s pandemic, the case for government bailing out TfL – either in the form of a cash grant or cheap loan – is clear, especially given the Chancellor has promised the same for private businesses.
However, TfL cannot expect to rely on money from central government over the long term. The governments massive economic rescue package, which will be paid for by growing Britain’s already large national debt pile limits room for future spending. And while crucial to supporting one of the UK’s most productive regions, post-Brexit politics means the capitals transport network is unlikely to be a high priority for extra funding.
Then there is a more uncomfortable truth: passenger numbers were falling before Coronavirus hit, especially on buses.
This fact, and the damaging impact of Coronavirus has had on its finances, underline how right TfL was to expand into housing, despite criticism from the likes of Conservative mayoral hopeful Shaun Bailey, who has said TfL should stick to what it knows: transport. But Hong Kong and Japan both show us infrastructure bodies are more than capable of successfully moving into property development.
TfL is currently aiming to deliver 10,000 homes across 300 acres, targeting 50% affordable homes across its entire estate.
To help meet this target, TfL has joined up with Grainger plc, the UK’s largest listed residential landlord, to deliver 3,000 high quality Build to Rent homes across seven seed sites, with 40% affordable provision. Public-private partnerships like this marrying public land with private sector expertise and financing makes sense on a number of levels.
The joint venture with Grainger opens up a new source of revenue for a cash-strapped TfL, which now has a share in the long-term income streams generated by Build to Rent schemes being delivered with Grainger. These will help replace the central government’s operating grant, which was taken away in 2015, and combined with site disposals to other developers such as housebuilder Taylor Wimpey in High Barnet, help build up a cash buffer to withstand future shocks.
Then there is the well-known housing crisis facing London, with renters particularly hard hit by a lack of reasonably priced, decent quality accommodation. Delivering high quality, professionally managed, purpose-built rental homes like what the Grainger-TfL joint venture is promising helps meet a pressing housing need in the capital.
From a sustainability perspective, near-station developments such as TfL and Grainger’s Southall Sidings reduce the need for car usage – a key contributor to carbon emissions and air pollution. Residents will instead benefit from quick and easy access to public transport links that are far more environmentally friendly in terms of their carbon footprint.
In this globalised age, another shock like COVID-19 is inevitable. To try and protect its portfolio, TfL should continue to do what every wise investor would suggest: diversify. Property is a solid bet and supplying more homes – especially for rent – would have multiple benefits while also giving TfL a new financial lifeline.
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