Must London Allow Density and Sprawl to Address Housing Shortages and High Prices?

The city has to do several things to keep it affordable and vital. Public policy matters for increasing housing supply, but private investment is already at work.
The population of London continues to increase at a faster rate than housing growth - by quite a bit. In fact, while the shortage of homes currently is thought to be somewhere between 500,000 and 800,000, the city additionally falls short of the goal to build 80,000 new homes each year. Only 18,380 new flats and homes were built in London in 2013 as the housing gap grows ever bigger.

The prevailing argument was to build on brownfield land first, taking advantage of previously used space by constructing something new in those spaces. But by definition those spaces largely accommodate smaller-scale construction, which most likely will not fill the entire void any time soon. Private investors, through such things as real estate investment trusts and real asset investing (more often individual investors who work in smaller groups), build where they can find available land and achieve planning approval.

This is why the discussion about density, high rises and suburban/greenbelt building is increasing. London is fairly spread out within the city proper - it is the world's 23rd most populous city (second in Europe only to Moscow), yet ranks 43rd in density with about 5100 people per square kilometre. The city's tallest building, The Shard London Bridge, with 73 floors above ground, still only ranks 87th among the world's tallest buildings in the world. Architectural issues aside, London could build a bit more densely with more high rise residential towers.

The city’s options include several approaches:

Increase housing density in London - London First, a non-profit organisation that promotes pro-business public policy for the city, published "Home Truths, 12 steps to Solving London's Housing Crisis" in March 2014. Among those dozen recommendations is to increase density, noting how peer metropolises are denser. The publication suggests that city "encourage and facilitate greater density of well-designed homes within London," such as through designated high rise districts.

Transport-oriented development in new suburbs - London First’s "Home Truths" also advocates for the construction of transport infrastructure such as Crossrail and Crossrail 2, which would lead to the development of new suburbs. Of note: development near stations on these transport lines within the city is likely as well.

Building on greenbelt land - The city has to consider the sacrosanct nature of greenbelts, and whether or not they serve their intended purposes. For every example of a lovely, green view to residents located nearby, there are examples of disused greenbelt lands that fail to live up to the idea of what greenbelts should be. Writing for City A.M., the chief executive of London First, Baroness Jo Valentine writes, "It's time we put a myth to bed: greenbelt is not all parkland where deer graze serenely, surrounded by wooded copses. Portions of the greenbelt are forgotten, unloved scrubland that would be considerably improved if thoughtfully developed. Although we don’t need to go so far, Paul Cheshire of the LSE has noted that taking a 1 km ring outside the M25 would yield enough land for more than a generation of building at current London rates."

Tellingly, uber-green writer Lloyd Alter, who is managing editor of TreeHugger, wrote in The Guardian that there is such as thing as "too dense," noting that London already has more people per square kilometre than New York and Toronto. He extols the virtues of "smaller flats, closer together, with narrower streets that acted as their living room, pantry and entertainment centres" found in Paris, Barcelona and Montreal - all designed and built before the age of the automobile. But he doesn’t much care for skyscrapers, claiming they destroy streetscapes and are energy-intensive to build and maintain. Alter places highest values on active transport (walking, bicycling and public rails and buses), around which he feels development should be designed.

Perhaps the best approach to improving on the housing shortage is an "all of the above" strategy. Capital growth partners, in tandem with large and small homebuilders, should build in planning regimes where an understanding of the need is clear and where such development will enhance the existing communities. Government-sponsored efforts - such as establishing density zones and to build new transport rails - can help facilitate this as well as enhance the city's low-carbon efforts to a sustainable future.

This is not misplaced optimism: individual investors are strongly drawn to real estate because of its historic record of generating strong asset growth. But all investors should consult with an independent financial advisor to determine an appropriate degree of risk in property development.

Labour's Emma Reynolds Predictions: A Dire Housing Future - and Her Proposed Solutions

The shadow housing minister's job is to disagree with the Government. But her policy proposals to boost homebuilding investments certainly offer detailed perspectives.

As shadow minister of housing, it is MP Emma Reynolds' job to challenge the ruling Government. In so doing, she arguably lays out a future set of policies and programmes that might be how the UK housing crisis is addressed should Labour take back the reins - not as, she contends, how the Coalition Government is doing things.

Reynolds has laid down her positions in light of some very troubling observations and statistics. At mid-2014 she projected to the year 2020 saying that the nation’s deficit in homes would climb to 1.3 million, or as she put it "equivalent to the city of Birmingham." And for homebuyers, the average price would be 13 times the average wage at £359,000 - requiring an average deposit of £72,000, a number she sourced from the House of Commons library.

She also lobs criticism at the Government's Help to Buy scheme for boosting demand without directly increasing supply, an equation she says that can explain the rapid price inflation that seems to be occurring since the programme began implementation in 2013. While others may say this is simply a lag time between when developers (often funded by time-driven investors such as capital growth partners) see action and when they are able to deliver more completed homes, the country's one-year average price increase of 10% at mid-2014 has to be acknowledged.

Reynolds laid out Labour's ideas in detail on 1 August 2014, but she made no mention of the empty homes in England (many of which are held by foreign investors, treating property as an investment more than as an abode). She does make clear what the party would do if restored to power:

• Undertake the biggest council home building programme in 40 years - With 1.6 million families in queue, she says the number is growing because the fewest number of council homes are being built today than at any time since record keeping began.

• Support first-time buyers by boosting supply - Reynolds says that getting young families on the housing ladder is what distinguishes Labour from Tories.

• Underwrite loans to small builders to "unlock their potential" - Noting that when 200,000 homes were built each year, in the late 1980s, smaller builders were responsible for two-thirds of that total. Today, they are responsible for less than one-third of the much smaller number of home completions last year (about 109,000).

• End land banking - Empower local authorities to enforce "use it or lose it" rules on holders of land with planning permission but on which nothing has been built.

• Build New Towns and Garden Cities - In the spirit of William Morris, providing housing for communities en masse similar to those towns successfully developed in the post-War period in places that include Sheffield, New Ears wick, Letchworth and Hampstead Garden.

Making additional partisan distinctions, she notes that in local councils headed by different parties, the commitments to build vary. Councils controlled by Labour are committed to building 862 homes per annum, while that number drops to 508 with Conservative councils and 393 where Liberal Democrats hold sway. By and large, investors through real asset funds look to build where those commitments are greater, and in those locations the local economy benefits from more housing, new employers, and increased infrastructure and commercial development.

The high demand for housing in public and private markets is unquestionably a draw to investors. And under each party leader, commitments are put forth emphatically to set policies that encourage more building. Any individual considering this sector for achieving asset growth is encouraged to speak with an independent financial advisor to sort through the relative risks and rewards of such investing.

Is the UK Housing Shortage Crisis a Myth?

Yes, there are many empty homes in London and elsewhere. But affordable, middle-class homes are lacking - something the private investment sector is correcting.

A columnist for The Guardian, Simon Jenkins, caused a bit of a stir in May 2014 by writing a contrarian viewpoint regarding housing in the UK. In his opinion piece "Housing crisis? No, just a very British sickness," Jenkins did a fair job of dissecting the economics and geography of homes in the country – including how many thousands stand empty in the midst of a housing shortage.

So, there is no housing shortage? Well, not exactly. Jenkins' point is that the wrong homes are in the wrong places, and that Government programmes favour some of these misplaced portions of real estate. As private investors (such as those in alternative investment funds) in middle class housing will point out, those homes are sold and occupied by owners in relatively short order, disproving any notions of a glut. Rather, location and price points for housing are what matter.

Jenkins references others who share or at least inform his unorthodox position:

Neil Monnery (author, "Safe as Houses"), who notes that the relative wealth of Germany comes from its middle aged citizens investing in industry and less in housing (only 43 per cent of them own their residences, even if comfortably middle class). The country does not have the rapid home price and rental inflation found in the UK.

Danny Dorling (author, "All That is Solid"), where the author compares rooms per person statistics of today versus 1971. Formerly the number was 1.5, now it is 2.5, which Dorling says illustrates longer occupation in larger homes by families after children are grown.

Rebecca Tunstall, an economist who writes on income inequality, cites how the top 10 per cent of Britons had three times as many rooms as the poorest in 1981. Today that number is five times as much - suggesting that it's largely about growing income inequality (a point made emphatically in the Thomas Piketty book, "Capital in the 21st Century").

Other writers have noted the well-known fact that rich foreigners - mostly from Russia, China and the oil-rich Middle East countries - have bought up stately residences in the most expensive neighbourhoods of London as investment homes (example: One Hyde Park in the City of Westminster, where 34 of 83 luxury residences qualified for second home council tax discounts). This phenomenon largely support’s Dorling and Tunstall's points, that increasing wealth at the upper end of the spectrum skews the numbers. Which somewhat undermines Jenkins' point, that there is no housing shortage. The lack of affordable housing, where working and middle class people can live in relative close proximity to their jobs, is the real housing problem in England.

It bears noting that under-occupied homes, many falling into disuse, are all over Europe, particularly in Spain, where a 2011 census shows 3.4 million empty built properties, mostly in resort areas. In Italy it is at least 2 million, in Portugal 735,000, in Ireland 400,000 and the UK, 700,000 (source: Lea Data collated by the Empty Homes Campaign).

Gavin Smart, director of policy at the Chartered Institute of Housing, attributes these vacancies to houses in regions that lack jobs. Which underscores an interesting point: Local Planning Authorities in UK towns and boroughs are tasked with supervising sustainable development. This includes giving planning permission to the construction of homes that help bolster the local economy. When employers look for places to locate their workplaces, they want to be near a ready supply of labour. The organic means by which private capital through real asset funds investors build homes are within this construct.

Investors in real estate generally fare well with putting their money to work at building homes. But any individual who wishes to participate in this sector should always do so with the counsel of an independent financial advisor.

How are "Locally Led" Garden Cities Different?

Localism in land use planning is the new mantra for address the UK housing shortage. But smaller scale, investor-driven projects get more done for now.
The housing shortage in the UK is generating a revisiting of the "garden city" concept first proposed by Ebenezer Howard in the late 19th century. Some of the most aggressive, large-scale building in England after the Second World War (Basildon, Central Lancashire, Letchworth, Milton Keynes, et al.) are in retrospect considered successful. Now, Deputy Prime Minister Nick Clegg and the coalition government are proposing that garden cities be developed in Buckinghamshire, Warwickshire and Oxfordshire.

There are many reasons that garden cities - with 15,000 to 30,000 homes each, along with the infrastructure that enable these to be largely self-contained - may not succeed. Neighbouring towns fear the loss of Greenfields and an inevitable increased burden on highways. And an "eco-towns" version of garden cities proposed ten years ago was largely perceived as a means of overriding local planning authorities and their agendas.

In the interim, private development on a smaller scale has been responsible for much homebuilding in the UK. Real asset investing groups have largely and independently obtained planning changes that turn disused land into new communities.

The Cameron government, through the Department for Communities and Local Government, proposes a new iteration on this approach called "Locally-led garden cities." In an April 2014 publication, Deputy Prime Minister Clegg and Eric Pickles, Secretary of State for Communities and Local Government, state the following: "Local people know what is best for their areas...people want to be ambitious and innovative in their approach to delivering the homes they need...new development at new settlement scale can offer a great opportunity to build in quality from the state in terms of design, open space, homes and jobs that make places great to live in."

The publication goes on to note the department is investing more than £1 billion to bring about "locally-supported housing schemes capable of delivering up to 250,000 new homes." Calling it the 2015-2020 Large Sites Infrastructure Programme, Clegg and Pickles are emphatic about how local authorities should express how they want their garden cities to develop. Rather than the imposition from Whitehall on unwilling communities, the Localism Act-era approach is to allow local planners to devise their own new, large-scale towns.

Still, opposing voices cite reasons why even locally led garden cities will be challenged. One is that the 20 to 30 year time frame to build these places means they must transcend the shifts in governments over those decades - in addition to the fact that delivery of homes will take a while as well. Another question: just what characteristics of design, transportation and affordability will best serve the interests of occupants, neighbours and local economies?

Offering some answers might be Saffron Woodcraft, a social anthropologist with the community consultancy Social Life. Woodcraft presented her work on garden cities, which she observes have had successful applications for decades in disparate places around the globe - including Soviet Russia and modern China (in skyscraper villages), as well as some developments in England - for various reasons. She urges the following questions be addressed in garden city planning:

• Will development favourably affect the physical and economic wellbeing of existing towns, cities and neighbourhoods?

• Can the garden city deliver the full range of community facilities and services?

• Is it still the right way forward for urbanism and development in the new century?

While government support for development of garden cities will likely be necessary in all cases, private investment will ultimately be required as well. Whether working through property fund partners, a real estate investment trust or homebuilders, investors should consult an independent financial advisor to identify their most strategic, risk-balanced approach to garden city or other types of housing development.

Do EcoVillages and Other Sustainable Developments Inform UK Housing Concepts?

Green developments are perceived as a means to circumvent local planning processes. Private investments in earth-friendly, resilient development can still work.

In this age of sustainable design and building, it's an unsettling fact that the "eco-towns" thought to offer housing solutions in the UK have not come to fruition. But in the best ways of looking at it, the stalled concepts of green communities might provide ideas and lessons for the kinds of communities that are and will be built in the near future. The problem may not have been green building per se, but the process by which such communities are bureaucratically created.

In 2007, Gordon Brown initially proposed ten large-scale, carbon-neutral communities that would be built on greenbelt land. Ideally this would have delivered 200,000 new homes which, of course, are sorely needed in the UK where an estimated one million households are waiting for affordable accommodations.

The idea of earth-friendly building is technically no longer a pie-in-the-sky concept. LEED certified buildings, including residences, as well as Passivehaus construction, which entails structures so energy efficient they draw little to no energy from outside sources (using solar or geothermal energy instead), are becoming commonplace in Europe and the world over. With construction supply networks incorporating once-advanced technologies and materials as standard equipment, it has become increasingly expected that high-performance buildings make much better use of resources (energy to build and energy to operate) than in previous times.

But something that is well understood by experienced homebuilders and investors (such as land fund managers) is that it is unsavoury and nearly impossible to parachute in a large-scale development onto any community. EcoTowns have yet to be built, and the reasons are largely because existing communities opposed them - not because they are environmentally sustainable, but because they impose large changes on the existing communities themselves. The progressive concept was perceived as a means to circumvent planning authorities, but those authorities fought back.

Two communities are still on the planning process track, in North West Bicester (a 382-acre, 2,600 home site) and Rack heath (near Norwich), which could include 5,000 new homes, 30 per cent of which would be affordable. Each would feature renewable energy use, efficient waste reduction and management, minimised transportation emissions (incorporating public transport, bicycling and car sharing) and efficient water use. But as of late 2014, neither has been built.

Top-down planning is problematic in England, particularly in the new "localism" era. Planning authorities are required to increase the housing supply to meet the high demand, but how and where is to be worked out with local communities. This is how private development companies are accustomed to working - develop a plan and provide the infrastructure necessary to enhance the community. Typically, these are on a smaller scale so as to minimise disruption and to answer immediate needs, such as to provide housing that then makes the area attractive to employers.

Still, the environmental goals and tactics can be incorporated into smaller, investor-led development. Energy-efficient homes are more valuable. Natural green spaces, watershed management, preservation of habitat and healthful living amenities (such as walking and biking accommodations) still provide a qualitative living experience.

This is why capital growth planning from private investors has a greater chance of succeeding in the next few years. Working through prescribed (and modernised) planning processes, they can propose community-appropriate development where eco-friendly features are a clear enhancement of the local environment. In other words, sustainability does not require large-scale building.

Individuals can get involved in these developments as investors, including members of those existing communities; before doing so, however, they are advised to consult with an independent financial advisor to determine if the investment fits an overall wealth-building strategy.

Beyond Just Housing, the UK Needs to Develop Holistic and Sustainable Communities

Fast building, as is needed in England, can often lead to poor quality structures. But with new and better, sustainable homes, smart houses are possible and affordable.

According to UK National Statistics, the Department for Communities and Local Government reported an 18 per cent rise in new housing starts for the April-June 2014 quarter compared to the same three months in 2013. Looked at another way, the 36,230 house building starts in the second quarter were 112 per cent above the same quarter in 2009 (but 26 per cent below the building peak in 2007). This increase is important, good news and likely an indicator of the success of Government lending schemes as a way to loosen credit and make more people eligible and able to buy homes. This consequently leads to homebuilders increasing their productive output because a larger market has materialised.

So what might go wrong now? With so large a pent-up demand for housing in the UK, joint venture partnerships that marry investors with available land and homebuilders are actively pursuing planning authority approval to build where homes are needed most. Social housing and projects by private housing associations are also under construction to increase affordable housing and alleviate high rental and purchasing prices. But recent history shows that hasty building can sometimes birth mistakes, which can lead to poor quality and underperforming houses.

In the U.S., hasty building in the mid-naughts, particularly in the American South recovering from severe hurricanes in 2005, led to significant off-gassing problems from imported Chinese wallboard. Something in the gypsum wallboard material caused wiring to deteriorate, affecting between 60,000 and 100,000 new homes and the health of occupants.

Homes in the UK were spared those problems. But a four-year study of houses in the UK, Germany and Sweden by researchers at the University of East Anglia (UEA, in Norwich) found a different problem occurred in the 1990s through 2010. Housing in these places often under-deliver in terms of energy efficiency and indoor air quality. The report attributes these under-performing homes to "poor teamwork across design and construction processes [which] leads to defects that compromise energy performance."

So as the country proceeds with building, with a housing boom that by all accounts is needed to provide homes for a million households and a growing population, how can such problems be avoided? The UEA make a strong pitch for passivehaus ("Passive House") building - a standard of construction that aims to dramatically reduce the need for mechanical heating and cooling, even while improving on comfort and air quality.

More than 30,000 such homes have been built around the globe since the early 1990s. As techniques and materials become more readily available, the construction costs are no longer higher than by traditional methods. Long-term, they save a great deal of money on energy costs.

But sustainable building can also include renewable energy sourcing (e.g., solar panels on roofs), low-impact landscaping (plants that reduce heat and cold exposure, and which retain natural rainfall to reduce potable water use for maintenance). For communities, the economic benefit comes when homeowners spend less on utilities that in turn allows them more money to spend locally on goods and services. When applied to social housing and by housing associations, it reduces their costs as well.

Given the weather events of recent years - which range from summer heat waves to heavy winter rains - more climate-resilient, energy-efficient housing certainly is welcome. Retrofitting existing structures with energy-efficiency measure is often affordable as well.

Individuals who participate in real asset investing should scrutinise projects for sustainability features. So too do local planning authorities when considering land use changes to accommodate residential and commercial building. Investors should also consult with an independent financial advisor to determine if the project - hyper-eco or at least built to perform well - is a fair risk relative to their overall financial goals.

What are the short and long term risks of investing in land as a real asset investment?

Land assets are quite capable of yielding strong investment returns. But risks are everywhere - know what they are, and work with professionals if you can.

Without risk there is no reward, correct?

Investors understand the equation well, and financial planners help guide them to achieving the right balance of risk. Not only should the rewards be worth the worry, but favourable returns on investment should be well-timed to the investor’s needs. What’s clear today is that investing in real assets such as land – at a time of exceptionally high demand for residential real estate - seems like a good risk.

Alas, it is still quite possible to get it wrong. While some of history’s greatest wealth has been built from buying, owning and selling land and developed real estate, there are all kinds of circumstances - and bad ideas - that create unnecessary risk. In addition, there is the dynamic of time, whether the investor expects gains in the short, medium or long run. Consider the following that could occur to the land investor:

Landowners unwilling to sell at a reasonable price - Land that is designated for agricultural use is worth much less than when approved for residential or commercial purposes. An existing landowner may be aware of that valuation difference, and get greedy when pricing the land for sale. Seasoned property fund managers would know the level of price tolerance to make asset growth feasible - and be willing to seek land investment opportunities elsewhere.

Real estate is very reactive to economic downturns - The drop off in home sales and homebuilding in the UK after the 2008 financial crisis is a recent and clear lesson on how broader economics play a large role in real estate investments. Property investors who sold in 2007 saw great asset growth during the last of the bubble years, while those who were forced to sell in 2009 probably lost quite a bit. This is why shorter-term investments, such as those focused on strategic land development, at least enable the investors to have a clearer picture of market conditions when the development is complete.

REITs - The liquidity of real estate investment trusts make it attractive for the investor who is worried about the aforementioned economic downturns. But because it is traded on the exchanges, a REIT is also subject to even momentary fluctuations of the markets due to unrelated events. Also, due to a regulatory set-up that renders real estate investment trusts unsupervised by the Financial Conduct Authority (FCA), no complaints to this agency can be made, nor can compensation claims can be made with the Financial Services Compensation Scheme.

Ill-advised schemes such as "land banking" - While authorisations by the FCA provide due warning against this, there remain investments in what’s called land banking. This is where plots of land are purchased where planning permission is unlikely due to greenbelt status, remediation expenses on brownfield land, or simply being too small for development at scale.

It makes sense for would-be land investors to engage an independent financial advisor for guidance. A holistic review of an investor’s risk profile can help identify when real estate makes sense - be it through either a REIT, alternative investments in land or buying rental property.

What are the Relationships Between Land Fund Managers, Local Governments and Planning Authorities?

There are formal and informal ways by which investor-funded developers achieve land-use changes. But community relationships, and flexibility, matter as well.

From an investor’s perspective, property fund managers are the professionals with the skill set necessary to grow assets that are put into property development. They ideally make the calls that are needed to buy land at a low price and resell it at a much higher price – the higher the better.

This is about more than clever and strategic physical development. There are key negotiating skills required of the people who guide these alternative investments through the process, starting with negotiation of the initial purchase price on the land. But of equal value is the negotiation and management of the planning permission function.

Local planning authorities (LPAs) are critical to the land-value appreciation formula. Most work objectively, trying to satisfy the needs of their constituents with appropriate and manageable growth programmes. But their decisions are not made in a vacuum – there are several means by which they determine whether or not to approve a land use change:

• Formal - It is incumbent on local planning authorities to have a set development plan in place, with which use changes should be in compliance. This requirement is emphasized by the National Planning Policy Framework, which published new requirements in 2012. There, the NPPF stipulated that LPAs establish a development plan to promote a net growth in housing in a relatively short timeframe. This requirement was put forth to enrol local municipalities in the cause to increase the stock of homes, a critical national need.

• Informal - Unfortunately, only about half of towns and cities in England and Wales have developed their NPPF-mandated plans as of mid-2014. Among those that do not, the process necessarily defaults to what developers propose to the authorities. Those authorities can reject proposals for any number of reasons, however it stands to reason that they would be predisposed to a positive review of such proposals because of the critical housing situation. Here is where property fund managers need to be artful and convincing at communicating the benefits of the particular development they propose.

• Community engagement - The Town and Country Planning Association advises that community participation be at the core of planning outcomes. Certainly, when there is a well-organised opposition group that opposes development the community can be vocal and powerful. But experienced land fund professionals should be able to identify shared goals – and make adaptations and adjustments to development plans – that create alliances within those communities that can at least bring balance to the discussion.

As agents of government, planning authorities strive to find consensus while honouring differing opinions. In a similar vein, investment groups work to identify commonality such that development can ultimately move forward.

Individuals who consider land as an investment should themselves find an independent financial advisor to look at two factors. One is the prospect of the real estate investment itself, and the other is determining how real estate and other forms of real assets factor into the investor’s unique wealth portfolio. The relative mid-term returns of land use-based investments (18-60 months, typically) are part of that consideration.

Vetting Property Fund Managers: Whom Do You Trust with Your Land Investment?

When investing in land, most people need to work with experienced professionals. Every development is different, so check their skills, strategies and values.
The word "trust" has many applications in the world of finance and investing. And yet at its core it is about putting belief along with cash into the hands of others. It is deeply important and can be equally unnerving to even the most seasoned investor.

Property funds at least have the advantage of including a real, tangible asset. Investors can visit a site that is being developed, observe land features and the characteristics of nearby commerce and populations. It is possible to see how a property fund management firm can transform raw land into much-needed housing.

But how does an investor know which developers are going to do best with his or her money? In which firms can the investor know the best strategies are devised, the smartest property acquisitions made, the land use proposal is likely to achieve planning authority authorisation, and the property can be profitably sold to homebuilders and home buyers?

Independent financial advisors (IFAs) can access a firm’s track record, perhaps more readily than can an individual investor.  But regardless of how that information is found, past performance of a fund manager is an essential part of vetting who to trust with your pounds. Property funds could and should also be considered on the basis of at least three other factors:

• Fund leadership - What is the track record of individuals who make up the executive team at a fund? How adept might they be at adjusting to the variables of broader economic factors (such as the 2008 financial crisis and subsequent recovery), or to the specific features of past land development projects? How much time did executives and fund specialists spend in related industries, in tangentially-related industry sectors, and working with institutional investors?

• Property development strategies - The business of land, planning authority approvals, infrastructure development and building construction have many variables. Ask questions about how it will be done, what makes this management team likely to succeed where others may not, and how they plan to extract maximum value while creating saleable properties.

• Values - There are responsible and irresponsible ways to develop property, which, while based in intangible philosophies and ethics, can still impact the net financial results. For example, an environmentally sustainable development might involve upfront costs (but not always); with more sophisticated buyers, those sustainability features can be perceived as valuable and net a higher return. Ask the people who are managing your real asset investing about the newer analytical tools that assess the long-term value of “green” building and infrastructure features.

In a recent publication from the Urban Land Institute, "Emerging Trends in Real Estate Europe 2014," various property development leaders weigh in on who is funding the industry and how. The availability of financing has improved slowly since the financial meltdown of 2008, yet traditional lenders such as banks have been slow at increasing their participation until recently. Traditional financial institutions tend to avoid “time-consuming and tricky deals,” says the CEO of a multinational REIT – providing opportunities in the near term for alternative lenders such as institutions and the individual investor. For more guidance on this, contact an IFA.

The Roles and Responsibilities of Property Fund Managers

Turning land into valuable property is neither magic nor easy. The people who manage development on behalf of investors must have several skills to achieve asset growth.

The nature of property funds - particularly how investors expect less volatility than in the financial exchanges, plus tax advantages and a good return on the investment - places certain requirements on the managers of those funds. After all, there are several other ways to invest in real estate. Property fund managers are key to making this work for the type of investor who finds developing what is typically raw land into housing or commercial property attractive.

The alternative of course is either a very short or very long-term investment. Specifically, those include real estate investment trusts (REITs), which can be traded minute by minute on the public exchanges, or owning a piece of land that appreciates over years and even decades. This latter category is how many a Briton builds personal assets with their homes or property that is purchased to-let. Each offers advantages and disadvantages.

In between - the proverbial Goldilocks’ "just right" venture for people with £10,000 or more to invest - is when a group of investors buys land that can be granted a planning authority change from a lesser-return use such as agriculture to a residential or commercial property. The value increase can be as high as a multiple of ten per hectare. Of course that involves several steps that the fund managers perform for the investor, which include:

Identification of a useful site - It’s both a science and an art to find unused land that is situated appropriately for establishing new homes. Fund managers understand the variables (relative proximity of employers, the existing infrastructure, community approval, etc.) as well as the physical characteristics of the land itself.

Negotiation of the site purchase - One or several owners may hold the tract that looks ripe for development. They or their agents or estates may present a challenging negotiation on price, which a skilled set of fund managers are able to accomplish.

Achieving planning authority approval - This is one of the most critical components of the process. UK policies favour local decision-making, such that the needs of businesses and the existing community take greater precedence over distant regional planners. National mandates to encourage housing growth generically compel local authorities to find ways to add to house inventories.

Development of infrastructure - Streets and utilities generally have to be installed into a development to make it sellable. A home building development may also place a greater burden on municipal services (government, schools, hospitals, etc.) such that a community infrastructure levy could well be incorporated into the cost structure. All of this involves fund manager negotiations.

Building, or sale to homebuilders - The biggest asset growth comes when the property is constructed, of course. A fund may oversee this process as well, however a quicker, lesser return on investment can be realised by selling lots to homebuilders. (This bifurcation of responsibilities between original investors and homeowners has become the norm in recent years.)

The smart investor should quiz a joint venture investment partnership about how they approach each of these tasks. What the firm can demonstrate from returns on past projects is of course a key consideration. But the investor should engage a neutral third party, an independent financial advisor, to examine the specific investment and its appropriateness to the investor’s own wealth development portfolio.

The Green Land Investor: How to Invest in Sustainable Land

To be a "responsible property investor" means building green. Smart capital growth land investors consider short-, medium- and long-term values of eco-development.

With all the attention on building homes to meet the housing shortage in the UK, an often-overlooked component of the story is how those homes are also likely to be more energy efficient. Aside from serving the higher goal of environmental conservation, those homes become more eminently liveable, warmer in the winter months and less likely to cause fuel poverty to residents.

To build green - even if not at the standards of a LEED certification from the UK Green Building Council or BREEAM, the Building Research Establishment Environmental Assessment Method - can make a lot of sense to an investor, such as those who prefer to put their money into real asset fund investments. In simplest terms, a home with a superior energy conservation measurement is a home that will save money on energy costs over many years into the future. Homebuyers are increasingly sophisticated about looking at such long-term costs and those investors interested in UK land investment are noticing, as are the land developers.

But building green goes beyond just energy savings. Homes and developments can be thoughtfully built with regard to other environmental needs, such as providing natural habitat and community stormwater management. The important point to be made is that while some green building features might be regarded as altruistic, those environmentally sensitive measures can still translate into real value for investors and the eventual owners. Consider the following eco-friendly home development features:

• Save energy - Research by the Sweett Group, a UK property management and construction firm, found that costs related to energy-efficient building have dropped and are now considered inconsequential to building costs, with the small amount of incremental costs related to tighter building envelopes (insulation, etc.) easily offset by energy cost savings within the first few years of occupancy.

• Responsibly balance the built environment with the natural watershed - When a building or whole development affects drainage, it can lead to flooding in vulnerable areas. To instead design a development to neutralise its affect on the watershed can also save homeowners cost and raise the value of homes. Sometimes, the inclusion of natural habitat such as retention ponds, rain gardens and bioswales that are naturalistically landscaped can add aesthetic value to a home and the surrounding community.

• Incorporate alternative transportation modes where possible - The ethos of younger people in particular is to live in bike-friendly environs. Infrastructure for riding and secure bike parking, especially in multi-unit housing, contributes to that. Being in close proximity to public transportation is also a development plus.

• Regeneration and reuse of buildings by repurposing - There are many existing buildings such as vacant manufacturing and warehousing facilities that are sitting dormant. The UK is trying to prioritise “brownfield” building; these are good uses if substance remediation is feasible and the costs of a retrofit compare favourably to new-builds. To the development investor, some such sites are both green and profitable.

• Encourage social interaction - A feature of green building is to create spaces where residents can interact. The extreme version is eco-villages, where car parking is relegated to the periphery, leaving areas surrounding homes safe for pedestrians and children at play. Simply providing pedestrian pavements in a neighbourhood is another means to help residents get to know each other - and to get exercise.

• Improve health and wellbeing in the interior - Interior materials such as paints and carpeting are now available to reduce off-gassing of volatile organic compounds (VOCs), while other measures reduce the presence of mould growth in structures.

Participants in joint venture partnerships generally listen to their topic-experts in such investments. If the market values a greener, more energy efficient home, then a premium can be derived in the sale of such homes - which of course benefits the investor. All investors are advised to speak with an independent financial advisor first to know if real estate fits their wealth management portfolio.

The Differences Between Institutional and Non-Institutional Land Investors

The nature of investing in land differs between individuals and institutions. But the reasons that real estate development is attractive to both are quite similar.

The Financial Times reported in the second quarter of 2014 that banks continue to limit their lending to property companies even now, several years out from the financial crisis of 2008. Does this mean that other investors - institutional and non-institutional financiers alike – are afraid of land and homebuilding as an asset class?

Hardly. Land is an investment well subscribed to by the wealthy and those who are steadily gaining wealth. This has been the case since the earliest days of civilisation and is no less true today than in the past. A combination of exceptional pent-up demand in combination with Government schemes to help homebuyers has triggered a strong market. Consequently, homebuilding has increased since early 2013 and more investors have increasingly set their sights on UK land.

While the acquisition of land in centuries past more likely came through conquest or inheritance, today's investors - such as those working through property fund partners - can start small and build big over time (no deaths required!). With a plethora of financial instruments, individuals as well as institutional investors (such as insurance and pension funds) can take short-, medium- or long-term positions to generate asset appreciation.

But institutional and non-institutional investors have some differences:

Institutional investors only recently re-entered housing - And for the most part, pension funds and insurance companies are looking for income from rental properties. This differs from the individual investor who more likely is looking for value increase and a relatively short (18 months to 5 years) return on investment.

Institutional investors often operate on different timelines - While the anticipated ROI for larger institutionals may be established according to sophisticated calculations, land development is driven by factors that include how local planning authorities decide on land use, plus dynamics from the demand side. Individual investors who are properly informed of these variables, before and during the process, can make decisions that create optimal outcomes.

Institutional investors can themselves be REITs - Due to a rule change in 2012, the diverse ownership rule, institutional investors can form small clubs that function as real estate investment trusts. They still need to be listed on recognized stock exchanges, but the lines between closed fund investments in land and market-traded investment have become a bit blurrier.

So while banks may be skittish about land and property development, institutional investors and private investors (working in partnership with land fund managers) are largely responsible for funding land development into built housing. They are also reaping the rewards.

While institutions employ their own teams of analysts and economists, individuals are smart to consult with an independent financial advisor. The risk profiles of investors and their families need to be factored into decisions on all forms of investments.

Is it Wise for Real Asset Fund Managers to Invest in Strategic Land Companies?

Fund managers are like individual investors: Each seeks a maximum return on their investments. The performance of the sector should drive their participation.

After the financial meltdown of 2008, investors across the globe reduced the proportion of assets held in market-traded stocks and bonds. They instead chose to invest in real assets: minerals, real estate, agricultural commodities, other natural resources, art, antiques and classic cars among them. So what do real asset managers invest in now, several years later?

EveryInvestor.co.uk reported in mid-2014 that UK pension funds, which had rapidly reduced their allocations of equities in favour of alternative investment funds in the wake of the financial crisis, had slowed that exit in 2013. But the attraction to real estate, perhaps the most prominent in the real asset category, remains a strong driver for those funds. The pressing need for housing in the UK – an estimated one million households need a home to buy or rent due to underbuilding over the past two decades – is a significant driver. Along with homes, new infrastructure, schools, hospitals and commercial properties will be developed in the next ten years.

Real estate investments themselves come in many forms to satisfy this demand: raw land for development, homebuilding (and homebuilder stocks and bonds), as well as the transactional components (lending and legal services), are all growth industries in an ascendant economy.

Of particular interest to certain kinds of investors is strategic land, where acreage currently designated for one use (most often agriculture) is rezoned by local planning authorities for other uses such as homes and businesses. This is a large part of where value is created, but it’s no simple process. Strategic land investment firms have to first identify sites where housing demand is most pronounced and where local planning authorities may be predisposed to a land use change. The existing community has to be similarly given to development, the perceptions and processes of which development specialists need to manage as well. About half of all municipalities in England and Wales have a housing growth plan in place; for those that do not, it is beholden on the investor collective to make a strong case for how the community will benefit from an expanded town.

Just as individual investors need to determine if strategic land is the type of alternative investment they wish to be a part of, fund managers should apply their own criteria to this decision. Individuals are strongly encouraged to engage an independent financial advisor to weigh the risks, rewards and timing of a land development in their portfolio, even while professional investment managers rely on their own research, strategies and guiding principles.

Strategic Land: How the ROI Differs from Other Real Estate Investments

There are many ways to invest in UK property. As house building accelerates to meet demand, it helps to study the characteristics of various investment types.

With so much attention to the housing shortage in the UK, as well as the Government schemes that help working people find homes to buy, there is naturally great interest in the UK land investment community on how to profit from the construction and transactions that will occur in the coming months and years.

Real estate is a broad, deep and complex world. There are many opportunities and commensurate risks. Fortunately, it’s rich territory for anyone with the pounds to invest - and the degree of variety means that investors of various stripes can find opportunities that fit their specific life stage and risk tolerance. A very traditional approach to real estate investing in the UK is buy-to-let, where the investor takes on the responsibilities associated with being a landlord. Other investors gravitate toward joint venture land opportunities, where pooled resources and expertise focus on a residential or commercial (or combination) development; astute management of such project can yield profits in a two- to five-year timeframe. And since 2007, English investors have had real estate investment trusts (REITs), where shares in large buildings (typically commercial, but also some residential) can be bought and sold at will just as with any other market-traded security.

Of course, the question of return-on-investment is a fundamental consideration. The following is a snapshot of what might be expected from these three real estate investment classes:

Buy residential rental property - In September 2014, the website TotallyMoney.com published a review of 192,672 rental properties in the UK. The report looked at where such properties provide a favourable yield, factoring the asking prices of homes relative to the average monthly rent. Separated by postal codes, the formula reveals that the best ROI for buy-to-let investors are in the north including Scotland (Aberdeen, Bradford and Sheffield in particular), with some of the lowest yields (but still in positive territory) in places that include Poole, Dartmouth, South Kensington and Worcester. The lone standout in England’s south was Southampton, where rental property returns are four times as much as Tonbridge.

What makes rental property so attractive is of course the rapid rise in rents that has occurred in recent years, largely due to the critical housing shortage. But as an investment columnist from Telegraph.co.uk warns, this formula becomes less attractive should there be an interest rate rise: “recent buy-to-let investors could see their costs outweigh their gains,” says Nicole Blackmore, adding that “campaigners have warned that rent rises are unsustainable, further dampening investment prospects.”

Invest via a property fund manager - This might seem like outsourcing, and in fact it can be approached that way. Property funds typically mean investing £10,000 or more in a pool managed by professionals, who focus the investment on a single, unbuilt property. The land is purchased at a low price because it does not yet have planning authority approvals. When the fund managers achieve those approvals, infrastructure (streets and utilities) are built, then the land is sold to homebuilders. The return on investment comes in as little as 18 to 24 months (or up to 60 months), with healthy double-digit gains in the most successful cases. This is subject to many factors, of course, not the least of which are the skills and proven competencies of those managers.

Invest via a REIT - While the introduction of REITs in the UK in 2007 proved to provide very poor timing as the 2008 financial crisis hit, REIT.com provides some recent performance numbers to cheer investors who choose this instrument. While it’s theoretically possible to achieve a strong ROI within a single day of trading, similar losses are equally possible in the same time frame. FTSE NAREIT, designed to measure the performance of larger and more frequently traded REITs, shows dividend yields consistently within a range of 4 to 4.8 per cent (measured annually since 2009).

Not sure which is right for you? Speak with an independent financial advisor, who can assess your wealth portfolio and short-, medium- and long-range objectives as key considerations.

How Much Reporting Transparency Should Investors Expect from Property Fund Managers?

Disclosure and transparency are on the rise in commercial real estate investment. But the same factors also drive confidence in residential development.

The global commercial real estate behemoth JLL issued its Global Real Estate Transparency Index in 2014, sharing two key observations of interest to British real estate investors. One is that the United Kingdom ranks number one in transparency, followed by the U.S., Australia, New Zealand and France. Second, investors and governments are increasingly aware of the value of transparency as a means to stimulate inward investment.

The consequence of both is that many countries, primarily those in the developing world, are striving to become more like the UK. But for property fund managers - those driving the development of much-needed housing in England and Wales in particular - this emphasis on transparency is equally urgent and beneficial.

The JLL report, its eighth annual, further breaks down the drivers for transparency that, while written for the commercial side of the business, holds similar value in housing- and land-focused joint venture investments. The report’s key observations include:

• Younger investors expect greater accountability - Perhaps due to the widespread use of social media, younger investors and homebuyers express a heightened demand for more information and authentic analyses.

• Open source/open data - Technological advancements have come about to a certain degree due to open-source structures. This same spirit of transparency engenders greater confidence and cooperation in all forms of real estate.

• Environmental concerns require greater impact disclosure - Better energy standards, the various green rating systems (BREAM, the Building Research Establishment Environmental Assessment Method, and LEED, Leadership in Energy and Environmental Design), and tools for measuring the economic performance of green initiatives, all contribute to greater confidence in new homes and the value they deliver.

• Increased scrutiny by the press - Birthed somewhat from disastrous building collapses in the Third World, a greater focus on the quality of buildings and infrastructure requires that new construction be of greater quality. The green building movement, along with greater rationality in infrastructure quality and financing, is a positive outcome in UK housing as well.

• Increasing trust levels - Particularly in the laggard countries where transparency is lacking, relationships between local authorities and citizens are poor. With greater transparency in UK land development, for example, planning authority decisions that are pro-development are better understood and find greater support.

• Increased inflow of foreign investment - Investment in London housing by foreign nationals is at historic levels. But foreign investors also recognize the strong prospects of homebuilding in the other parts of the UK, and their confidence in our system is part of what attracts their money.

• Stronger economy, increased scrutiny - With more investments to choose from in an atmosphere of improved market conditions, real estate development needs to match the transparency that characterises other investment classes.

What exactly should investors expect of alternative investment funds focused on land? They should know where the raw land is situated, how planning authorities are likely to respond to a use change petition, and why it should succeed when developed. They should know if their fund will sell developed land (i.e., with infrastructure in place) to homebuilders or to home buyers, and the time frame involved in realising the return on the investment. And while fund managers cannot predict with certainty the size of that return, they should provide a strategy for maximising it. But to be more confident about what is known and unknown in this type of investment, the investor absolutely should consult with an independent financial advisor to get an objective review.

Does a Land Investor Working with a Property Fund Manager Require an IFA?

Regardless of the type of investment you consider, your relative wealth or your age, it quite likely makes sense to get the objective advice of an IFA.

Decisions on investing are among some of the most important and stressful processes a person can undertake. This is why most people are advised to enlist an independent financial advisor (IFA) to provide objective, third-party advice on how to manage a wealth-building plan.

The overall goal of the IFA-investor collaboration is about well-timed asset growth. Every individual and family has different needs and different timing, affected by the age of the investor and when he, she or their family needs liquidity. This matter of timing can significantly shift the nature of the investment.

For example, most people in the UK are aware of the strong returns on land and real estate - particularly in light of the housing shortage. The investor’s choices include buying a home to rent out (and realise gains ten or more years into the future), investing via a land fund manager (where raw land is turned into housing, generally in under five years), or buying market-traded shares in a real estate investment trust (REIT), where valuations change by the minute. REITs are subject to overall market dynamics and the investment is completely liquid.

An experienced investor may invest in any or all of these three real estate categories. And very experienced investors may understand what they are doing enough that they do not need an experienced, third-party advisor. But what an IFA brings most investors is significant in a variety of investment scenarios:

• If you are just beginning to invest - The Citizens Advice Bureau, a not-for-profit based in London, urges investors to seek third-party counsel to answer several questions: How much risk are you willing to bear? How long do you want your money tied up? Do you want general advice or guidance regarding a specific investment?

• If you have a recent windfall - An inheritance, bonus pay, the sale of property or a business: any of these needs to be managed carefully due to tax implications and the temptation to "put all the eggs in one basket," so to speak. An IFA can temper the emotions and exuberance of such moments to guide the investor to holistically put their money to best purposes and outcomes.

• If you are entering a new life phase - There are many junctures at which one’s financial responsibilities change: getting married, having children, when experiencing career advancement, when starting a business, when selling a business, retirement, divorce, death of spouse, and old age, among others. At each point, investment strategies can change. A qualified independent financial advisor will guide the individual and dependents to identify the smartest ways to plan for and navigate through those changes.

This is not to denigrate the stewards of specific investment products. They certainly have their own reputations and asset growth successes that drive their work. The land fund manager who succeeds at turning a £10,000 investment into a £14,000 return in two years will certainly share those results with prospective investors. But every land investment is different, and the individual needs to decide if the semi-liquidity of real estate development fits the investor's own life phase timeframe.

As the Citizens Advice Bureau advises, you may pay a fee, a commission, or a fee plus commission for an IFA's services. This is wholly warranted, as your investments have a great deal to do with your future happiness and wellbeing.

What Are the Opportunities for Investors in UK Rental Housing?

For a variety of reasons more people rent their homes than 10 years ago in the UK. Developers and homebuilders are developing properties accordingly.

When Communities Secretary Eric Pickles announced in June 2014 that the Government was designating £49 million to support rental home construction, it was acknowledging a long-term trend in the UK. That is, for various reasons, a larger chunk of the working population now rents rather than owns its home.

The Government fund supports schemes under the Build to Rent programme, itself a £3.5 billion scheme targeting the construction of 10,000 new homes for private rent. It specifically helps developers to build larger scale homes for the private rental sector. Of note, these are intended to be quality homes that will help goad private investment in this sector, such as through property fund partners. The program is already oversubscribed by developers and likely to reach its 10,000 home goal.

But who are the renters - and will there be enough demand in the future?

The traditional view of renters in the private market was that they were young working people, saving up a deposit such that they could purchase a home in the next few years. But the housing crunch and stringent lending practices since the financial crisis in 2008 have changed that considerably. Some statistics worth considering:

•    The size of the private rental market has risen by 89 per cent between 2003 and 2013.

•    In England and Wales, the rise was from 1.9 million households to 3.6 million.

•    "Rental hotspots" - areas where between 20 and 40 per cent of homes are rented - numbered only eight in 2001 but now 51 areas have that high a concentration of renters.

•    Traditionally, large cities with high housing costs such as London and university towns had the highest concentration of renters. But now higher concentrations are seen in Torquay, Torbay, Eastbourne, Hastings, Bournemouth, Shepway and Newmarket - each with more than 20 per cent renters.

There are a number of ways in which investors can tap into this market. One is through a real estate investment trust (REIT), which is akin to buying a stock in a company that builds or holds rental properties. Many REITs are in the commercial property sector, but increasingly the portfolios are exclusively or at least inclusive of residential property. Another is through an investors club, where a small group of individuals pool funds to buy a single home or flat; the price of entry can be as little as £1,000, attracting younger investors who like the proximity to the investment but cannot afford a full down payment on their own. Traditionally, individuals with adequate resources would purchase a flat on their own, manage it and collect rents over time, selling perhaps at the time they become pensioners.

Another option is in the strategic land investment realm. This may not involve holding the property when it is built and then leased. Instead, property fund managers will identify a city where the local economy demands more employees and new residences need to be provided. The investors may join in for £10,000 or more, financing the purchase of un-built land, with the hope of achieving planning commission approval to build on the land. With that, the fund may invest in infrastructure (roads, utilities) and then sell to a homebuilder. At this point, the properties are built and either sold or rented to occupants.

Regardless of the path the investor takes, he or she should always consult with an independent financial advisor regarding a real estate investment. The relative risks should be considered relative to the individual's wealth building strategies.

The Help to Buy Debate: Is this why home price averages are climbing?

Many like to criticise the Help to Buy scheme, alleging price increases result. But others disagree:  most buyers are outside of London, new to ownership.

There is a popular argument circulating in the United Kingdom that George Osborne's Help to Buy scheme is causing home prices to rise - and rise rather quickly. From several sides, claims that the programme designed to allow new buyers their first step on the property ladder is in fact fuelling high demand that is greater than the supply and consequently pushing up prices.

That is a flawed argument, posit others. An easily provable point is that the housing supply has been limited for quite some time due to underbuilding during the recession (and before it as well). Also, that the price rises are skewed by the situation in London, where foreign buyers pay cash for £4 million homes just for their children attending university there.

Investors in homes, working through alternative investments in land, know that homes are selling everywhere including outside London. And that if nothing is built, demand will only increase.

Financial Times opinion writer Huw van Steenis made several points in a May 2014 article that suggest that Help to Buy in fact has been a success with little downside. His observations include:

• From mid-2013 through mid-2014, housing starts are up 31 per cent. That does a good job at increasing inventory, as homebuilders are now confident that what they build will be bought by middle class workers, throughout the country and away from London.

• New homes being bought are about one-third by Help to Buy and two-thirds by traditional financing. But research conducted by investment firm Morgan Stanley says this portion attributable to Help to Buy will rise to 40 to 55 per cent by 2015.

• Workers of modest income make up 95 per cent of Help to Buy users, as 80 per cent of homes purchased under the plan are for properties that sell at about one-third less than the national average home price.

Van Steenis concludes that there remains a shortage of homes, that the banks still need to apply stringency in making loans (for example, limit it to home values of less than four times the borrower's income), and that banks should be stress tested to ensure they can weather price drops of up to 35 per cent. He adds that freeing up more land for building should also be part of the national strategy for alleviating the housing crisis.

Of course, the National Planning Policy Framework, which is being implemented at the local level, plays a very important role in increasing housing stock. The web publisher Housing.co.uk noted in 2013 a critical provision of the NPPF plan, which pertains to how local planning authorities (LPAs) should react to market demands. The language of the Framework basically instructs LPAs to heed "market signals," looking at housing affordability, land prices and the relative degree to which land is allocated to residential development.

In other words, says Housing.co.uk, local authorities are responsible for ensuring that prices do not become unaffordable. If allocating more land to development can bring home costs down to the affordable level, then so be it.

Strategic land investment funds work with this equation. They look at market needs, identify land where home construction would be optimal, purchase the land (where sellers are willing), then develop the site. Increasingly, "development" is about creating infrastructure such as streets and utilities; then they sell the ready-to-build lots to actual homebuilders.

Individuals who invest by way of property fund managers take advantage of these sets of circumstances, often achieving appreciable asset growth. But such individuals should do so under the advisement of an independent financial advisor, recognising how the specific components of land investments need to fit the investor's wealth management strategies and objectives.

LPAs Running Behind in Plans, But Approvals Are Up

Two years into the streamlined NPPF, more development proposals are winning planning appeals. It means more homes for Britain, but not everyone is happy.

Two years into the new rules for development in the UK - as defined in the National Planning Policy Framework, or NPPF - it appears that more residential developments are being approved by local planning authorities (LPAs). Relative to the housing shortage crisis this is welcome news.

But why exactly are more plans being approved? PlanningResource.co.uk, the independent information hub for planning professionals, reported in 2013 and 2014 that too few local planning authorities are compliant with the NPPF. This then has the effect of allowing proposals by developers (very often real asset fund managers) to win appeals after initial rejection. Said the publication: "The framework opens up new opportunities for appeal against LPA decisions. If an application is turned down because of conflict with the local plan, there now may be an opportunity for the applicant to argue that the plan has not been brought into line with the NPPF, and hence is "out-of-date", and the presumption in favour of sustainable development should apply."

PlanningResource.co.uk further describes the NPPF as a "game changer," providing an advantage to developers who previously would not attempt an appeal. If the local authorities have a weak plan at all, rulings more often than before go to the homebuilders.

This is much more than a niche matter. The Planning Inspectorate (PINS, in the Department for Communities and Local Government) provided data in early 2014 that shows how only 49 of 336 local planning authorities (14.6 per cent) have plans in place deemed sound upon examination; the total number of planning authorities with plans of any sort is just over half (56.8 per cent) of local authorities. The reason for such failures may be due to staffing cuts in planning policy teams, according to Alister Scott, professor of environmental and spatial planning at Birmingham City University.

Is this a problem? Does the housing crisis not call for a streamlined process? The Director-General of the National Trust, Dame Helen Ghosh, says that pressure from the Government is forcing councils to approve too many plans too quickly. In her words, "I think events proved that you just need to take longer to do these things properly to get the land use right and genuinely to engage local communities." Former Planning Minister Nick Boles tends to differ, reports The Telegraph. He counters that councils have been asked for a decade to "shape where developments should or should not go."

The National Trust says their research finds that half of all councils with greenbelt land allocate some of it for development. Whether or not that is what the local citizenry wants is left to question. But the Centre for Housing and Planning Research at Cambridge University offers its own observations and advice based on multiple studies that might serve as a guide to local planning authorities:

• The NPPF has been well received by large house builders. They say that alteration to the policy is inadvisable; rather, LPAs need to focus on smart practice of the policy.

• Effective planning means adopting an effective five-year housing supply plan. Without it, the councils will more likely lose on appeal (as evidence shows often happens).

• Planning is effective once development is acknowledged as essential. When chief executives, planning officers and elected members become pro-development, a positive, get-it-done programme results.

In other words, planning works - if and when done in advance, and when the powers that be are in alignment with the national push to build more homes.

What is clear is that homebuilders, developers and their investors have a lot to be optimistic about. With more planning changes likely to be approved (or approved on appeal), this is a time to build. Surely, the opportunity can drive considerable asset growth for those participants? But with more than a million homes needed in the UK to meet a young, growing population, it serves the needs of the country as well.

Investors need to choose their investments in housing wisely. Whether it is to buy individuals homes for rental, or to invest through land fund managers, the investment should be reviewed by an independent financial advisor.  The IFA can determine if it meets the risk profile of a wealth portfolio.

LPAs in Slow at Writing Development Plans in the UK

British planning system changes should speed up housing delivery in an orderly fashion. But developers may be better at designing growth plans.

Two very important changes in how residential properties are developed in the UK have been implemented in the past few years. First, the Localism Act of 2011 enabled local communities to have a greater say in what is and is not built in their neighbourhoods. Secondly, the National Planning Policy Framework, published by the UK Department of Communities and Local Government in 2012, is widely regarded as a much-needed simplification of the process by which towns determine and implement their development objectives.

The backdrop to all this of course is the tension between a critical housing shortage in the UK and a long-standing culture of greenfield preservation. In other words, we need houses - more than one million residences to meet pent up demand of a growing population - and yet the country has long determined it wanted to avoid American-style suburban sprawl. Princess Anne herself has weighed in on this in support of the efforts of the Council for the Protection of Rural England, which advocates for incremental development on a small scale over large blocks of new homes, numbering in the thousands, in a single development.

The NPPF essentially tells local planning authorities that they need to think through and structure how development should unfold in their jurisdictions. It also expresses the need to enable development, as the housing shortage in the UK over the past decade and for some time to come, requires that new homes be built. Of course with all forms of development (including that driven by strategic land developers), there are opposing sides and differing opinions on how that should take place.

Which can mean that how development unfolds is a matter of influence. Ideally, good ideas lead the way - identifying where development will be smartest, where the municipality can benefit the most from new homes and new neighbourhoods. Under ideal conditions, new development will support the local economy and local infrastructure. Done right, everyone benefits.

So how are local planning authorities doing at this? The Department for Communities and Local Government provides the Strategic Housing Land Availability Assessment, a guide to determine where housing might make the most sense from a variety of perspectives (sustainability, economics, town centre vitality, transport, protection of Greenbelt lands, conservation of natural and historic environments, etc.). Presumably, the 48 per cent of local councils that had a plan written up by the end of 2013 used this and other guides to form their plans.

But this means that about 52 per cent of councils lack such a plan, even in 2014 (reportedly, about half of them are at work on something). Some say this leaves those un-planned areas subject to developers' whims.

Further, it should be noted that many councils have out-of-date plans, based on pre-NPPF dictates. Those plans often do not take into account the critical housing shortage and the NPPF-driven requirement that the need to build be taken into account. That often is the reason why developers win on appeal, that the plans put forth were unrealistic and out-of-date.

Why are local councils failing to develop true, NPPF-compliant plans? According to a 2014 review of 109 local plans by TRIP (Targeted Research & Intelligence Programme) and Nathaniel Lichfield & Partners (an economic planning firm), "the key reason Plans have stalled is the policy requirement to meet objectively assessed needs with the housing target remaining the key battleground at examinations. Just over half of Plans propose less housing than had been proposed by former Regional Strategies, but a third of sound plans end up having to increase their target to pass examination."

In other words, local councils are having trouble planning enough to alleviate the housing shortage. And in many of the districts studied by TRIP, a lack of information or out-of-date evidence plagued the plans that already exist.

Developers - such as joint venture partnerships of investors who buy and build on raw land - answer to market needs. Which means they do the work at assessing if new homes will sell. In all UK towns they still must get planning approval, then cover costs of new infrastructure demand (often through the Community Infrastructure Levy). What should be noted is that, as of April 2014, house building activity in the UK rose for 15 straight months while demand for property remained strong, according to data firm Market and the Chartered Institute of Purchasing & Supply.

House building continues to draw investors, such as those interested in strategic land (land that requires LPA approval for a use change). This is where the value of the land can increase considerably as it is prepared for development. Individuals who find the investment opportunity worthy of investigation should consult with an independent financial advisor to determine the weight and place of land investing in an overall wealth portfolio.

Why Land Banking is a "Myth," According to the Home Builders Federation

Indeed there are a few hundred thousand plots awaiting building in the UK. But what’s holding back homes is bureaucracy and construction time.

A popular idea in the United Kingdom holds that the housing shortage is due at least in part to developer and homebuilder "land banking." In the strictest sense, this is when people or a company hold un-built land like a financial security, anticipating the price will go up.

There certainly are problems with building enough homes in the UK. Cumulatively over the past ten years the country has fallen behind by more than 1 million homes. The shortage of supply has indeed driven up the cost of homes and the land on which they are built in London and many other parts of the country. Along with rising home costs go rental rates, also skyrocketing.

But there are several reasons why the land banking accusation is easily challenged. To start with, those prices are now at an all-time high, so if it were a simple matter of waiting for prices to rise that would then suggest a huge unleashing of land and built property would be taking place now. There is a sizable segment of strategic land developers who already are effectively turning empty land into residential properties - however, most of those were acquired months, not years, ago. 

Another inconvenient bit of information is basic microeconomics: it makes no sense for any business to tie up capital for long periods of time without extracting utility or value from that capital. Our "just in time" business supply culture keeps a laser focus on carrying costs, purchasing input products only when those inputs are ready to turn into something that will generate revenues. Why invest large sums in something you do not intend to use for several years?

In fact developers and homebuilders - a function very often split between two parties - will need time to get land acquired, approved and built. And by time, that can be several years in the most ideal circumstances. To tie up assets in land on the speculation that prices will increase is not a game that most businesses want or need to do. For homebuilders and their investors, getting a return on investment in a short period of time is the primary objective; this is even truer for smaller home builders who have less capital with which to work.

According to Stewart Baseley, executive chairman of the Home Builders Federation, the term "land banking" is a term that rarely applies to the home building process. "When you look beyond the rhetoric and the lazy accusations, the facts are quite clear: house builders do not hoard land or land bank unnecessarily. The debate really needs to be about how we get the land in the planning system through more quickly to build the homes we need."

The Home Builders Federation takes exception to criticisms that land banking is some conspiracy or that it even takes place. In a report issued in May 2014, "Permissions to land - debunking the land banking myth," the organisation states the following contrary points:

• 220,000 plots (representing as many homes) are said to be land banked by Britain’s larger homebuilders. But only 4 per cent of those plots have implementable planning permission where work has yet to begin.

• Of that same 220,000 plots, construction is already underway in a majority of them. Because these are larger homebuilders, these are the larger developments where construction is on a grander scale and therefore can take longer to be completed.

• 31 per cent of sites have only an outline permission (where construction is not yet allowed) or are still awaiting local planning authority discharge of planning conditions.

• 4,400 sites (2 per cent) are deemed non-economically viable for development.

The difficulties of achieving planning permission have driven the industry in part to a two-step process. Increasingly, joint venture partnerships will identify and acquire land that property fund managers believe to be appropriate for use changes. Once that planning approval is achieved, the fund will develop infrastructure such as roads and utilities, but sell plots to homebuilders who handle the development from that point. To be clear, those investors are looking for a turnaround in their investment of between 18 and 60 months, the shorter the better.

When investors consider this type of asset and its growth potential, they typically engage a third party to assess the opportunity for its risks and return potential. An independent financial advisor should always be engaged to determine if the land deal is appropriate for the investor's overall wealth management strategies.

The Hidden Homeless of the House-Short UK Impacts the Broader Economy

People are making do with what shelter is available. But so many renters, flat-sharers and home-with-mum-ers all indicate the need to build more homes.

Some call it "generation rent," but the situation goes deeper than that. The shortage of housing in the UK by more than one million homes means that people are finding all kinds of ways to cope with the dearth of affordable housing. At best they cannot buy but can find a place to-let; at worse, they have no address to call their own.

Homelessness has steadily risen in the UK over the past decade. A 2013 report, "The Homelessness Monitor: England 2013" from the Institute for Housing, Urban and Real Estate Research and several universities, revealed that rough sleeping rose 6 per cent in 2012 and by 23 per cent in 2011. The growth in statutory homelessness rose more markedly in London and the South. The report also notes that temporary accommodation places were up 10 per cent in 2013 with B&B placements rising at a 14 per cent rate. Additionally, the study found that there are hidden forms of homelessness - shared households and overcrowded homes.

All of which suggests that building more homes is the simple yet daunting challenge. Surprisingly, it's not just about council housing, as many of these under-housed individuals are working people with good prospects for eventually buying a home of their own. But that requires easier financing as well as a robust engagement of real asset fund managers who marshal private investment in market-rate housing.

This phenomenon of home sharing was reported in The Guardian in early 2014, where the trials and tribulations of flat sharing by way of various websites (Spareroom, for example) have led to households of convenience. Quite often, these are people who have experienced relationship dissolution, or the situation when one parent must take employment far away from a family home. Notably, many flat-sharers are middle-aged and at a place they never expected to be at this stage in their lives.

At the base of all this is simple supply-demand economics. The country's population rose by 7 per cent in the census decade (2001-2011) and yet the rate of house building plummeted in this time for various reasons, the financial crisis of 2008 being a major cause. The consequences go beyond how much space and privacy a person or family has - the ripple effects are in fact quite enormous:

• Family/social delays - Young, never-married professionals are living with parents or, at best, with friends. But with stagnant incomes they are less likely to get married, and the young marrieds less likely to have children.

• Failure to begin accumulating housing value - The UK's property ladder culture of asset accumulation falls short when people can't get on that first rung. Working people are paying tens of thousands of pounds to landlords for a decade or longer before being able to put that into a mortgage instead.

• Failure to make household purchases - When young people aren't buying houses, they aren’t buying furniture, appliances and other components of homes. This therefore has a downward effect on other parts of the British economy.

There are several programmes established in just the past few years that are designed to increase the numbers of houses being built and make them more affordable. One of course is the Help to Buy scheme, enabling first-time buyers to make smaller deposits while the Government guarantees the larger loan size. Another is Help to Build, directed specifically at homebuilders. In June 2014, Communities Secretary Eric Pickles announced major investments in several additional efforts, include £1 billion for projects such as large developments (7,000+ homes) currently underway in Manchester, Medway, Kettering and Swindon.

The planning system has been streamlined by the National Planning Policy Framework (NPPF), which has enabled local authorities to open more land to development. Pickles further has freed up £3 million to empower local planning authorities (LPAs) with additional capacity to finalise section 106 agreements, which has the effect of accelerating starts on work sites (up to 25,000 homes on 85 sites could be immediately affected).

But the real funding for development comes from the private sector. Individuals are keen on identifying investment opportunities in housing, many of whom work through capital growth funds that buy raw land, achieve planning approval, develop infrastructure then sell shovel-ready plots to homebuilders.

But before investing in property funds or any form of real estate, investors should discuss overall wealth building strategies with an independent investment advisor. With such pent-up demand for housing it seems that investments there can only do well, however an IFA can determine whether the specific fund meets an investor’s risk profile.

The Agricultural Building-Conversion Rules - Effective at Increasing Housing?

Converting agricultural structures to homes will provide additional housing in rural and suburban areas. But a true dent in the housing shortage will come by other means.

Then Planning Minister Nick Boles announced in March 2014 that owners of redundant agricultural buildings will have an easier go at permitted development of those buildings into residences. The ruling was made effective almost immediately. So an immediate follow-up question might be: what effect on the housing crisis in the UK might this have? Will farm families replace strategic land investment firms as the developers who solve the housing shortage problem?

The answer is "not likely." Within Boles’ ministerial statement are the limitations on these expanded development rights for owners of agricultural properties: up to three dwellings may be created up to a maximum of 150 square metres per house (i.e., a building up to 450 square meters may be converted). The prior agricultural use of the buildings had to be agricultural on and before 20 March 2013 (i.e., nothing built since or in use for another purpose other than farming).

Additionally, note this is not a free-for-all, as it is still subject to local planning authorities. Builders can place doors and windows where they chose, and even replace a portion of the building if a wall or roof or other element is deteriorated. But LPAs can still examine several factors to determine if the introduction of new residences has a material impact on local transportation and highways, if it will increase noise, or if flooding risks or ground contamination might make residential use impractical. Planning authorities can also rule if the design or external appearance of the building is acceptable or not, or if siting/location factors simply make the conversion impractical for residential use.

Given the shortage of housing in the UK, and the requirements of the National Planning Policy Framework (NPPF) for local councils to identify means to expand housing stock where possible and needed, one imagines those authorities would be somewhat predisposed to approvals.

As to the degree to which this addresses the UK's housing crisis, there are some points worthy of consideration:

• Need is important for aging farmers and rural workers - While they are not a large segment of the overall UK population, in agricultural areas an expansion of housing options can be beneficial to retired farmers who wish to stay near children now running the operation. Agricultural workers also need housing that is affordable and nearest to their places of employment.

• Knowledge workers might prefer country living - The Country Land and Business Association (CLA) published a report in 2013 that included enthusiastic support for these extended permitted development rights. Their reasons include how "to work effectively as a member of the knowledge economy, you no longer have to live in an urban location." But to make that truly possible, the CLA argues that transport policy and rural broadband delivery be increased.

• Peripheral locations may benefit - Some farming areas are in close enough proximity to developing industries. This is where residential development is most needed, and those locations therefore can help meet that need.

• Good supplementary income to farmers - According to FamersGuardian.com, the revised rules on agricultural building conversions can provide new streams of income to farms where redundant buildings have otherwise become a maintenance liability and cost.

But the overall UK housing shortage is of a scale where three residences per project in rural settings is not likely to make a huge difference to the national problem of too-few houses. The Home Builders Federation says that based on the seminal 2004 Monetary Policy Committee report by Kate Barker, the country is now short of one million homes. Where 220,000 houses should be built each year to achieve an adequate supply by the year 2021, only 115,000 have been built annually since 2004.

Another approach that achieves a larger volume is by way of strategic land developers. This is where investors join in real asset funds to buy raw land, get use permission changes from local planning authorities, then develop infrastructure that allows homebuilders to buy sites and build what the market calls for. Instead of three new dwellings, these ventures can provide 30 or 300 or 3,000 more homes.

Individuals who invest in housing-related joint venture partnerships are strongly encouraged to work with independent financial advisors. Factors relating to other components of a wealth portfolio need to be taken into consideration along with the risks and rewards of the investment itself.