The Purpose of the London Development Panel

The London Development Panel speeds public land to private development.

Land investors and homebuilders are robust participants in urban development. The LDP helps them to revitalise neighbourhoods more quickly.

Because of the impactful housing shortage in the UK, the Government has adopted a scheme to speed the sale and development of underused, publicly owned land to private investors, who will then build much-needed homes. The London Development Panel (LDP) exists solely to expedite the procurement process.

To the land planning and investment community, this is a useful tool. After all, time is money to just about everyone, not the least of which include those who work in joint venture land investment.

In England, there are an estimated 7,500 hectares of publicly owned land that is suitable for housing but is currently vacant or under-used. Under the Department for Communities and Local Government, the “Community Right to Reclaim Land” policy allows individuals, organizations and businesses to petition for such land conversions. The LDP maintains a framework agreement between developers and public landowners, fostering a more efficient procurement process that spurs quicker delivery of homes.

The service delivery from the LDP covers the entire span from concept to sale or rental of properties. This includes:

• Raising capital
• Planning permission approvals
• Design, construction and supply chain management
• Design and construction of infrastructure
• Sales and marketing
• Aftercare and maintenance

In concert with other city-provided programmes (such as the Mayor’s Building the Pipeline fund of £136.5m to build 6,190 homes), these initiatives might be credited for attracting increased private investment activity in the housing sector. In early 2013, Prudential Property Investment Management announced an acquisition of 500 new rental homes – a return to the sector after a 30-year absence. Industry analysts say it was a wise move because of the increased share (20 per cent) of housing that is now in the to-let category. The number of renters is due to the tough mortgage-lending environment, leaving more working people off the housing ladder.

Real estate investment trusts (REITs) have begun to show promise on the exchanges, largely reflecting activity in the commercial sector, while a REIT for residential assets was first launched in 2013. Still, the largest asset growth is more likely found through limited joint venture land investment groups who focus on only a handful of developments at a time. Other investors such as in capital growth planning ventures are working with land specialists who convert raw land to housing by way of planning permissions.

With increased activity in the real estate sector, investors who are new to real asset investing are advised to speak with an independent personal financial advisor. The level of risk in real estate needs to be in appropriate proportion to the remainder of the investor’s entire portfolio.

The Implications of Institutional Investors in Rented UK Housing

Institutional investors now back in UK residential rental housing: What does it mean?

Investors such as Prudential are now buying to-let residential housing in England. After decades of absence, the housing crisis seems to be the driver.

The quadrupling in the size of the private rented housing market in the UK over the past decade reached a watershed moment in 2013: institutional investors are now getting back into quality rental housing ownership. Prudential PLC ended a 30-year absence from investing its assets in the sector with the purchase of 500 newly constructed homes, promising to increase its portfolio there in the future.

Since the 1970s and 1980s, individual landlords with small portfolios largely dominated the landscape in private to-let housing. Indeed, the National Landlords Association says that a growing proportion of private landlords – currently, 73 per cent – rent only at market-rate, not to recipients of local housing allowances. Some of this can be attributed to the strength of the rental market, as more working people can afford to pay rent but are unable to buy their residences.

The introduction of the 1988 Housing Act changed the scenario for private landlords, as they were enabled to charge market rates for housing. About two-thirds of residential rental properties are held in small (one or more units) portfolios owned by individuals. The remaining one-third is held by companies that, for the most part, are real estate firms.

But the long-term cash flows of rental property look increasingly attractive to institutions with money to invest. Analysts note that residential compares well to commercial properties, where deep-pocketed investors have been concentrating their assets in recent decades. Additionally, development of raw land sometimes focuses on the rental market already, where the market demands it. Residential properties beat commercial in both total returns and risk adjusted returns, in addition to outperforming equity and gilt markets. The total annual return for to-let residential investments is 9.78 per cent (vs. 5 per cent for commercial), according to analyst M&G Real Estate (formerly known as PRUPIM).

One attractive aspect of the residential rental market is that it is more inelastic to economic downturns than with commercial. In an economic trough, commercial spaces empty as businesses shrink or close, but housing is more resilient as even unemployed people find ways to stay in their homes if at all possible. Elsewhere in the Eurozone – Switzerland and Germany in particular – a robust institutional rental market has always been healthy.

But perhaps the biggest driver in the UK rental market is a simple acceptance that ownership is beyond the reach of much of the country’s burgeoning population. With 7 per cent growth over the past decade (Census 2011), the country’s homebuilders are only constructing half as many homes as needed. The tight supply, as well as stringent lending and unattainable deposit requirements, have made renting the only rational option.

Strategic land partnerships and homebuilders are responding to this shift by building for to-let owners. Indeed, land development specialists who assemble investors (often operating as capital growth partners) are now speaking to local planning authorities about the rental option. Where employers need people living nearby, rental housing may be the answer – particularly if workers need to be flexible to moving. With companies such as Prudential entering the market, competition for good properties may heat up.

Interested investors in any type of housing need to go about it with due caution. Many choose to invest via land investment funds that are managed by a strong team of strategic land investment advisors. Speak with an independent financial advisor to examine where land and property investing fits into your overall portfolio risk profile.

The Battle Over Land Planning Reform in the UK

UK land planning reform is a battle of tough choices.

Clearly, greenbelt and other open lands in England are among its greatest assets. But raw land development might be a smart answer to the housing crisis.

All over the developed, industrialised world there is a somewhat civilised form of conflict over land use. Everyone agrees a rational approach should be used to accommodate the increasing population – perhaps even more so in the UK, where population is growing faster than in most of the Eurozone – but that rationality takes a different form when sacred areas such as open land and greenbelts are targeted for development.

The unique characteristics of land planning and housing shortages in England and Wales, in particular, foster a particularly heated battle. In one corner are the preservationists – The Campaign to Protect Rural England, in particular – who largely consider maintaining the absolute sanctity of greenbelts and Areas of Outstanding Natural Beauty as their mission. These tracts of land were created to bring a quality of life to the country; any compromise thereof is considered a betrayal of the intent of the founders of these movements.

Resistance by these groups to development does not stop with housing. Commercial construction, mineral extraction and even wind farms face opposition. Even those who publicly laud the economic benefits of each of these things will adopt a NIMBY (not in my back yard) posture when it affects their own town or neighbourhood.

The other side of this battle might be considered the pragmatists, those who view the country’s pressing housing needs as reason enough to rethink and revise the use of such lands. Homebuilders and developers (including those working with managers of property funds), of course, are a driving force in this debate, following an obvious economic interest. But so too are affordable and social housing advocates, who argue that limitations on all building is driving the exorbitant cost of housing at the lower end of the economic spectrum. The poor and working classes are increasingly burdened with little space even while an increasing portion of their income is consumed by rent. Affordability for buying is dropping, as a full 20 per cent of housing now being built is for the to-let market, up considerably since 2000.

The adoption of the National Planning Policy Framework in 2012 was heralded as a means to simplify procedures and encourage acceleration in development, replacing a difficult, time-consuming and not always rational system. In outlining the Framework, Minister for Planning Greg Clark, MP stated several priorities for land use in the UK:

• Encourage economic competitiveness
• Ensure town centre vitality
• Promote a prosperous rural economy
• Drive sustainable transport
• Push for high quality communications infrastructure
• Offer broad choices in quality homes
• Foster good design
• Create healthy communities
• Provide greenbelt land protection
• Meet the challenges of flooding and coastal change and climate change
• Conserve and enhance natural and historical environments
• Insist on sustainable use of minerals

Specifically under green belt land protection, the plan says the Government “attaches great importance” to them, honouring the fundamental goal of preventing urban sprawl. “The essential characteristics of green belts are their openness and their permanence,” it states. It also prioritises “the recycling of derelict and other urban land.”

At the end of the analyses, the complexity of the problem suggests a complex solution – some open lands might be worth sacrificing to achieve social goods, while other areas absolutely must be protected.

Strategic land investment in development needs to be sensitive to all these needs. In parallel, they need to answer to the dictates of responsible asset management. Would-be investors should always balance their real estate investments with their social conscience as well as their financial risk tolerance, ideally with the counsel of an independent financial advisor.

Land Development in the UK: Seven Rules to Guide Investors

The significant increase in land value that comes from converting open lands to housing is hugely attractive. But newer investors need to know the rules.

Real estate investing in the UK is a landscape of great contrasts. While millions wait to find affordable housing – more often today renting, less often buying – there are investors ready to put money into building new homes to accommodate ready tenants and earn a fair profit in the process. In additional to real estate companies and individual investor-landlords, more recently institutional investors are getting into the game.

The prospect of turning open land into housing is of course very attractive. This can mean raising the value of agricultural land priced at £4,000 to £10,000 per acre to £200,000 or more per acre when local planning authorities grant permission to a use designation.

But if it is so attractive, why isn’t everyone doing it? Simply this: because such planning permissions are very hard to come by. Also, there are many factors that distinguish land with development potential from that which has none or very little.

But strategic land development nonetheless can yield great returns on investment. There are pitfalls to avoid and opportunities to seek out. Here are seven rules to follow that can help the UK land investment funds investor find worthwhile asset growth:

1.    Determine if you are working alone or with partners – Some of the world’s wealthiest people achieved that status via real estate. But most of them had teams of advisors and their own professional skills to inform them where opportunities were good and not so good. Partners not only help spread the risk but can also provide important expertise.

2.    Determine if you need the help of land development specialists – An investor group might work with land development professionals who study the markets on an on-going basis. These specialists often initiate the gathering of investors and earn their fees in part due to their knowledge of planning authority predispositions.

3.    Be realistic about housing demand in that location – The least expensive land is located away from the most densely populated cities because demand there has been light. But if a new employer wants to establish a large workplace in a smaller town, there may be a strong opportunity to build in that location. Anticipating any such local economic factors is a skill of the most successful real estate investors.

4.    Identify if the land has planning permission potential – While this might appear to be a simple matter of applying for a use change, it simply isn’t. Land use reforms, decentralizing authority to local planners, has helped. But those people who are professionally engaged in land use changes are more likely to find success in this area.

5.    Self-build or sell to a homebuilder? – This is the question that largely depends on individual skill sets. Many investors own the land up until the point where houses can be built, but then sell them to homebuilding companies. Why? Builders know how to construct with efficiency, as well as how to identify what the market wants. At the same time, undertaking all tasks from raw land to selling to the first resident allows for maximization of profits.

6.    Avoid dodgy land banking schemes – There are investment schemes that prey on investors who are new to this asset category. Typically, land that is highly unlikely to ever be sold for development or achieve planning permission is offered at an attractive price. The scheme representatives will overstate the chance to resell at a profit – proving the axiom once again, that if an offer sounds too good to be true it probably is. Qualified strategic land investing programmes will include a full prospectus that clearly outlines the marketability of properties.

7.    Check the Land Registry – If a land development scheme still seems attractive to you, at least know the register of title – that is, the ownership rights – are in order. Visit www.landregistry.gov.uk for more information.

Investors in land likely will make handsome profits over the next two decades due to the increasingly critical housing shortage. But buyer beware: not only should each investment be investigated thoroughly before proceeding, but one should also determine where and if capital growth properties fit into the whole of an investment portfolio matters. Consult an independent financial advisor to get his or her objective assessment.

Is 9% of Developed Land In the UK Enough?

What makes development on 9 percent of UK land a set point?

Advocates for greenbelts and open lands find Government proposals to build outward unsettling. But the housing shortage for a growing population may require it.

Members of a national organization that campaigns for the protection of countryside, the Campaign to Protect Rural England (CPRE), heckled UK Planning Minister Nick Boles when he spoke at their annual meeting in June 2013. He proposed that the 9 per cent of England that has been built upon should be increased to 12 percent. This proposition proved to be a lightning rod, bringing about strong opposition from the CPRE and other aligned organizations.

But is it such a terrible idea? Can open lands be forever protected as sacrosanct? The UK population grew by 7 percent in the decade measured by Census 2011, a trend that shows no sign of abating. Homebuilders cite a plethora of reasons why they build only about half as much as is needed, but land investment funds eagerly seek places to invest and build. It is the economics of scarce land that constitutes a large part of the equation.

Toward those interrupting him as he spoke, Minister Boles lashed out by saying that rural villages would “become fossilized” if land development were blocked in certain areas. Indeed he makes an important point, as the number of individuals engaged in agricultural work has diminished in recent decades, due largely to increased efficiencies in how farming is done. If new (non-agricultural) employers cannot find a population of workers, they simply will not locate their operations where the population is scarce.

To be clear, the housing shortage in the UK is so critical that the following are now points of deep concern:

• The laws of supply and demand seem to be hard at work – much to the disadvantage of the homebuyer. The Institute of Economic Affairs (IEA) reports that, in nominal terms, “house prices in the UK have increased by a factor of nearly forty over the last forty years. Rent levels have followed suit.”

• Social housing, which once numbered 5.5 million units in 1981, now is reduced to 3.8 million. On the waiting list are 1.75 million households. People without dependent children are excluded from this list altogether. This further adds to the price pressure in market-rate housing.

Such discussions almost always prove to be contentious. And data from one study to the next sometimes provide widely different opinions on such matters.

One misperception is that the National Planning Policy Framework (NPPF) tilts land use toward development over greenbelts and the official Areas of Outstanding Natural Beauty (officially designated countryside lands deemed to have significant aesthetic and environmental value, so determined by the UK Government by way of Natural England). To the contrary, the Institute of Economic Affairs (IEA) observes that the NPPF advocates for residential development on open (raw) lands outside of the greenbelt and Areas of Outstanding Natural Beauty.

The CPRE counters that more than 400,000 brownfield sites already have planning permission and should be built upon first before green lands are developed (buried in that statistic is how many of those sites have industrial waste residue that needs remediation, an additional cost added to an already expensive housing equation).

The IEA singles out the blame for the housing crisis. According to its report, “Abundance of Land, Shortage of Housing” (IEA, April 2012), “Planning restrictions are a key determinant of housing costs.” The report advocates for a liberalisation of the land use planning system as a means to address the housing affordability crisis, citing a number of studies conducted in the UK, elsewhere in Europe and in the United States.

The battle will undoubtedly wage on for some time to come. But to be clear, institutional and private investors (often, those interested in a joint investment land opportunity do so through alternative investment funds) are increasingly interested in raw land as an investment, seeking planning changes that enable them to add to the housing stock on otherwise non-productive acreage. When those planning changes are achieved, the process is effective. But before an investor elects to participate in a land-to-houses scheme, they should consult with a qualified financial advisor who can help weigh the nature of the investment against other savings strategies.

How Does Green Infrastructure Benefit UK Housing Values?

How are housing values affected by green infrastructure?

While widely known as a social good, green infrastructure is also studied for its impact on property values. The green news is good.

It may seem that with the pressing shortage of housing in the UK, there should be flat upon flat being constructed all over the country, in urban centres as well as on and beyond the greenbelts.

But while that may have been the approach in the Post-War period, we live in a more evolved and enlightened era. Urban planning has developed as a science that takes into account many factors before launching into building schemes, those factors including transportation management, how infrastructure can and cannot support population increases and density, as well as how new development can impact the local and global environment.

These are matters of significance to communities, to be certain. But the greater sensitivity to environmental considerations ultimately guide the work of those involved in UK land investment and development. Sustainable architecture and design require a different initial perspective, sometimes incurring larger costs up front that achieve a return on investment a few years later.

In particular, the devastating floods of 2000 and the spectre of climate change now drive greater attention to the effects of built environments on the natural landscape and weather phenomena, and vice versa. And, these events informed a report from Forest Research made to the Departments for Environment, Food and Rural Affairs (DEFRA) and Communities and Local Government (DCLG). It was titled “Benefits of Green Infrastructure” and released in October 2010. The extensive study undertaken in this report (196 pages) covers the benefits of green infrastructure in several respects: the economy, social impacts, the environment, ecological dynamics, land regeneration and hydrological effects.

As one might expect, it delivers a positive position on what a conscious approach to development can mean. This includes the use of plants and topography (i.e., how rain water is managed) to mitigate pollution and flooding and to encourage physical activity and social connections. But what’s striking is that home values are also impacted.

For example, it may be intuitive that homes bordering on green spaces (including official greenbelt lands) tend to be priced higher. After all, homes and cottages that border golf courses naturally have greater value on a per-square-foot basis than those a few miles away. But the DEFRA/DCLG report identified how developing and improving properties that are adjacent to green space yields higher returns on the real estate market. “Green areas have a better image and attract more visitors, bring with them retail and leisure spending and provide job and rental opportunities. This in turn increases land and property values,” cites the report, which borrows directly from a study titled, “The Economic Value of Green Infrastructure” (Natural Economy Northwest, 2008).

To come upon this conclusion, researchers use the hedonic price method, which computes economic values for ecosystem or environmental services as they directly impact market prices. The hedonic pricing model is used by urban planners, strategic land partnerships and others when proximity to open space is clear, as well as when data on real estate transactions are available. In other words, it is based on real experiences in establishing home values.

How much can this value be increased with the presence of private and public parks? Here are two key findings of multiple studies in the DEFRA/CLG report:

1.    A view of a natural landscape adds up to 18 per cent value to a home’s property value in North West England.

2.    A view of broadleaf woods in peri-urban settings increases a home’s value on average across the UK by £7,680.

Business activity can also be generated with green infrastructure. A project in the Mersey Forest, a network of woodlands and green spaces across North Cheshire and Merseyside, involved new tree planting (8.9 million trees planted thus far), woodland management, human access to green spaces and recreational facilities, habitat improvement and land reclamation encompassing more than 500 square miles of land. Of note, this was done by engaging local communities and businesses heavily in the process. The programme was hedonically studied and found to have directly increased economic output by £2.8 million in gross value added in tourism spend, jobs related to products from the land and in health improvements.

The relationship between green infrastructure and health, as studied at the Mersey Forest, come from increased physical activity and a removal from built, urban environments that are characterised by concrete and a lack of growing plants and wildlife.

Green infrastructure often also includes a conscious and decidedly natural approach to water drainage. Hydrological effects of the use of plants and strategically placed bioswales and wetlands help convey and absorb storm water in place, instead of sending it far away in human-built drainage systems. The floods experienced in the UK and elsewhere are often due to a concentration of water where built-systems cannot accept a large volume all at once, as it happens in storms. Environment Agency UK reported as early as 2007 that a failure to absorb water in situ, particularly with new housing and commercial development, could inflict £54.6 million in damages from river and coastal flooding per year.

Investors in land development and homebuilders are increasingly conscious of these factors and are now incorporating such green infrastructure into their planning processes. Of course, dedicating land to green space might reduce the total acreage on which homes and businesses are built, but the increased value of those built acres might offset that cost in the short run and certainly add value over time.

Individuals who are looking at real assets/land investments should consider working with two types of advisors. One would be a land investment funds advisor, expert at taking raw land to productive development. The second would be an independent personal financial advisor, able to assess an investment opportunity relative to one’s overall wealth management portfolio.

How Greenbelt Spaces In the UK Can Be Protected, Even as Land Development Increases

Can development lead to better greenbelts in the UK?

The UK housing shortage demands development. Some new ways of thinking of greenbelts and green space allocation might offer new solutions.

In an era of climate change, it may seem odd that serious challenges to the otherwise sacrosanct greenbelt areas around 14 major urban areas are being made. The reasons are primarily based in the UK’s housing crisis, but in fact a good argument can be made for taking a different perspective on how green, growing, thriving natural environments play an important role in human habitat.

The Conservative minister of planning, Nick Boles, set off a firestorm in late 2012 when he began speaking publicly about opening up 1,500 square miles of open countryside to housing development, increasing the country’s landmass in use for housing from 9 per cent to 12 per cent. He even suggested that some buildings can be more beautiful than nature itself. The Campaign to Protect Rural England predictably and appropriately responded in kind, saying that brownfield lands (those that have been built upon previously) can accommodate up to 1.5 million new homes, rather than “destroying the countryside” with greenfield building.

So why wouldn’t those involved in land investment and land site assembly not take advantage of these brownfield sites? To begin with, they are not always located where the housing need is greatest. And, brownfield lands often need environmental remediation to protect the health and safety of new residents. Added costs, then, pushes the new homes beyond affordability.

The centre-right group, Policy Exchange, takes the position that the high price of housing is actually about the shortage of land on which to build. They say this perversely has led to developer land banking.

“Developers know land release will always be inadequate,” says Alex Morton, who authored a comprehensive report from Policy Exchange. “They therefore hold on to land because it rises in value and it takes a long time to get hold of, meaning that they don’t build enough new housing. The warped nature of the market is shown by the fact house prices have tripled but new homes being built have actually fallen,” he told the Daily Mail.

Natural England, the statutory advisor on landscape to the Government, is taking a different look at greenbelts in light of the skewed economics that Morton cites. For both social and economic reasons, the UK Government wants to build 3 million homes. Because of climate change considerations, Natural England prioritizes green space but with a willingness to challenge the 1950s definitions of greenbelts. The bureau’s chair, Sir Martin Doughty, has said: “The time has come for a greener green belt. We need a 21st century solution to England’s housing needs, which puts in place a network of green wedges, gaps and corridors, linking the natural environment and people.”

Natural England still proposes that green spaces be at the heart of all new development, just simply that instead of a ring encircling towns that those spaces be interspersed within. There are many examples of the existing greenbelt lands that failed to live up to truly environmental excellence: Baroness Hanham, communities minister from the House of Lords, famously said some greenbelt land use was not “absolutely brilliant,” presumably referring to disused property that is neither attractive nor environmentally beneficial.

Indeed, more evolved approaches to urban planning includes the use of landscape within the built environment to mitigate storm water runoff and contribute to the quality of the air. The “wedges” and “corridors” proposed by Doughty could well serve that purpose, bringing actual green spaces more equitably closer to all sections of cities instead of those fortunate enough to reside near the outer edges of the town.

Developers and investors might do well to propose such designs to local planning authorities as they ask for land use designations.

Of course, investors in land development – capital growth fund properties, for example – should not expect a wholesale opening of greenbelt lands in the near term. The economic pressures call for it, but due to the legacy of these fields and forests, the loosening of the greenbelts (so to speak) will at most be incremental.

This affects investors, of course, who are eager to build. Investors in land development should seek independent financial advice on the risks associated with land development – understanding that attitudes on where development is acceptable may be shifting.

Site Development No Longer the Job of UK Homebuilders

Homebuilders used to do all the work: Buy land, achieve a use change and build roads, then build and sell the homes. But now land investors do that -- here’s why.

The good news is that homebuilding in the UK in the first quarter of 2013 was at its highest in five years. The Chancellor of the Exchequer, George Osborne, is given partial credit for providing equity loans up to 20 per cent of the value of newly built homes. This “Help to Buy” program is available to purchase homes valued at or below £600,000, and can be accessed by both first-time buyers and people who have previously owned property.

It only makes sense, after all. With a growing population (up 7 per cent from 2001 through 2011, according to Census 2011 data) concurrent with the economic downturn, there has been a dearth of new home construction that has affected a generation of would-be homebuyers. Credit access for buyers has blocked many from buying, creating pent-up demand.

Another problem that has confronted homebuilders has been diminishing margins. The business has traditionally been capital intensive: they would need to acquire land sites that were appropriately zoned for housing (or slated to change, per the local planning authority), develop the streets and utilities infrastructure, then find buyers for homes they would build. The amount of upfront cash and the time frame over which all development took place forced significant carrying costs and risks on the homebuilder.

Now, however, the business model has shifted somewhat. Land investors are taking on the risks and rewards of site acquisition, zoning changes and site preparation, adding streets and public utility services, as needed. Once that is done, homebuilders buy the land, build houses and then sell them.

Why does this arrangement work? It’s about doing what one does best. Land investors and site development specialists bring a certain expertise and resources – knowledge on how to strategically acquire and prepare sites, which a homebuilder may lack. Subsequently homebuilders, who are expert in constructing the type of housing that the market needs and wants, then focus their skills there. Capital is invested in each phase, but the risks are better understood and the time frames shortened (which also mitigates risk).

Implicit in all of this of course is the complexity of each task. The business of site preparation isn’t for the dilettante. This is why land investors are increasingly turning to specialists who know the process and the pitfalls. Land investment groups are generally attuned to the government’s housing delivery initiatives and localism agendas. They are able to mitigate planning risk such that they can target per annum returns in the double digits.

In the end, all players in the equation should be able to thrive in the months and years ahead. The inexorable increase in population is creating ever-growing demand for housing, which is unlikely to be satiated anytime soon.

Individuals who consider alternative investments and who plan to invest in land for development into housing are encouraged to work with an independent financial advisor. Land investment comes with its own set of risks that specialists understand; how the risk fits individual portfolios needs to be evaluated one individual at a time.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

New UK Housing Sector Investor Advice

As institutional investors venture into the rental market after a half-decade’s absence, private investors are considering how to-let housing might work for them, too.

The news in March 2013 that Prudential Property Investment Management Division UK was growing an investment residential property portfolio signalled an important and interesting shift in both the housing and investment sectors. “The Pru” spent £140 million to purchase 500 homes from Berkeley Group, a national homebuilder; this was the single largest transaction by an institutional investor in to-let housing since the financial crisis of 2008.

Other institutional investors are being encouraged to similarly invest in the rental market. Chancellor George Osborne announced earlier in 2013 that they will increase the budget to fund build-to-let property from £200 million to £1 billion. Reportedly, Legal & General and Aviva are investigating these opportunities.

The market demand for housing of all kind is certainly still there. The paucity of building – only 110,000 homes were built in 2012, while the UK population growth and replacement of deteriorated housing demands that 240,000 homes be built every year – is well understood. Younger buyers in particular are finding it difficult to summon the deposits required to make a purchase, and banks were stringent in their lending standards during the recession.

Consequently, private investors are now looking at rental housing for capital growth investments, and many financial advisors believe doing so can complement a diversified investment portfolio.

For the individual, there are two ways to go about this: either on a property-by-property basis, or in joining with property fund partners, such as with raw land purchases for development. A third method is a real estate investment trust (REIT), however most of those focus on the commercial market (one REIT was launched in 2013 that focuses on student accommodations in London and two others are reportedly in formation).

The “Money” section of the Daily Mail online provided a list of tips for individual to-let housing investors, emphasizing how this is far from a passive investment. Among the advice provided were the following:

Know the market: Rents will range widely depending on neighbourhoods, features and amenities. Investigate this relative to your ownership expenses. Surprisingly, the best returns do not necessarily come from the most expensive properties – a survey of 50,000 rental properties found better profits in Wales (fetching a 6.7% yield, calculating rent as a percentage of property price), the North and the Midlands, as compared to Central London and the South East.

Know the trends: Figure out where people, particularly younger working adults, are moving. Access to good transport and well-rated schools each increase the value.

Mortgages and rent equations: Be a savvy mortgage shopper, opting to use a broker if you prefer. But aim to get a monthly mortgage payment that is about 80% of what the likely rent will be.

Don’t be overzealous: Most built properties have been properly valuated and will not see the same run-up in value as it happened during the bubble period of ten years ago. Expect a slow value increase in properties, with perhaps your best asset growth coming from improvements you make to the property. This is where you can negotiate the best price and achieve an increase in value by doing the work your self or hiring professionals within a set budget.

Do more/make more: While you can contract out almost all services required of a landlord, the landlords who do some or all of the work required will save more and perhaps have better control of the investment overall. A rental agent and maintenance people can be hired, but if you are willing to spend evenings and weekends showing, painting and repairing a property feature, you’ll keep more of the rent money for yourself.

The alternative, something such as a land investment fund, is a different engagement altogether. With an investment of £10,000 or more, you would be joining with other investors, who in turn hire land development specialists (among the biggest upside in real estate today is in getting land use designation changes for raw properties in strategic locations). It’s a much more passive engagement, even though the actual transformation of land to housing is tracked through the course of the investment.

Whether an investor chooses to get involved in a property, to invest through market-driving REITs or join in a capital growth investment fund that specialises in land, it should be done with a holistic look at the overall portfolio. The counsel of an independent financial advisor is strongly recommended.