Green Belt Versus Brownfield Land Development

Does land development in the UK boil down to green belt versus brownfields?

The national housing crisis in the UK is blamed by many on restrictions to green belt development. The solutions, however, may be worked out through localism.

There is much debate in the United Kingdom over different solutions for the housing shortage. One part of the argument has to do with the dearth of financing available to both builder-developers and potential homebuyers (although the government is dealing with this latter point through schemes such as Help-To-Buy). Another part has to do with government directives on where to build: in green belt areas or on brownfield land.

The UK green belt policies reach back to the 1930s, when political leaders adopted a policy to prevent suburban sprawl. These policies effectively kept a ring of forests, agriculture and undeveloped land around many of the towns of England, Wales, Scotland and Northern Ireland.

But the total population of the country has changed dramatically in the eight decades since, as have a host of economic factors. Not only has industry and population expansion created evermore-dense towns, but a housing crisis has developed due to an unfortunate confluence of factors in the past decade: immigration, a higher birth rate, seniors living longer, and the recession.

Total population growth in England and Wales has been at about 7 percent the past decade, adding more than 3.7 million people since the turn of the century. But the financial crisis of 2008 and the resultant recession have been consequential as well. Banks are reluctant to loan money to developers, just as they have not been lending to homebuyers. New home building is at the lowest rate, as a portion of population, in 100 years. Meanwhile, multiple generations of families are sharing housing while they wait for conditions to change – specifically, for more homes to be built.

So the question in broad brush drills down to this: when the economy recovers, where will home building happen?

Directives to build brown – and the problems that presents

PDLs, (Previously Developed Land) in the towns, offer an alternative to green belt building. Also called “brownfield” sites, this is where land is vacant or occupied by vacant and decrepit buildings, or perhaps zoned for commercial and industrial purposes but sitting empty – seemingly providing opportunities to build. This is land that is contained within the green belt rings, closer to town centres and on the grid of existing utilities. These conditions make it easy to develop property, and would provide a vital, urban lifestyle to residents – and consistency with the green belt ideals of the 20th century, right?

Around the year 2000 a government commission led by acclaimed architect, Lord Richard Rogers strongly encouraged building new housing on brownfield lands, in part as a strategy to avoid green belt development. The commission acknowledged that 3.8 million new homes would be needed by 2012.

Builder & Engineer magazine weighed in on the topic more recently and they aren’t in complete agreement with that approach. The publication cites how building over the past decade has been at 160,000 to 200,000 new homes per year (and less in 2012, with a reported 21,540 new starts in the second quarter, which would annualise at about 86,000 units). Why so slow? They cite the observations of Richard Simmons, who is managing director of the Construction Centre and also a property developer.

“I think it is because brownfield is pretty slow to come to market by the time you’ve done all the testing,” says Simmons. “You have to spend a lot of money first assessing the site. Firstly you have the desktop study where they look for what contaminants are in the ground and their assessment reveals whether remediation is needed or not, which can be expensive. As a developer you are always thinking that there might be the cost of evaluating a site that might go wrong, so it’s not as easy as building on a farmer’s field.”

Not all brownfield land is contaminated, counters the British Property Foundation. A spokesman for the organisation explained that the broader definition of brownfield is PDL, which simply means it was built upon in the past. “Green building isn’t necessarily plush green land,” the spokesperson told Builder & Engineer. “It can often be nasty and derelict.”

The green belt solution?

The Daily Telegraph published an opinion piece in August 2012 largely in support of green belt preservation. It cites Housing Minister Grant Shapps’ stated support for development outside of green belt lands. Still, the newspaper acknowledges the importance of housing and the mixed picture created by the Localism Act of 2011:

“Protecting the green belt is not easy: it is in the nature of economically vibrant towns to sprawl into the countryside, and only the green belt stands in the way. Moreover, the Government’s support for the green belt can clash with its commitment to localism, as many local authorities want to build on it or causally redraw its boundaries.”

The media watchdog group FullFact.org took its own look at the scenario in September 2012 and finds a more mixed view. The group critically examined claims by the Campaign to Protect Rural England, CPRE, which are that brownfield land in England was sufficient for the construction of 1.5 million new residences.

But a closer look at the available land found something much less, says FullFact.org. Overall, there are 61,920 hectares of brownfield land in the UK, as compared to 1.6 million hectares of green belt property. A little more than half – 54 percent – of the brownfield sites are vacant or hold derelict buildings. Only the remaining 46 percent, approximately 30,000 hectares, of brownfields are truly available for repurposing and building without displacing a current occupant. This does not distinguish the portion of those brownfields that are truly appropriate and feasible for housing: many are contaminated with industrial waste, while others are situated in industrial corridors, where it would be difficult to attract residents to live.

For all of us, including those involved in UK land investment as well as those looking at investing in real assets, it may ultimately prove to be an argument that offers no national solution, as housing needs and philosophies about green belt vs. brownfield land may differ from town to town. Which in the end may be the ultimate benefit of the Localism Act.

Historical Examples of Wealth Accumulation through Investment in Land

History holds many examples of significant wealth accumulation through land.

Most of the largest landowners today are royalty, and yet some of history’s wealthiest commoners came to their money through real property.

Throughout history, ownership of land has been the single most prominent indication and source of wealth. Until a few hundred years ago land was the sole source of food, of course, which either the landholder farmed himself or, as was the case in feudal society, he essentially rented it out to others – serfs – for them to maintain.

The industrial revolution shifted the balance of wealth accumulation, somewhat, to owners of capital (factories and machinery as well as property), yet land remains one of the most important means of wealth accumulation and preservation. Some of the richest people alive today derive or preserve their wealth from ownership and transactions of land.

The list of the top 20 richest people in the U.K. includes four whose primary wealth is in land. From a list published in 2012 in the Sunday Times of London, land-rich people include the Duke of Westminster (Grosvenor property group), brothers Simon and David Reuben (who own the Millbank Tower in London), Joseph Lau (whose £33 million home is in Eaton Square in London) and Earl Cadogan and family (whose £3.4 billion estate includes 93 acres in Chelsea).

Across the globe, other names that fall onto “biggest landowner” lists are largely, but not exclusively, inherited royalty. These are Queen Elizabeth who technically “owns” 6.6 billion acres in Great Britain, Northern Ireland, Canada, Australia and the Falkland Islands (an incomplete list); King Abdullah of Saudi Arabia, also the technical owner of the 830,000 square miles of the kingdom; Pope Benedict, whose Vatican City is 110 acres within Rome plus another 177 million acres of Catholic Church properties around the globe; King Mohammed VI of Morocco, with a 175.6 million acre kingdom; King Bhumibhol of Thailand (128 million acres, including prime coastal properties); the Sultan Qaboos of Oman, whose country of 82,000 square miles lie largely in the desert; King Gyanendra of Nepal (57,000 square miles, including Mount Everest); King Abdullah II of Jordan (35,637 square miles); King Jigme Khesar Namgyel Wangchuck of Bhutan (15,000 square miles); King Letsie 111 of Lesotho (11,718 square miles, which includes diamond mines); the Emir of Kuwait (4.4 million acres, of 7 million in the nation); King Mswati of Swaziland (6,704 square miles); the non-royal James, Arthur and John Irving of Canada (owners of 3.6 million acres of land in Maine, New Brunswick and Nova Scotia); Sheik Hamad Bin Khalifa of Qatar (all 4,415 square miles of the small but strategically-located country); and CNN founder Ted Turner, whose accumulation of properties in Georgia and Montana (states in America) and in Argentina total 2 million acres. (Source: BusinessInsider.com)

As the American writer Mark Twain said, “Buy land, they’re not making it anymore.” Indeed, as the population of the U.K. continues its brisk ascent – about a 7 percent net growth in the past decade – the finite nature of the country’s land presses the matter further. There is a housing shortage and soon there will be a need to develop residential property to satisfy this growing need. The investor who can effectively accomplish land site assembly that meets market needs wins the day.

Individual investors – those who aren’t born to royalty – sometimes have the skills and knowledge to make strategic land investments in their own pursuit of personal wealth. But other investors enter into joint ventures with professional UK land investment strategists as a means of making strategic investments and development. For more information, consult with a qualified personal financial advisor.

Does Undervalued, Undeveloped Land Still Exist in the UK?

There absolutely are opportunities to increase asset value in UK land with development. But it takes at least four groups of leaders to make it happen.

The value of land has always been understood, going back centuries to when invaders and explorers sought new sources of agricultural products, minerals and places to live. It was a matter of economics that Christopher Columbus sailed for Spain, having convinced the King and Queen that their investment in his adventure would yield a great return.

Surprises in land value appreciation surface from time to time, of course. The Bedouins of the Saudi Arabian peninsula lived a nomadic subsistence for centuries until they discovered oil in the 20th century beneath the undulating sands of their desert kingdom. In a modern world, some land becomes more valuable when an industry (“Silicon Valley”) or a major point of transport is established in previously middle- or lower-value areas.

It’s hard to imagine that some land sites in the UK could be undervalued. The population is growing more so than in the Eurozone, the country being attractive to immigrants of every stripe. This tends to make one think that all land in the British Isles is simply going up in value at roughly the same pace. However, certain sectors – London and the South East in particular – are faring better than their neighbours in the post-Recession economy. Less fortunate are the counties to the north and west, where recovery as of 2013 was slower and less robust.

But in both these favoured and less-favoured areas of the UK there exists land that is hiding in plain sight, ready for investment and development. This is property that for one reason or another could accommodate residential development, but perhaps for the lack of people able and willing to make it happen. These people fall into four groups, and each of them is necessary to take undervalued, raw land and turn it into something much more productive and valuable:

1.    Business leaders – Residential development of market-rate housing rarely makes sense unless there is new or growing employment opportunity in the vicinity. With new jobs must come new people within relative proximity of the new workplaces.

2.    Land investment and planning use specialists – The time and capital required to take raw land and turn it into streets, utilities, homes and homebuyers is typically two to five years, when all goes well. So someone has to carry the considerable costs. While banks historically have done this, stringent lending standards are driving more developers to find private investors (who, it should be noted, are flocking to real estate because of disappointment with other types of investments). This is typically a “round one” of the development process, where the investors’ money is used to acquire sites, work with local planning authorities to get appropriate zoning approvals, develop sewers, other utilities and streets, before selling the land in “round two” for construction.

3.    Local planning authorities – Only towns where growth is desired will approve land use changes necessary to support development.  Thanks to the Localism Act and other efforts under the National Planning Policy Framework, the decision-making power has been decentralised to enable smarter planning in the hands of those most affected by it.

4.    Homebuilders – These are the “round two” leaders who complete the process. They identify the size, type and value of homes that are needed and are most likely to be sold successfully, after which they construct them.

Of course, each of these groups acts out of self-interest. But they must work in cooperation to a certain degree, and usually share the goal of financial success for the community as a whole.  Lately, there has been a surging interest between civic leaders, business leaders and property fund managers to create joint venture partnerships and pool their resources for mutual gain.

The place for individuals to participate in this leadership process includes the investment side. Anyone with £10,000 or more to invest can work with the land development specialists. But before doing so, such individuals are encouraged to seek advice from an independent financial planner, someone who can objectively review the alternative investment opportunity to see where it fits the investor’s risk portfolio.

CEBR Predicts 15% House Price Rise and What It Means to Investors

Investors take note: The CEBR predicts a 15 percent house price increase.

The economy is on a slow but steady upswing, reflected in part by a prediction in house value increase. Land investors might benefit from this.

Is land a high-return investment? No, says the Centre for Economics and Business Research (CEBR). But it still might be better than the alternatives.

CEBR is predicting between a 14 percent and 16 percent rise in house prices by 2015. For homeowners and builders, that is relatively good news after the price dips of 2007-2009. The bleeding is stopped, the patient is recovering. Raw land prices somewhat mirror housing prices, with differences in niches. But no one would call this a boom.

It is a curious time for real estate, particularly those who approach it on an investment level. How properties and property funds or land perform against the alternatives – traditional stocks and bonds, or alternatives such as private equity, hedge funds and precious metals, for example – is the real question. In each of those categories in recent years, there has largely been slow growth, loss or volatility.

Investments in land can be attractive when approached with an appropriate set of expectations and knowledge. To wit:

Supply and demand curves suggest asset value growth. There should be a housing boom. The population in the England and Wales is on a steady growth curve: seven percent over the past decade, probably a faster rate of growth from now through to 2020 and beyond. Meanwhile, housing construction lags woefully behind because banks are not lending to builderss. The government however has introduced schemes such as Help-To-Buy to ease financing pressure on buyers.  It seems inevitable therefore that house prices will continue to increase.

Returns in three to five years, more or less. Well-managed land investments are approached with a get-in-fix-and-leave strategy. That is, after the purchase of raw land, the specialists appeal to local planning authorities to rezone the land to serve local economic interests, which includes additions to the housing stock. The Localism Act of 2011 encourages this where prudent. The investment fund may build streets and sewers and install other utilities as needed – then sell to a developer who will build according to market demands. Good land investment fund managers will know from the outset about how long this will take.

Location is everything. Housing prices are high and getting higher in London. But at the same time homes in the North East and Scotland are losing their value. For land investors, it has to be approached on a very local basis, with a solid understanding of where development will find a ready market. This is typically where local employment needs are growing, sometimes due to a large, single employer.

Investing in land is a substantial commitment; one that the investor should expect will require £10,000 or more as an entry-level position. Investors should consult with a personal financial advisor to see how land investments affect their tax status, where it fits into near term needs and if the investment fund is well managed.

Can Value Growth Potential Still be Found in UK South East Raw Land?

Real estate values in London and the South East have proven to be more resilient in the recession. But does that mean raw land investment opportunities still exist?

The recession that began in late 2007 has had a different effect on London and the South East than in the rest of England, Wales, Scotland and Ireland, as well as most other parts of the Eurozone. That is, while prices of homes fell everywhere, deeply in many areas, those drops were not as pronounced and the recovery has been more robust in the South East and London.

According to a publication, The UK’s Housing Crises/CentrePiece Winter 2012, by Henry Overman, director of the Spatial Economics Research Centre and a professor of economic geography at the London School of Economics, the two areas both experienced about a 9.3% drop in value from 2007 to 2009. London recovered quickly, with a 5.5% rise by 2012, and the South East a bit more slowly, reaching a 2.3% rise by 2012. Compare this to a 12% drop in the North East and 10% in the North West.

The declines in construction in all regions have been even more pronounced, notes Overman. “There has also been a severe slump in construction in these parts of the country,” he says. “In the North East, construction (measured as permanent dwellings completed) has fallen by 36% from its 2007/2008 peak.”

Overman points out a key difference in construction activity between London and the South East compared to points North and West. A slowing of construction activity there, he says, “is somewhat less pronounced: 12% down from the peak for London; and 19% down from the peak for the South East.” So, for the homebuilding industry and its investors, business has been quite slack, but less so in London and the South East.

This provides important points of consideration for both those who engage in land investment and those who invest in homebuilding. One might gamble a bit to invest in other parts of the country, where prices of existing homes and land are lower than elsewhere; the question remains as to where and when the upside will come. Or, they might instead invest in London and the South East, where economic activity was harmed less by the Great Recession, and where recovery seems to be underway.

Of course, as the most populous and economically advantaged area, is there still an upside to buying raw land in places such as the South East? Given that there is no raw land to speak of in London proper, the answer there is a simple “no.” However, PropertyWire.com, an industry web publisher, says, “the rest of the country is way off peak [2007 values]…[but] the South East is expected to be the next region to recover to peak values.”

The publisher goes on to note that the real estate firm Savills predicts that serviced land values will not return to their former peak before 2016. The director of development research at the firm notes that population projections suggest an expansion of London into the outer zones, including perhaps Green Belt lands as planning authorities might allow. In particular, he notes that government-sponsored “new build schemes” should encourage building to suit the middle market, which is significantly undersupplied across the country.

Perhaps the key point in Savills’ prognostication is that already-serviced land will not peak for until 2016. Where there is un-serviced areas – raw land appropriate for future development – there therefore remains opportunity for asset growth.

There certainly is raw land in the region, the development of which is dependent on increased population and economic growth factors. A good example might be Fareham, situated between Southampton and Portsmouth. A market town, Fareham has evolved from its industrial past producing bricks and chimney pots to becoming a retail mecca, as well as a base for call centres and banks. Regional planners call for the addition of 13,700 new homes in the area by 2026. This will require much land development.

Fareham is just one example, illustrating the pro-business and pro-employment zeitgeist of the region. As town centres expand to accommodate new employers, land investors and developers will play an important and essential role in providing housing for workers.

Individuals who consider making alternative investments, particularly raw land assets, should independently meet with a personal financial advisor. This counsel will help the investor weigh the pros and cons of real estate opportunities within the context of the individual’s complete financial portfolio.

Before Buying Raw Land for Development in the UK, What Due Diligence is Advisable?

With a press for new homes in the UK, investors are looking at raw land for development. The acquisition phase should include a thorough due diligence.

When investors look at raw land for its development potential, it can be an exciting process. But part of that excitement can mean moving fast when the opportunity is there – faster than a competing investor might be able to do.

A factor that necessarily slows this process – to good effect – is due diligence. This is the necessary probe into unseen and potentially problematic features of the property. We do not buy cars without a test drive and a thorough inspection of the vehicle, inside and out. The same can be said, writ large, on the acquisition of property.

The basic review of the due diligence process should include the following characteristics of the proposed land acquisition:

• Physical – What is topographically amenable to development, including subterranean barriers (rock that is difficult to excavate, for example), slope, wetland presence, archaeological features and potential toxic contamination? Also, a boundary survey needs to establish these topographical features and if any structures improperly encroach on others’ land.

• Legal – Aside from clearly established title, any existing covenants, liens and rights-of-way should be uncovered in the due diligence process. Zoning and site plan approvals also are critical and can sometimes be “deal breaking” considerations.

• Financial – Price and value of a property are not always the same thing. To the investor, it’s about buying low and selling high, so in the pre-purchase phase a realistic look at both parts of the equation is critical to the entire enterprise.

• Sustainability – Properties’ sustainability performance is about more than “doing the right thing,” however that still is a fine motivator and one that can favourably impact the future marketability of a property. But it can also affect the property’s economic performance in rental growth, duration to let, depreciation and the time required to sell the property. Of note, residential and some commercial built properties place high values on sustainability features, while some “green” scenarios can be a poor fit with industrial development.

• Social – How will this land transaction affect the surrounding community? And of equal importance but a slightly different question, how will the community perceive that it will affect them? Development always means change, and change almost always meets resistance. That said, advocates for affordable housing have come to be advocates for development, alleviating the outsized demand with an increased supply, which tends to lower prices.

From there, the investor can assess external factors that determine the land’s potential investment performance. This may have little to do with the land in its current state and much more to do with external variables: the potential for use re-zoning (amenability to change on the part of local planning authorities), the market needs for housing, and the economic equations under which homebuilders in the area conduct their business. Land that cannot be re-zoned, developed and re-sold is not land that is attractive to most investors with mid-term goals (i.e., to recoup their investment with growth in two to five years, for example).

While formerly the province of single land developers, individuals with £10,000 or more are participating in UK strategic land development within joint ventures. As such investment groups are coordinated by land development specialists, much of the risk is mitigated with a thorough knowledge of the industry – and application of the due diligence process. The new investor in land should weigh such ventures within the risk structure of his or her full portfolio, preferably under advisement of an independent financial specialist.

Avoid UK Land Investment Scams

Land investment scams in the UK are on the increase – but can be avoided.

There are valid opportunities to invest in land in the UK, primarily because of accumulating demand for housing. But shady operators are selling worthless property.

A great irony of the Internet era is that access to information should make us better informed and therefore smarter and able to make optimal decisions. But the success of scams such as Internet Nigerian bank swindles and corrupt land investment schemes prove this not to be the case.

The latter of these two – land banking investments – is fuelled by the known increase in demand for housing in the UK. With a swelling population and a pronounced housing shortage, it makes perfect sense that investment in UK land will pay handsome dividends. But the undeveloped land that will be most valuable is that which is most likely to be rezoned appropriately and is situated where population growth is most pronounced.

The Financial Services Authority warns against land scams, which are characterised by the following:

Aggressive selling – The adage that “anything that sounds too good to be true probably is” applies to land banking schemes. It begins with the schemers contacting potential clients. These are “cold calls,” where you have no existing relationship with the company. The pitch is straightforward and exciting: There’s a land rush about to happen, so anyone who can buy undeveloped land will make handsome returns on their investments. Some victims of land banking schemes were told they should expect a 100 to 130 percent return. If such an investment could do well, they would not be offering it to anyone but themselves.

Instead, the individual investor who truly is interested in land investment should speak with a qualified financial advisor.

Inappropriate or ineligible tracts – The fact of the matter is that most land banking schemes do involve actual land that the investors will own, providing them with legal title. The problem is the land is virtually worthless – even if located in nice places.

How does that work? The land parcels may be tiny, perhaps located in an environmentally protected green belt area, unlikely to ever be zoned for development. Some have no road access or they may be situated on steeply sloping hillsides. Some brownfield properties are sold, but are so contaminated by previous industrial use that they would require unaffordable clean up measures to bring them into compliance with environmental laws. The land schemers purchase these lands for a very low price, then subdivide and sell them to unsuspecting would-be investors.

If you are interested in a land investment, do your own investigating. Again, a trusted third party financial advisor can steer you to qualified land investment firms that has a track record of legitimate dealing and a proven rate of return on investments.

Continued requests for additional money – One trick of land banking frauds is that they lure investors with small down payments of £500, more or less. The money makes the victim feel invested, and they will continue to pay into the property fund over time. This is all that the operation wants to do, which is to create a flow of income (many such operations are based in other countries, where wire transfers are simple to execute).

Legitimate alternative investment programmes in land typically require between £10,000 and £25,000 at a minimum for participation. You would identify qualified, professional land investment firms through a qualified personal financial advisor.

When Buildings are Better than Open Land

The need for UK housing is challenging the greenbelts and rural lands.

Britain’s natural beauty is indeed one of its greatest assets. But a critical need for housing is forcing a discussion on the sacrosanct nature of open lands.

A primary point of debate around the UK’s critical housing shortage is whether or not to build on greenbelts and the open countryside beyond, typically agricultural and forested areas. The argument often boils down to a two-dimensional, either/or choice between increasing density in towns versus building outside the metropolitan areas, accepting a certain degree of American-style sprawl that loses forever some of the best characteristics of the country.

But in truth, the choices need not be quite so distinct. Neither side of this argument has to count themselves winners or losers, as more hybrid approaches can be considered – and in fact are already being implemented on a limited scale. This is not just wishful thinking. Research indicates that there are many choices that allow for different means of expanding land availability to the single goal of increasing the supply of housing.

Considering how investors in the development of strategic land have land investment funds ready to go to work, this is a topic that needs creative thinking. The housing need is great, and developers and homebuilders are also raring to go.   The question is, where can they build?

The greenbelt concept, first implemented in the 1930s, was remarkably prescient in what it sought to achieve. While other countries (in particular the United States) were expanding their metropolitan regions far from core cities – allowing automobiles to become the primary means of individual transport, enabling middle class workers to have larger homes and gardens while they commuted to downtown employment – cities such as London, Cambridge, Nottingham, Bristol, Dorset, West Midlands, and on the Continent (Germany in particular), preserved their dense and compact downtowns with designated greenbelts.

The vision of what greenbelts should be is a region of land enveloping the cities that democratically provide recreation and fresh air to the populace. For the most part, that is what was created. The more densely populated cities of the UK keep people closer to workplaces, stores and community amenities, much of it accessible by foot, public transport or bicycle. Conversely, those sprawling suburbs in the States mean that workers spend onerous stretches of time in traffic, traversing 8-lanes-wide of asphalt from one suburb to the next, leaving little time to enjoy those larger houses and gardens.

The British have a distinct love for greenbelts and in fact have added about 25,000 hectares to the 14 greenbelts in the country since 1997. Local authorities have further plans to increase various greenbelt lands by 12,000 hectares in the future.

But while greenbelts have largely succeeded in their initial goals, they face increasing scrutiny largely because of the housing shortage. The policy is attacked for being too rigid. Also, greenbelts don’t always achieve the intended goals of preserving environmental quality as they are poorly managed in some locales. Among those who criticise the current configuration of greenbelts are the Town and Country Planning Association (TCPA), which decades ago had championed their existence. Since 2002, the TCPA has suggested the greenbelts instead be broken into wedges, gaps and corridors, largely in response to the housing needs.

Baroness Hanham, communities minister in the House of Lords, is critical of absolute policies that protect greenbelts as sacrosanct. She is quoted as advocating for more rural development, so people “can live in the villages in which they were born,” as well as for social housing because some of the land is “not absolutely brilliant” and therefore would be put to better use as sorely needed housing.

For example, an abandoned powerhouse in Formby (Borough of Sefton, Merseyside) sits in greenbelt land. A draw to vandals, it is regarded as an eyesore yet a proposed 62-home development (10 per cent dedicated to affordable housing) is encountering resistance from a community group. The development would require some additional use of greenbelt land, but would also put derelict land into productive use. Should the old building continue to stand and deteriorate, or would it be better to build sensibly and add community infrastructure improvements along with it?

Of note, development of any housing on raw, open lands need not favour social housing over more expensive private homes – or vice versa. The Joseph Rowntree Foundation (JRF), which advocates for affordable housing, looked at eleven countries that are similar to England in how they approach land supply, including restrictions on sprawl and protection of agricultural land. The Foundation concludes that a more sophisticated, layered approach to growth management, “rather than urban containment,” should be considered.

JRF also argues for proactive planning, such as compulsory purchase, because the current housing approach is often incoherent. As an advocate for social and affordable housing, the organization also champions land auctions and land assembly as a means to effect sound development.

Private and institutional investors increasingly are interested in building new housing, both to buy and to-let, wherever such development fits into town growth strategies. Strategic land advisors who engage real asset funds to build are typically cognizant of those town strategies. Clearly, the questions around greenbelts and raw land have to be answered in many areas where development is needed.

With investors ready to build, such conversations and decisions are being pushed forward, making these kinds of debates more likely in the future as more capital is freed up to build much-needed homes. Individuals who invest in development that requires planning permission should consider whether strong opposition exists in that planning authority; they should also discuss such investments with an independent financial advisor who can determine if the risks and rewards of property development fit the portfolio of the investor.

What Is the UK Community Infrastructure Levy?

The purpose and implementation of the Community Infrastructure Levy is part of the 2008 UK Planning Act.

The increased burden on infrastructure from new developments is real and should be built into development costs. But is the CIL the way to do it?

The Community Infrastructure Levy (CIL) is a product of the UK Planning Act 2008, enforced since 2010, as a means of making developers pay for the increased burden on infrastructure that comes with new homes and businesses. It is an outgrowth of earlier recommendations in 2003 from economist Kate Barker, who felt that planning gains that went to developers should be partially channelled to overburdened infrastructure features (roads, schools, utilities, etc.) and to increase the stock of social housing.

UK strategic land investors, of course, need to take this into consideration. Infrastructure will make the properties they develop more valuable – but only if funds from the CIL are put to use in ways that materially affect the new developments. Evidence suggests this does not always happen that way.

In its most basic form, the CIL is charged on any building that has some degree of human occupancy (i.e., not parking or warehousing) including residential, commercial and retail space. Only buildings adding or constructing anew 100 square metres or more of floor space (gross internal area) on or after 6 April 2013 are subject to the levy. Changes of (existing) building uses are not liable, nor are structures that are not actually buildings (such as warehouses or wind turbines). Social housing development and buildings owned by charities are exempt as well.

Implementation of CIL has of course met some criticisms, many of which make a legitimate point. Because local planning authorities collect the levy and apply it as they choose – within prescribed parameters, of course – they are instructed to establish charging schedules. This was to be completed as of April 2014 but now is likely extended to April 2015. Those authorities can also set different rates for different sized developments, however they must establish evidence to justify those different rates.

Importantly, a “CIL in kind” provision allows that developers themselves may be best suited to build certain infrastructure components using cost-effective methods. For example, when building a community of 50 homes, the developer or homebuilder might be able to establish water and other utility services with the equipment they already have in place, where they are most familiar with the land and adjoining infrastructure. It could be much more cost efficient than to channel funds through a bureaucracy that then hires a third party to do the work.

A columnist for The Guardian who writes on local government issues took a swipe at the CIL for having a significant unintended consequence. Ian Blacker wrote in October 2012 that the CIL may actually be reducing the number of affordable homes. He cites how in London, the mayor wants to channel CIL funds to the gargantuan Crossrail project, not social housing. Also, that the CIL funds in any planning authority can be geographically used anywhere in that authority, well removed from where the infrastructure needs are increased by new development.

Blacker concludes the CIL is uncharted territory, stating, “we are entering the realm of unintended consequences.” To the developer, joint venture land investment managers as well as the local planning authorities, this may be unsettling news.

But the demand for housing is largely unmet; investors in development still find places to build and where the return on investment makes it worthwhile. Whether or not the CIL cuts into planning gains is yet to be determined; would-be capital growth fund investors are encouraged to consider CIL costs and speak with an independent financial planner to see where real estate investments might fit within a broader investment portfolio.

What Can Be Learned from 40 Years of Housing Volatility in the UK?

Has the volatility in UK housing since the 1970s taught us anything?

There are many fingers pointed in as many directions as to why there is a housing shortage today in the UK. A look at history helps identify causes and solutions.

It is a widely understood fact that there is a housing shortage in the UK. Population increase is unmet by building, for various reasons, while the net effect is overcrowding and high ownership and rental costs. This particularly affects the lower-end of the income spectrum, but the middle class is affected as well in ways that can impact employers. They are increasingly stymied in where to locate their workplaces, given how employees have trouble moving to where the jobs are.

How did the UK end up in this situation? And why do not the market forces of supply and demand drive development of new and refurbished housing? These questions linger with regard to both market rate homes and social housing, and in residences built for ownership as well as the rental market. Certainly, land investment arising from capital growth funds seeks out opportunities to build where the opportunities are – and there is no shortage of market demand when population statistics are considered.

The Joseph Rowntree Foundation, which works to reduce poverty by promoting affordable housing, holds the position that a failure to produce a sufficient stock of housing – including lower-cost affordable residences in the private market – is what has pushed price volatility since the 1970s.

Digging a bit further into the weeds, a columnist for The Guardian opined in April 2013 that the roots of the crisis might be tied to key housing acts during and after the Thatcher era. The columnist first states that transferring social housing to private landlords (housing associations in particular), as well as increasing ownership of such properties, was Lady Thatcher’s goal. The 1980 Housing Act initiated a decade of subsidized ownership of council homes, enabling more than one million citizens to purchase council housing at a discount. Notably, the volume of social housing was reduced considerably as a result – even as the country’s population continued its increase at a steady clip as a result of both immigration and a strong birth rate (strongest in England, less so in Wales, Scotland and Northern Ireland). Real asset investing drew some private capital to the industry, which has increased as a by-product of the financial meltdown of 2008 because of a distrust in market-traded securities

The BBC’s Peter Shapely broke down the problem in the network’s “History and Policy” series into four components:

Rising population – Census 2011 showed that the total population of the UK increased by 7 per cent, an astounding number relative to other countries in the Eurozone that show no increase and in some cases losses. This is due to immigration, the strong birth rate and single-occupancy, both with younger people and pensioners who are living longer in the homes they’ve occupied for decades. Construction of new homes is currently (and has been for many years) at about half of what the population growth would require.

More single-occupant households – While only 11 per cent of households were occupied by just one person in 1997, that portion grew to 13 per cent in 2006 and is projected to continue upward to18 per cent by the year 2031. This represents a lifestyle change that is more pronounced in the middle and upper classes and one which places obvious additional demands on housing and other resources.

Finite land availability – The decades-old debate on the relaxed use of greenbelt lands for development wages on. But few question the necessity to designate some unused and underused agricultural land for residential development. With global trade and higher per-acre agricultural yields, it’s an easier argument to make.
 
Housing costs rising faster than wages – Shapely argues that this factor alone mandates that “only state intervention can resolve this crisis.” But he advises that such government involvement should be done with a sense of balance: enable those whose ambitions include ownership, but do not abandon social housing in the process.

The Shapely series ends with a “lessons from history” observation, which includes urging government not to overreach with programmes that fail to account for economic cycles and land scarcity. Nor should Government dictate what types of housing is provided. Rather, the Government should provide an adequate degree of choice for the market. The Joseph Rowntree Foundation recommends similar solutions, to encourage a mix of new construction that serves different economic strata.

From the private side, there is increasing interest by individuals as well as institutional investors in the housing market, both for ownership and to-let. They often engage in strategic land investment led by real asset portfolio managers. Individual investors – given this historical volatility and the effects of government and local planning authorities on housing programmes and land use – should speak with an independent financial advisor to determine their risk tolerance in this asset class.