What Requirements Does the Code for Sustainable Homes Place on Green Buildings?

Developers are taking on larger costs in order to build green. Fortunately, there is a market for residential property that has a lesser impact on the environment.

In 2010, the UK government set out to reduce carbon dioxide emissions by 20%, a disproportionate amount of which (30%) comes from housing. Part of the impetus for reducing the carbon footprint of residential dwellings is that the aging UK housing stock compares poorly to that of other European countries – with energy-hog buildings that disproportionately add CO2 to the atmosphere.

In response to this, new homes being built and older homes being retrofitted are certainly trending to green, energy-efficient standards. That is, energy and other resource efficiency is becoming the norm in residential structures (not to mention commercial and other large-scale education and healthcare buildings). This says a lot about the degree of interest in building greener and achieving a generally more sustainable world.

How applying various green standards might affect the dearth of housing in the U.K. – where the country is building about 100,000 fewer homes each year than are required – is a different question.

For those who can afford it, a green home is what they want. By the statistics released in March 2013, approximately 280,000 homes that are either built or are in the design stages have achieved Code for Sustainable Homes’ “Standard Assessment Procedure” certification. This measures the environmental performance of a home and has become the national standard for design and construction of sustainable new homes, in particular.

Measurements under the code result in a ratings of zero to six stars, the larger number being the most optimal. Homebuyers are now looking at this star system as a means of evaluating the home’s value. The criteria by which the system is based are the following:

• Energy use and CO2 emissions – For each star ratings level a minimum number must be reached.

• Water use/savings – Considering both interior (household) and exterior (garden and car washing) use.

• Material sourcing (minimizing impact of resource use and waste) – That which is required to construct the home should be made of recycled materials and locally sourced where possible.

• Surface water run-off and mitigation of flood risk – Measuring how a building might contribute to floods, use water-capture methods and materials where possible.

• Waste reduction – Building or property features that enable recycling and composting; also, reduction in construction material waste.

• Use of insulation and efficient heating systems to mitigate environmental impact – Minimisation of pollution that would otherwise result from inefficient heating systems.

• Contributions to occupant health and wellbeing – The comfortable home should have good daylight access, provide for private spaces, offer good sound insulation, and be accessible and adaptable.

• Impact on and protection of the local ecology – Specifically, how well the home integrates with the local environment, minimizing its impact on land features, flora and fauna.

This Code is one of many measurement systems and benchmarks that the country and its building industry have used over the past several decades (building regulations calling for tighter building envelopes have been in place and increasingly stringent since the 1960s). But it can impact the resale value, as buyers can look at the star ratings as a means of comparing one home to others.

One of the larger drawbacks of the Code for Sustainable Homes is how all costs are borne by developers. This then becomes a question of whether environmental standards will fly in the marketplace, where a sustainable home will clearly cost more to build and which then must by valued sufficiently by the home buyer.

In the midst of a housing shortage, affordability remains an important matter. But the crush of demand calls for homes at varying price points. Those involved in alternative investments such as real estate are increasingly choosing to work with specialists who convert raw land to housing that is built on strategically purchasing property that is well-suited for use designation changes. With permission from local planning authorities, the land can then receive infrastructure additions that homebuilders need. But any land investment – whether done independent or with UK property fund partners – remains a calculated risk, one that an individual investor should discuss with an independent financial planner.

What in the UK Economy Attracts Foreign Investors?

There are specific reasons that foreign investors are attracted to the UK economy.

Financial instability in the Eurozone has driven an influx of European and other foreign investors to the UK. Buying a second home in London is a common tactic.

A handful of cities around the world would like to lay claim to being the centre of the known universe. New York City has long positioned itself as such, while the emergence of the Chinese economy might give either Hong Kong or Beijing that title. Abu Dhabi, Kuala Lumpur or Singapore might make similar claims for legitimate reasons – and truth be told, qualifying criteria for the title varies considerably between individuals. But if interest in owning property somewhere is any indication, a 2012 survey by the real estate agency Cluttons (in partnership with VPC Asia Pacific, a consulting firm) found that worldwide, 57 percent of wealthy investors identified London as their top target market for property purchases.

It’s more than an aspiration. Low interest rates in Asian currencies, which have appreciated well against the British pound and American dollar, have helped many buyers to purchase properties in Kensington & Chelsea as well as other desirable districts. Many buyers are purchasing residences for their children who attend English universities, as they are averse to paying rent on housing for even just a few years when they might be able to achieve capital growth from such an investment. Also, when non-residents realise capital gains on a UK asset they are not subject to the country’s capital gains tax (profits derived from rental properties, however, are subject to taxation).

The Eurozone crisis is widely attributed for leading to the investment in residential property in the UK by non-Brits. The head of residential research at property agent Knight Frank told a blogger in 2012, “The more instability you get in the Eurozone, the more the London property market benefits.” Indeed, Spanish, Portuguese and Italian buyers of English properties have jumped by two and three digit percentages in the past two years. Greek buyers, too, from old wealthy families, are investing in rental properties as well as for their own family members.

This seems to be a clear indication that staying out of the Eurozone has been a plus for the real estate industry and for owners of property. It does not, however, change the dynamic for British citizens who find housing difficult to afford. The financial crises of the past several years in combination with a dearth of home building have failed to provide adequate housing stock for middle class buyers. Land investment is shifting toward building the infrastructure and achieve local planning commission approvals for the conversion of agricultural property to housing, either for sale or to-let.

Whether foreign or UK-based, land investors and home purchasers should speak with an independent financial advisor before buying any property, developed, raw or strategic land. The investment needs to fit an individual’s overall portfolio needs and expectations.

Land Value Appreciation Versus REIT Income

How do REITs perform (I.e., yield income) relative to land investments?

All real estate in the UK is poised for value growth, given demographic trends for the next two decades at least. But how to invest requires careful examination.

In all sectors of real estate investment in the U.K. there is a general level of optimism about the mid-term future. This is largely based on demographic trends in the country, as charged by the Office for National Statistics (ONS) and the 2011 Census. The numbers basically reflect a population increase based on a higher birth rate, a lower death rate and inward migration.

For example, from 2001 to 2011 the population of England and Wales has seen a net increase from 52 million to 56 million, an astounding 7 percent growth rate. The ONS offers some interesting breakouts of statistics within this growth, which includes how the population is distributed evenly among age groups. In comparison to some western European countries and Japan, the distribution of populations in the 30- to 60-years age categories is evenly split. This means that the golden 45-49 year old cohort – those who buy the most, pay the most in taxes and who purchase properties – will be a strong economic driver at least through the year 2035.

There is also a well-documented housing shortage, which became more critical in the recession during which little building was done. Combined, these factors spell good prospects for real estate valuations and real estate investors.

There are two primary means for investing in real estate. One is through real estate investment trust (REITs) funds, which own a percent of properties across a large and diverse portfolio. The other is the property owner who is engaged with a particular tract of land, developed or undeveloped. Some investors spread themselves between these two types of investments and some steer clear of one while investing entirely with the other. The type of investor who focuses exclusively on REIT funds is different from the strategic land  investor in at least three key ways:

• Time frame expectations – A REIT may deliver a good return in a matter of weeks or months, or it can go on for years with flat or even losing returns. The land funds investor generally expects to hold the investment (and achieve target returns) in a two to five year time frame. For the land investor, the property that is selected is ripe for development with a zoning change because well-researched locations will accommodate a municipality’s need to expand commercial or residential properties.

• Need (or non-need) for liquidity – As a REIT is bought and sold on an exchange, that investor has the advantage of doing just that at a time of their choosing. The land investor, operating as an individual or within a professionally managed fund, understands the upswing of value is likely to happen in a few short years and therefore is wise to stay with the investment until the property is sold.

• Relationship with the actual property – While the REIT investor technically owns shares in dozens if not hundreds of properties, he or she may never even know where those holdings exist much less the factors affecting their value. The land investor is well informed on the whereabouts of the property, the local economy and the land zoning board’s propensity to approve a use designation (zoning) change. His or her task is to devise a smart land site assembly that satisfies investors, buyers and neighbours. Arguably, this closer relationship can enable smarter investment decisions and yield stronger capital growth returns.

Of course, no investor should embark on any significant real estate investment of either type without discussing his or her investment strategies holistically with a personal financial consultant.

What If No More Homes Were Built in the UK?

Home building is finally picking up after years of recession. A lack of adequate housing can otherwise have far-reaching effects.

The Wall Street Journal told its readers in 2013 that Americans are increasing their investment in UK rental housing. The reasons they cite for this phenomenon is because the number of people who own their own properties in the UK has fallen by 200,000 in just four years, evidence of the effects of recession and general difficulties in achieving financing (per data from the Office of National Statistics).

So why are American greenbacks flying east over the pond now? Home sales by the end of the year (2013) are expected to climb to about one million, thanks to the government’s involvement in loosening lending, found in Chancellor Osborne’s “Help to Buy” scheme. There also is, in simplest terms, huge pent-up demand for housing that reflects increasing population even while construction lagged woefully behind during the recession.

With a little bit of goosing from the Exchequer, the long-awaited solutions to the housing shortage may have been found. And yet, these rosier scenarios are still based on projections, not end-results. A third-dip recession could derail hopes and lead to a retraction.

If that were the case, what would be the outcome? What would happen if developers and homebuilders cut back construction and no new homes were built? A report issued by the UK Parliament, “What influences house prices and why do governments intervene?” (2009), considered the close interdependency of the housing sector and the economy. Relative to available housing inventory, it suggests the following:

• Home prices will rise – “Given the forecast demographic changes over the next twenty years, clearly if the housing stock does not increase alongside this, available housing will become scarcer and thus prices will rise.”
  
  
• Fewer single-person households – Up until 2009, there were 3.6 million singles who owned their one-person residences in England alone, roughly a quarter of all owner-occupied dwellings. And yet, with rising prices against single incomes, this allocation of singles may drop. As with their married-and-parenting siblings, a shortage of housing will force them to share homes or remain living with relatives.
  
  
• Government impetus to intervene – Depending on one’s economic policy philosophy, a shortage of affordable housing can trigger government intervention in the housing market; others may argue instead for laissez-faire approaches. Note that this point, written in 2009, portends the 2012 lending scheme now taking effect.

Fortunately, the developers and builders have adjusted to a different attitude about housing. Through years when ownership became inaccessible, more and more working families have become adjusted to renting instead of owning. The Office of National Statistics reports that since 2009, 3.8 million more people are living in rentals, a whopping 23 per cent increase. In the first quarter of 2013, rents increased by an average of 2.4 per cent, with the national average monthly rate at £835. Just how long these renters wish to stay that way – if they plan to become owners at all – remains to be seen.

There is no edict against building new homes, fortunately, and the current uptick in building suggests a corner has been turned. Land investors are identifying specific areas where demand is greatest, which they turn into new developments that are fetching market-rate prices. Helping prompt this is the bifurcation of investment and risk between site developers and homebuilders, with the former making strategic land buys and site preparation before reselling the land to the latter, who construct homes that meet product and price expectations.

Individuals who choose to invest in real assets such as land and housing development should consult a qualified personal financial advisor. As with any investment, the risk profile of real estate needs to fit with the investor’s overall financial strategies.

The Simplicity of Buying Undeveloped Strategic Land

The secret is out … undeveloped strategic land offers simplicity to investors.

Property that lacks buildings and, sometimes, infrastructure provides an uncomplicated formula for significant asset growth, for several reasons.

Throughout much of history as much as today, investments in real estate are how fortunes are built. But land acquisitions can also be losers, of course. On a small scale, a purchaser of a multi-flat apartment building may find out the lift needs to be repaired or replaced at significant cost. Investors in larger properties such as commercial office buildings or shopping centres might find the tenant market turns downward a year or two after acquisition, bringing an unwelcome and unexpected drop in income and asset value. Occasionally, property that was occupied then abandoned might come at an attractive price, only for the buyer to discover that toxins exist on the land and need to be removed – at profit-killing expense.

Undeveloped land, in agricultural use or simply in a natural state, generally provides a simpler physical situation. There are no aging building issues to deal with, which avoids both atrophying structures as well as environmental toxins. All that needs be disposed of might be some brush and trees, but with green thinking, smart architecture can make the best use of natural resources in a sustainable way.

Other matters of how land investments in the UK are freed of complexity for the investor can be summarised as follows:

• No uncertainties about the value of the buildings (or costs). Many factors impact the price/value of built structures. Aging is of course one of them but so too are shifts in regional economies: if a major employer closes down nearby, it reduces the spending power of the employees left behind. With less to spend, homes and retail properties take a hit.

• No “brownfields” issues. As is widely reported in the media, properties formerly used for industrial purposes (which can also include car service stations and parking facilities) might have dangerous toxins lurking below the surface of the soil or in the walls and basements of structures. Undeveloped land almost never has such issues.

• Use designation/zoning. The strategic land investor quite often (almost always, actually) is looking to achieve a change in use designation (zoning) from the jurisdictional municipality in which the property is situated. There are favourable economic forces that drive land from non-use to use that are arguable less likely to happen when the property is already built (for example, changing a commercial district to residential).

• Can develop for current and future market needs, not adapt from old purposes. Along similar lines to a change in use designation, the economics of converting empty land to built property are often advantaged over adapting existing structures to what the market demands today. Homes built 20 years ago will lack the environmental features that are now standard, for example. Or, if a town is in greater need of residences than retail space, empty land can be designated for whatever is most needed.

The task of strategic land site assembly is complex. But when investors work with professionals who have appropriate experience in land site assembly, the process is made much simpler. Contact a personal financial consultant to identify where your best opportunities for alternative investments may be.

Land and Inheritance Taxes - the Investor Opportunity

To investors, U.K. land and inheritance tax structures can be a golden opportunity.

Most UK investors in land and other assets wish to minimise the tax burden to their heirs. There are means to accomplish this -- and to realise tax deductions.

Taxes on land investments in the U.K. are unquestionably complex, as much as they are in most parts of the world. Part of the country’s history with real estate includes intentionally attracting outside investments (from non-citizens and non-residents) as a means of furthering investment and development.

The country’s Inheritance Tax (IHT) structure has been in place since 1986, and includes a spousal exemption that hinges on a transferable nil rate band policy. It allows for surviving spouses and civil partners to receive up to 200 percent of the nil rate band, from which they can distribute asset value (or cash) to relatives. The nil rate band is adjusted for inflation, last established for the 2010-2011 tax year at £320,000 and will be reconsidered for increase in April 2015. Up to that amount the tax is 0 percent, while value above it proceeds are taxed at 40 percent.

Following is a collection of how the tax structure affects land investors, starting with rules that apply to inheritances:

• For UK residents, taxes apply to inheritances of UK land, as well as property income, gains and transactions of real property. This can include rental income from property, profits, rent and capital gains.

• Non-residents of the UK are not subject to a tax on capital gains from UK assets, including land.

• “Moveable” (non-land) and “immoveable” (land and mortgages) investments are treated separately under UK inheritance tax statutes. Upon a landowner’s death, where the property is located falls under the rule of lex situs (laws that apply to the location). Even if the deceased had lived in France for ten years, his or her land in the UK is taxed according to UK statutes. Only the moveable assets (e.g., art, jewelry, securities outside of the UK, etc.) are free from UK IHT.

• Marriage does not make the spouse an automatic co-owner of the property of the property. Only if the spouse is written into the property title does he or she continue to own it without paying IHT upon the death of the other spouse.

• A landowner can give away land, within limits, while still living as long as it is not done to avoid the claims of creditors. All rules regarding IHT transfer taxes apply.

Some applications of real property actually result in tax deductions. For example, gifting of farmland under the provisions of the Agricultural Property Relief can provide tax deductions for the benefactor in the tax year in which the gift is made. Donations of assets including real assets such as land to a UK-registered charity can also provide deductions to the benefactor. Individuals who elect to sell property to a home reversion plan, an Equity release scheme, are allowed to write the income stream proceeds into a trust for beneficiaries by way of a life insurance policy.

Is the Opportunity to Buy Raw UK Land for Development Past?

There is unquestionably a recovery in residential and real estate values in England. But that doesn’t mean that opportunities for investors have passed.

It would be wrong to describe the land and housing market in the U.K. since 2007 as a “rollercoaster.” The physics of a rapid drop followed by a flat line and now, finally, a slow but steady climb would not be likely in an amusement venue such as Thorpe Park in Surrey, Blackpool Pleasure Beach or Alton Towers in Staffordshire.

In fact, the ride that investors, homebuilders and would-be homebuyers have been on the past several years has been far from amusing and certainly not fast moving. The precipitous drop from the housing bubble peak of 2007 has meant that builders were reluctant to construct new homes because buyers were having a difficult time coming up with the necessary deposits required for purchase while banks concurrently imposed stringent limits on who qualified for a mortgage. Not only did homes fail to maintain value, but raw land that is ripe for development went undeveloped.

Note this all occurred while the British population registered a 7% growth rate over the century’s first decade.

So while development remained stuck in place, demand was building. The mistake many make, say analysts, is to consider the entire UK as a single market. In fact, it varies considerably from city to city and region to region. The rapidly increasing housing prices in London and the South East are driven in part by well-off foreign investors seeking refuge from unstable economies in their home countries (in the Eurozone, in particular), in the Middle East and China. But the slow increase or non-increase in land and housing values in other parts of the country presents a very different story.

According to PropertyWire.com, a global property news service, homebuilders in the UK saw sufficient sales activity in 2013 such that they are now seeking serviced land elsewhere, outside the “hot” markets of London and the South East. The publisher notes that UK Greenfield land values rose by 1.4% in the first quarter of 2013, an annualised growth rate of 3%. But still, this varies greatly from location to location.

Savills, the real estate firm, cautions that distinctions should be made between values driven by market rate housing and social housing. With less government support for the latter, the averages actually represent greater demand in the market price sector. They point out three factors that were in play in 2013:

• Private house building starts up 7% – The first quarter of 2013 saw 22,200 new homes under construction, a marked rise over the last quarter of 2012. “There are clear signs of more positive industry sentiment and activity,” says a Savills research director.

• Look to the outer zones of London – The undersupplied middle market is creating a need for homes outside of central London. Government lending schemes are largely targeting the homes valued at under £600,000.

• Larger homebuilders have the cash – While a shortage of cash has caused many homebuilders to scale back the size of projects, the UK’s eight largest builders reported net profit growth of 33% in 2012. This means they have the capitalisation to increase the volume of their work.

In summary, the opportunities to invest in the housing market, particularly in buying UK land, are quite mixed. It depends on local economies and the scale of development being targeted.

In shifting economies such as this, the tendency is to find creative solutions. One is that real estate development risk is now often shared between investors who purchase and prepare land and homebuilders who deliver the final product. Investors are assembled by specialists who read where UK land development is (or can be) supported by local infrastructure. Those investors and their advisors also try to identify where a use designation (zoning) can be achieved, say, to convert Greenfields to residential property. With that accomplished, and site-specific infrastructure built (streets, utilities, etc.), a homebuilder can then buy lots and build, investing capital only in this late stage. Regardless of whether raw land prices are at historic lows or are climbing, this split risk enables all participants in development to better predict returns on their investment.

Individuals who consider participating in land investment should speak with a personal financial advisor. Along with other types of alternative investments, the opportunity should be weighed against overall wealth portfolio considerations.

How Undeveloped Land Is a Better Investment Diversification Strategy

Any investment diversification strategy should involve undeveloped land.

Don’t trust the national numbers on housing values as the final word on all real estate investment. Regional differences are significant and opportunities abound.

The conundrum for investors who are intrigued with UK land and real estate is, with a growing population and so little building in the past decade, why aren’t more houses being built?

After all, Census 2011 showed a growth rate of about 7 per cent since 2001, a much healthier addition of population than most countries found in the Eurozone. England and Wales in particular are a strong draw for immigration, and the birth rate has remained relatively strong even through the financial recession of the past six years. Exacerbating this further, pensioners are living longer and in greater health, keeping granny from moving out of her granny flat.

Savills research offers some data and analysis that suggests some fundamental ways in which housing will be built in the years to come. It offers a different perspective to anyone involved in land development, as investment on UK strategic land and raw acreage is most adaptable to market needs before buildings are constructed.

Specifically, the firm offers the following data points:

Regional differences mask home prices – Overall, homes in Britain have seen an average value increase of 6.4 per cent since 2007. Which is all well and good, except it masks the differences between North and South: in the South East and London, increases in home values are in the ballpark of 10 to 20 per cent. In the North of the country, values have fallen. This is not to say a land investment in those areas will not make sense, as real estate is sometimes tied to hyper-local factors. But the larger point is that in London and the South East, better opportunities are likely to be found.

Generation rental – Of greater significance is the shifting of ownership to rental for many middle class families. Savills reports “the value of Britain’s private rented stock has risen by 42 per cent over the past five years and an extraordinary 250 per cent in the past ten years.” The 4.8 million private homes that are rented today represent 17 per cent of all dwellings, when just ten years ago to-let housing was a mere 10 percent of the national inventory. What has caused this? Increasingly, working families are unable to afford the necessary deposits required for purchase, and tighter lending standards by banks also make it more difficult to get mortgages.

Best opportunities for those with cash to invest – All those rental homes still need to be built, begging the question: Who will finance them? According to the director of Savills research, “There is now a real opportunity for investors with cash, particularly those ready to invest for income, because capital value growth will be muted over the mid term.”

Real estate developers are on the front lines, constructing the right buildings for the market. But before they can do that, land investment companies identify parcels nearest to where building of one type or another should take place. This often is where employment is growing, or for any other reason the population is sufficient to fill new housing. Strategic land development will usually involve property zoned for agriculture or commercial or industrial purposes which local planning commissions will identify as more appropriate for residences, factoring for local economic conditions and growth opportunities.

Individuals who want to participate in land development and investing in real asset classes should first work with a qualified, independent financial advisor to be certain they are working with legitimate players and that the investment fits their overall financial goals.

UK Housing Sector Offers a Variety of Opportunities for Investors

With the 2008 property bubble burst sufficiently in the past, the demand for housing – particularly rental – provides new means to grow income and assets. 

There is increasing interest on the part of investors in housing in the UK. This is evident in statements from a multi-asset manager at Henderson Global Investors to a personal finance columnist at The Telegraph. Noting that property funds now yield about 4.5 per cent, surpassing gilts and corporate bonds, he said, “It’s a valuation story. If you look a the cost compared to the income you can get, property looks compelling.”

Portfolio managers at other multi-asset funds concur, and the Telegraph columnist (Emma Wall) notes that property can be an inflation hedge, given how rents tend to track with the price increases of other goods. Still other real asset investing advisors see growth in homebuilders and building material manufacturers, as well as lenders that specialize in buy-to-let mortgages.

As an asset class – and the property bubble burst of the past five years notwithstanding – residential property over the past three decades has been one of the best performer for investors. While this traditionally was an investment that largely benefitted individuals – small- and large-scale property investors and developers – institutional investors have historically stayed away from housing. That is, until more recently, when key economic factors including population growth and low-prices on distressed properties, came into play. Also, residential housing has generally been a capital growth strategy and less one that produces income; however, with a growing renter class that scenario has become more attractive.

All factors considered, there remain several key investment opportunities for the broad range of investors, from individuals to institutional players:

• Single property investments – While largely the province of the individual, buy-to-let has traditionally been a means for property-inclined investors who are willing to manage the physical property, leasing and such. Government programs continue to support this type of investor.

• University to-let housing – It is hard to argue with 99 per cent occupancy, as is the case in student accommodations in UK university settings. What is particularly attractive about this category is how the Higher Education Statistics Agency reports that more than 300,000 non-domicile students were at UK universities in 2012, part of a steady annual rise of about 1.5 per cent per annum.

• Funds related to housing – Real estate investment trusts (REITs) in commercial properties are part of the story, although they have performed poorly in the volatile swings of market traded securities where valuation is more a function of external (market) factors than the performance of the property itself. But those are stabilising and with the launch of the UK’s first residential REIT in early 2013 – notably focused on student housing – investors are looking at this as a new type of real asset fund.

• Strategic land – Land investment funds are typically managed by capital growth partners who are skilled in site selection, acquisition, zoning change processes and infrastructure development. They will assemble groups of investors (typically, the price of entry is £10,000 or more) who then can track the development of a single property, which is then parcelled and sold to homebuilders who construct the residences and sell them to buyers. The time frame for delivery ranges from two to five years in most scenarios.

While some investors are sceptical about the Help to Buy and Funding for Lending schemes, both in terms of effectiveness (a weak push on demand) or the opposite, creating a new real estate bubble, most concur that the fundamental factors are in line to make real estate investing a good play as part of a diversified portfolio.

“Prime real estate is finite and still very much in demand,” said one advisor-investor to The Telegraph, adding “the weakness of sterling continues to make it attractive.” But almost all investment advisors caution that an independent financial advisor should be consulted before investing in land or any other asset – the risks and rewards should be considered in relation to one’s complete financial portfolio.

Track Your Strategic Land Investment Growth

Land investment growth can and should be tracked with professional guidance.

Alternative investments such as land can yield better-than-the-market returns. Investors can also track the investment’s progress over time.

Investing during the worldwide recession has been a difficult road for individuals most accustomed to trading in stocks and bonds. Returns have been disappointing since 2008, and the Eurozone crisis portends very little good news for traditional investments in the near term.

Investors instead have turned to alternative assets, the growth from which has been considerably better in recent years. These assets include hedge funds, exchange funds, private equity and rarities (coins, art, jewelry, antiques and antique autos). One alternative asset that is particularly attractive is raw land. Unlike developed property – where market value is well established, value growth may be minimal and buildings need to be maintained over several years – undeveloped land can grow in value under well-managed circumstances and in a relatively short period of time. Those circumstances currently include the housing shortage and growing UK populations, where market forces suggest millions of homes need to be built over the next decade.

Professional land management companies often pool investors into a single property fund that buys land, after which a zoning change is sought with the local land planning authorities. With that change, some infrastructure may be put into place – roads, water and other utilities, for example – and then sold to builders.

A substantial investment is necessary, typically beginning at £10,000 and often several multiples of that amount. Of course, at that level the investor could and should engage themselves throughout the time the land is owned, tracking progress according to a pre-established set of milestones. Not everyone gets rich on land, but following a few crucial tips can help the investor improve his or her odds:

• Hire the best consultants. Buying land that needs to be rezoned is not a hobby for amateurs. Professionals who understand potential future value, as well as the local landscape for land planning authorities and area housing needs, are necessary to make the investment successful.

• Select a land investment that is consistent with yours in timing and returns. Some land will mature to a profitable position in 18 months. Other tracks may take five years and perhaps longer – which may or may not fit your own financial management goals and needs. A professionally managed land investment will be able to project this with some accuracy. You can also expect to be given updates on progress, such as when planning has approved new zoning, whether infrastructure investment is necessary and how well it is progressing. Land is an exciting, tangible investment that shows progress you can sometimes see and touch, if you are so inclined.

• Acquire land with the most promising properties. When you work with professionals, they should select tracts with certain, important characteristics: proximity to high growth, where housing stock is in greatest demand, where the land can be rezoned and where significant improvements (cleanup of contaminants or expensive infrastructure such as bridges) will not be necessary.

Because land is a significant investment, it is smart to first talk to an independent financial advisor in advance. You need to examine where a land investment would factor into your investment portfolio, and how the timing of the investment could affect your tax structure and living or estate needs.

To What Degree Is UK Housing Affected by Land Use Expansion?

The UK’s greenbelt policies hugely affect land planning. But the experiences of other countries show flexibility can favourably impact home affordability.

An important tenet of land planning in the UK for more than 60 years has been preservation of “greenbelt” areas, institutionalized in the Town and Country Planning Act 1947. The intent and result is to control urban sprawl, maintaining areas dedicated to forestry, agriculture and outdoor recreation.

While deemed largely successful in its goals, the greenbelt movement and dictates for land planning have come under question as the population continues its increase in England and Wales. The current and future housing shortages – the number of people living in the UK is expected to rise by 27 per cent from 2008 through 2033 – are debatably related to these restrictions.

A purist approach to greenbelt preservation would be to continue developing only within the urban confines, building up and not out. But this is happening only to a certain degree, and the sharp increase in home prices is a critical, unintended result. Home purchases have been so inaccessible that the proportion of people in the UK who now rent has risen by 17 per cent since the 1990s.

This is a large part of why the National Planning Policy Framework, established in March 2012, has taken a more nuanced approach to greenbelts. The NPPF still checks unrestricted sprawl from occurring, while it seeks to retain agricultural, forested and recreational lands in their optimal state. But it concurrently allows local authorities (empowered by the Localism Act 2011) to go through a process that can weigh special circumstances, for example re-purposing for development greenbelt acreage that fails to serve its original intent.

There will always be some degree of public resistance to all development, much of it well placed. But because home construction and land availability are tied to the economy, often a factor when employers seek to establish new workplaces, the business community, land investors and builders are naturally interested in expanding development beyond urban centres.

But this development push isn’t solely from the business sector. Advocates for social justice and affordable housing at the Joseph Rowntree Foundation (JRF) assembled a Housing Market Taskforce to study the matter of land supply and how it affects housing market price volatility and affordability. The task force sponsored a report, “International Review of Land Supply and Planning Systems” (Monk, Whitehead, Tang and Burgess, University of Cambridge, March 2013), which looked at data in 24 countries, at literature from 11 countries, and consultations with stakeholders and country experts in England.

The report concluded that residential land supply is indeed a contributing factor to housing affordability problems in the UK. Some key findings in this report are as follows:

• The idea of controlling urban sprawl to protect agricultural land is nearly universal. All countries prefer to accomplish this, but England lacks a “strategic level of decision-making between national and local.”

• Effective planning policies in other countries tend to share core elements: “Incentives and mechanisms to bring forward land for development; responsive growth management policies that recognize both the benefits and costs of growth; and a secure source of funding to provide infrastructure” were deemed as pluses in sensible development.

• There is “no new magic bullet,” but in fact many of the effective mechanisms identified in other countries exist in some form in the UK already.

From this, JRF states that the “key to long-term reform to land supply in order to reduce volatility in the housing market is for planning authorities and their partners to become more proactive in the land market, especially in the case of publicly owned land.”

Land investors are already becoming involved in joint venture partnerships or investing in UK property funds to develop land where the market need calls for it and where local planning authorities enable it. Those who provide this financing clearly do so from a profit-motive perspective. But as the community-wide benefits of development become more clear – even to the point of achieving more affordable housing within a social justice framework – the profits become effectively shared across communities.

Individuals who look to join in land investment schemes should do so under advisement of a qualified and independent financial professional.