The Surprising Environmental Cost of the UK Housing Shortage

Older homes run less efficiently than newer ones. But perhaps the very reasons there are fewer homes than needed place stresses on the English environment as well.

A widespread debate rages in the UK over a contributing factor to the housing shortage. Pundits and politicians alike, as well as a healthy dose of xenophobes, place blame for the lack of housing (and the high price of both buying and renting) on the high rates of immigration.

Civitas, the independent, right-leaning think tank also known as the Institute for the Study of Civil Society, claims that net migration at above 200,000 people per year, will lead to economic and environmental breakdown. Cambridge University economist Robert Rowthorn comments on a Civitas report in 2014, saying that "unrestrained population growth would eventually have a negative impact on the standard of living through its environmental effects such as overcrowding, congestion and loss of amenity." The report further concludes that water rationing could result, while schools, hospitals and transport infrastructure would also suffer from being overburdened.

Others counter that those modern ills as described have other causes, and that the net effect of immigration is it reinvigorates an economy. What planners, builders and investors - such as managers of real asset funds, the funding behind much of house building today - need to consider is how satisfying the need for housing might impact the environment, good or bad.

An argument can be made that the housing shortage and anti-growth housing policies have a deleterious effect on the environment. That happens in a number of ways.

As families double up by generations in older homes, they use heat, electricity and water with lower standards of efficiency. Newer homes are being built with much more energy-saving methods and mechanicals that they measurably reduce resource consumption.

Greenbelt lands, thought to be a plus for green living, can in fact be damaging. Intensive, chemically dependent agriculture has heavily replaced the organic methods of the past. Also, golf courses that use copious amounts of water and chemical fertilizers qualify as greenbelt uses when clearly they limit biodiversity and add pollutants to watershed runoff.

Professor Paul Cheshire, professor emeritus of economic geography at the London School of Economics and a researcher at the Spatial Economics Research Centre, conducted a study on greenbelt land use and how it affects where homes are built. He concludes, "Policy has been actively preventing houses from being built where they are most needed or most wanted…since our planning system prevents housing competing, land for golf courses stays very cheap. More of Surrey is now under golf courses - about 2.65 per cent - than has houses on it."

Cheshire goes on to suggest that these over-farmed, over-golfed lands should instead be converted to housing while a renewed interest in truly accessible, environmentally valuable hectares will more authentically be created and managed. Such development would lead to better quality housing and allow workers to live closer to their places of employment - reducing their times commuting and therefore their carbon emissions. Commuters in Oxford, London, Birmingham and Edinburgh spend more than four hours per week in their cars, on average.

Shelter, the housing charity, issued a policy briefing titled "Delivering environmentally sustainable housing growth" back in 2007 that shared Cheshire's sentiments on the actual environmental quality of greenbelt land being suspect. The organisation stands for responsible development in greenbelts, when and where essential to meeting local housing needs.

Homebuilders who work with UK land investment groups often identify greenfield sites that can serve the purposes to which Cheshire refers. Market-driven, they must meet increasingly stringent sustainability codes that enhance communities overall. Individuals who consider participating in such ventures should discuss it first with an independent financial advisor who can examine the specific investment as well as how it relates to the investor’s individual risk profile.

How the Ageing of the UK Population Impacts Housing

It’s no longer unusual for ageing Britons to experience their fourth generation of progeny. While healthy seniors live longer in their homes, they may wish to move.

Throughout the developed world, advances in nutrition, hygiene and medicine have led to longer lives and greater independence for seniors. While this certainly is welcomed as good news, it nonetheless also introduces a different dynamic in national economics and social planning.

To understand the impact of the UK’s ageing population, it helps to confront some key facts:

1.    Over-65 age group already up - Between 1982 and 2007, this age group increased by 16 per cent, growing from 8.5 million to 9.8 million Britons.

2.    Over-65 age group will get even bigger - By the year 2032, there will be a 66 per cent increase in the size of the 65+ age demographic.

3.    Over-65 age group will be almost one quarter of the population - This increase by 2032 will put retired people at 23 per cent of the population.

4.    Over-85 increasing the most - More than 1.3 million people are in this "oldest kid" category, double what it was 30 years ago. Almost none work and therefore are entirely dependent on pensions, family and the public coffers for support.

What’s particularly significant, from an economics standpoint, is that the ratio of working people to pensioners has gone down since the 1980s and will continue to decline short of a new baby boom. Currently, there are 3.2 working people for every retired person in the UK, but that number will decline to 2.8 by 2033.

Those are facts that address the pension system. But what's less reported is how our surprisingly healthy seniors might contribute to the country’s protracted housing shortage. Former Planning minister Nick Boles went on record in 2013 by stating that it was the elderly, more than immigrants, who are placing the greatest pressures on housing needs in the UK. Which provides interesting news to those who consider alternative investments, such as senior housing, for their asset growth potential.

"Our population has grown and we have not built enough houses to keep pace with it," Boles said, as reported by the Daily Telegraph. "It’s important to remember the majority of that population growth has not been as a result of immigration. The majority of that growth, about two thirds, has been as a result of ageing.” He goes on to point out the plethora of families that now have four generations - and that they don’t all live in the same house.

Addressing a part of this problem is the Campaign for Housing in Later Life (CHLL), an organisation launched in 2013. Notably, only 1 per cent of Britons live in retirement housing; this compares to 17 per cent in the US and 13 per cent in Austria. Given the ageing statistics cited above, there is a need to increase the kinds of developments that are appropriate for this age group.

If those options were available and attractive to seniors, it could free up the estimated £400 billion worth of homes they currently occupy. Often, that means one person occupying a much larger home than they need. The Demos think tank (a cross-party organisation) published a report in 2013 that details how almost 3.3 million properties - two million of which are three-bedroom homes - could be freed up for occupancy by younger families. The sales of these homes would also free up cash to supplement seniors’ overall wherewithal. The report also emphasizes that new, seniors-designated housing needs to be appealing; only about 150,000 retirement units exist in the private sector currently.

CHLL maintains that planning regulations stand in the way of developing more senior housing (which, it bears noting, involves a mix of communal and private quarters, with on-hand staff to provide assistance as needed).

Relaxed planning processes, allowing more local control, has helped increase housing stock in the UK, as property fund management companies are now able to more confidently buy and develop land for residential construction. Public policy also includes better lending strategies, such as the Help to Buy scheme, making first-time and upgrade purchases more accessible. The CHLL advocates for a broader application of Help to Buy that will enable lower-income seniors to qualify for senior housing.

For those interested in land investment, all forms of housing provide multiple opportunities to achieve asset growth given the continued increase in housing for the UK's growing population. But before taking an equity or lender position, investors are strongly advised to discuss it with an independent financial advisor with experience in the breadth of investment opportunities.

How Former Farm Buildings Convert to Homes in the House-Short UK

Planning Order 2014 allows that barns can be converted to houses in England and Wales. Guides exist on how owners and investors can accomplish this architecturally.
The building of new homes in the UK can and is taking place on both brown field and green field sites. With a full 76 per cent of the landmass in the country dedicated to agriculture, there clearly is opportunity to increase the housing inventory so sorely needed by the growing population.

Brownfield lands offer opportunities in that they are typically in cities, often near public transport and with utilities already in place. But remediation of buildings and the land itself of a toxic chemical past can increase costs considerably and prohibitively. Construction on green fields and sometimes greenbelt land is preferable when it better serves the housing needs of a community. This is particularly the case when employment is growing and employers want workers who can live nearby.

Joint venture investment groups concerned with land often lead the charge in this process, identifying where land would be most appropriate and feasible for residential conversion. And while new homes are what get most of the attention, existing farm structures can be saved, repurposed and recycled to create necessary and exceptionally interesting homes.

The Town and Country Planning Order 2014 has pushed this building trend along a bit further when, as of 6 April 2014, conversions of agricultural buildings for residential use fell within Use Class C3 (dwelling-houses). This means simply that agricultural buildings can be retrofitted to residential use without seeking planning permission. This comes with certain restrictions, such as keeping any one building to three residences or less, and that no such residence can exceed 450 square metres in size. The intended effect is that more residences will be made available, and that aging farmers can remain on their land while succeeding generations can move in.

But prior to this law, barn-to-home conversions were expanding perceptions of what makes a house. English Heritage (the Historic Buildings and Monuments Commission for England), which champions historic places and is the Government’s statutory adviser on historical environment, published a guide to good practices in such conversions that offers options for changed use of traditional farm buildings. The orientation of this organisation is to preserve historical and landscape significance of those traditional farm buildings. The organisation prefers continued use in actual agriculture, but acknowledges some farm structures are derelict or redundant and that reuse in other purposes is more sustainable than other options. The guide, "The Conversion of Traditional Farm Buildings: A guide to good practice," goes to great lengths to describe farm building types, their respective histories, and it provides detailed advice on sensitive renovations.

Meanwhile, architects revel in the ways in which these fine old structures can be turned into lively new homes. By and large, the lofted rooflines serve as ceilings, while the open floor plans are often maintained to allow a modern, flowing interior. One online publications, homebuilding.co.uk, provides a guiding rule: Be "true to the building" - ensure the structure keeps its essential character and form, such that it looks like a barn-house, not just another house. And with such character in the exterior facings, internal structure, doors and windows, it's hard to imagine why anyone would change anything about these treasured buildings.

These conversion architects make distinctions between stone and timber frame buildings. Stone structures will require a layer of insulation, which generally means the character of the interior wall will be lost under insulation and an alternative (often plaster) interior surface. Timber barns are more adaptable, allowing that such necessary insulator materials can be inserted between interior and exterior cladding.

Meanwhile, land around such barn conversions might still be re-zoned for denser development - this is the work of land fund managers who identify locations for new housing. When they can achieve planning authority approvals to convert agricultural land to residential use, that land then helps towns build up - which makes those areas more attractive to employers who prefer to have their workforce living close by.

Investing in barn conversions and raw land can be exciting for all participants. But as with all matters pertaining to personal finance, individuals are urged to speak with an independent financial advisor. This is to ensure the investment fits the risk profile of the investor.

Help to Buy: More Houses or Just Higher Prices for UK Households?

The Government’s scheme to help homebuyers is working, but some worry it’s working too well. It serves the investor to take into account opinions from all sides.

There is an undeniable rise in the prices of homes for sale in the UK, with the largest concentration of those increases in central London. Critics have weighed in on whether this represents a return to the price bubble of the mid-2000s, and there seems to be evidence to support that. But is it really happening - and might it be due to the Government’s Help to Buy programme?

Note there is counter evidence to suggest the bubble in fact is just a natural rise in prices, reflective instead of a strong economy. What absolutely must be acknowledged up front, bubble or no bubble, is that home sales are up, that the majority of sales are to first time buyers, and that development investors (e.g., residential land investment participants) and homebuilders have ramped up their activity, building more homes at a rate that exceeds all activity in the past seven years. Given the critical shortage of housing in the UK, this last point cannot be ignored. The country is short of as many as one million residences for young families.

So what are the theories? Here is a sampling:

Yes, Help to Buy is fuelling a property bubble (in London) - A columnist writing for The Daily Telegraph responded to a speech in June 2014 by the UK Chancellor of the Exchequer as he denied that London price inflation was driven by Help to Buy. The columnist basically said ‘balderdash’, that international investors are keenly aware of the scheme and that their purchasing of London properties was because they anticipated a price run-up. The columnist acknowledges that most use of Help to Buy is for purchases well below £600,000, the programme limit, and that foreigners are buying properties at lower price points (with cash, outside the scheme) because they expect a good return upon selling in the near future.

Actually, landlords are fuelling a property bubble - Another columnist writing for AOL Money/UK also acknowledges the programme’s success. But she says, "New stats by Intermediary Mortgage Lenders Association (IMLA) shows that while house prices are increasing to 2007 levels, mortgage activity remains well below that peak. The reason for this mismatch is because of the increasing number of cash buyers in the market. We know exactly where these cash buyers are coming from, there is hardly anyone who wants to buy a residential property to actually live in that can pay in cash - the people flooding the market are landlords or speculators hoping to make money."

Property bubble? What property bubble? - The Institute for Fiscal Studies looked at Help to Buy in exhaustive detail in early 2014. In its report, "Housing market trends and recent policies" (Daniel Chandler and Richard Disney), the researchers point out that an upturn in prices is not the same thing as a bubble - and they believe the speculative buying characteristic of bubbles is not appreciably present to deem it as such. "On balance, the data currently available do not provide clear evidence of a housing bubble, even in London - though the likelihood of a bubble is greatest there," say the study authors in summary.

Chandler and Disney go on to say the Help to Buy will likely cause a price rise, but that the effect this has on first-time buyers is a function of increased supply. Hence, the pressure is on the developers and homebuilders - and their financing, be it through banks, institutional investors or real asset funds - to build more homes.

Investors within the UK and elsewhere see the clear opportunity that the million-home deficit in the country presents. But individuals should always speak first with an independent financial advisor before taking a position in such an investment.

Can the UK Provide More Housing Options for Seniors?

England lags behind other countries in housing options for seniors. If there were alternatives, it could free up their larger homes for families to buy.

The fact that ageing Britons, a growing demographic, are staying in their homes longer than their predecessors is consternation to those who work to solve the problem of the housing shortage in the UK. They may hold sentimental reasons for staying where they raised their families, and that is largely the point: that their homes are appropriate for families with children, not one or two people only. If they were to move to smaller quarters, those homes could absorb more of the families who need a place to which to move.

But rather than decry the situation, one should consider how it actually presents an opportunity. To start, a survey of 1,500 people over age 60 by the Demos think tank found that 58 per cent of them were interested in downsizing from their existing homes, but that a lack of options or fear of moving to an unfamiliar environment held them back. For investors - such as joint venture partnerships that build homes and communities to help alleviate the country’s housing shortage - one avenue to consider includes a new type of housing that is more appropriate for the senior population.

For background, consider how the UK is out of sync with many other western societies where those options exist in greater proportion. In the U.S., as much as 17 per cent of the population over age 60 lives in some type of housing dedicated to the needs of the ageing individual. In New Zealand and Australia, it is 13 per cent. For the ageing citizens of the UK, 89 per cent of those over age 65 live in “mainstream housing,” with just five per cent living in institutions (residential care or nursing care).

But there are several voices offering a different vision, each suggesting a new approach to community planning and building:

• Housing LIN, a UK-based organization that advocates for alternatives for elderly Britons, has conducted research and published papers that are intended to increase their options. For example, “Community Matters: Making our Communities Ready for Ageing - a Call to Action,” published in July 2014, suggests that housing and communities need to emphasise social life for seniors, but also that the building of new homes should take into account changing circumstances of residents as they age.

• The Joseph Rowntree Foundation advocates for continuing care retirement communities (CCRCs), which, while rare, are predicted to increase in the UK as the population ages. CCRCs are typically large-scale and cater to a mix of residents with tailored care to individual needs. They can include self-contained flats or bungalows, with healthcare and food services in additional to a wide range of social and leisure activities.

• The Government’s “Housing Strategy for England” (November 2011; Department for Communities and Local Government) states that “New housing developments also need to make suitable provision for our ageing population in the long term. Ensuring a mix of property types, including Lifetime Homes, will help to provide the diversity and choice needed to support longer-term independent living.”

• The Department for Communities and Local Government also published “Lifetime neighbourhoods” (December 2011), which argues for helping older people to live independently through creative approaches to design, housing, transport and green spaces that enable neighbourhoods to serve the full lifetime needs of its residents.

Of course, it will take capital and market incentives to satisfy the needs expressed in these reports. Who will build these communities? Will private land investment funds be the driver, or construction firms, or the Government? Will Government policy drive the economics for building such communities and their amenities?

Already REITs (real estate investment trusts) have begun to invest in such communities, just as they and institutional investors are developing to-let student housing. Investors certainly are interested in all types of opportunities that are created by the housing needs of the country - but are strongly advised to consult with an independent financial planner to identify which types of real estate investment works best for the individual.

Would Loan-Curbing Proposals from Chancellor Osborne Affect New Home Buyers?

The Help to Buy scheme has proven effective for home buyers and builders. But the Chancellor’s concerns about a house price bubble may, errantly, cause a cut back.
Chancellor George Osborne has publicly articulated a fear that many in the financial and policy sectors of the UK have been feeling in the past two years. It is that a new housing bubble might be underway, and that all homeowners and new buyers are at risk of the same financial troubles that occurred in 2008-2010.

To that fear, Osborne has floated ideas in public statements at mid-2014 that the size of mortgages needs to be reined in, with caps on the mortgage loan-to-income (LTI) and loan-to-value (LTV) ratios. Business Secretary Vince Cable believes that all mortgage loans should be capped to 3.5 times earnings. The Bank of England, by way of governor Mark Carney, noted that prices were up 10 per cent since 2013 when the Government’s successful Help to Buy (HTB) scheme began implementation.

There are many counter-arguments to this. One is that the outsized rise in home prices in London - largely driven by wealthy foreign buyers and investors seeking safe haven and an enviable estate, far away from the unstable economies and monetary systems of their home countries – is skewing price averages. Another is that the buoyed economy in England is simply driving demand among middle class English buyers.

All that said, investors in house building - developers, homebuilders, institutional investors (such as insurance multinationals), and those who make strategic land investments - are forging ahead. The sharp need for more housing, if anything, is what drives prices skyward.

What Chancellor Osborne has to take into account is that at long last, first-time home buyers are able to take that initial step on the property ladder. About 4,300 households bought property in June 2014 with the assistance of the Help to Buy programme, the highest number since its inception a year earlier. Total purchases with HTB now are up to 27,000 households, with the median value of all homes under the scheme at £187,000, with a quarter of purchases at under £150,000.

Notably, The Guardian reported in July 2014 that fewer than 1 per cent of HTB users, about 250 households, were using the scheme to buy properties worth more than £500,000. Eighty per cent of HTB purchases were by first-time buyers. Housing minister Brandon Lewis says the programme was stimulating house building. “It’s no accident that since the start of the scheme private house building has shot up by a third and continues to climb,” he said. “Developers are increasing their output, and taking on new workers at the fastest rate since records began.”

Stewart Basely, executive chairman of the Home Builders Federation, echoed Lewis’ comments: “Indicators suggest increases in house building activity in the region of 25 per cent in the past year which has seen the steepest increase in new housing starts for around 40 years,” he said.

If the programme were curbed, it likely would have a cooling effect on this economic trend.

Investors in housing understand the market potential, as by some estimates the country is short of one million homes. This is happening through traditional development organisations as well as such means as joint venture land opportunity assemblies (speculative investors who identify land that needs re-zoning; once achieved, the land is partially or fully developed and sold to homebuilders or home buyers).

Individuals who are thinking about land or built-property investments should do so under the guidance of an independent financial advisor.

What Are the Worst Consequences that Population Growth in the UK Could Bring?

While census figures indicate that rapid population growth is underway in England, there is no data suggesting that more people cannot be absorbed.

For those interested in land investment, it is a matter of simple mathematics to understand that a key driver of the United Kingdom housing shortage is population growth. Census 2011 measured a robust 7 per cent growth in the total number of people living largely in England, Wales and Scotland. The new people arrive by blessed events (births) and immigration, but it is exacerbated by the good health and longevity of our seniors, who now occupy their homes a bit longer than their parents did. With grandparents and even great-grandparents remaining longer in their flats, those abodes lag in being sold to young families.

Still, underinvestment in new housing was prevalent until recently. Housing starts are up since 2013, attributable to the Government’s Help to Buy scheme that makes financing easier for buyers and which has stimulated activity in the residential land investment sector. There are many arguments for what could and should have occurred since the beginning of the 21st century in house building; but an analysis of this population growth illustrates, perhaps, how incentives to build need to be seriously considered given the hardships created by housing shortages relative to population increase.

Forum for the Future, a sustainable development non-governmental organization, looked at this situation in a report issued in 2010 titled, “Growing Pains, Population and Sustainability in the UK.” The report takes a very nuanced look at the current population growth trends and makes several concluding observations. They include that overpopulation in stable, industrialised countries such as the UK is different from that in developing nations. Instead, the study authors urge that planning should simply assume population growth, that resource use should be done with greatest available efficiencies (maximising use of green technologies and building methods, for example), and that economic policy should shift from a dependence on growth to one that is built on stabilisation instead.

Growing Pains acknowledges that climate and natural disaster refugees, which currently number around 67 million worldwide, may increase to 250 million by 2050. The UK and other countries will no doubt face pressure to absorb some of those millions whose homes and livelihoods are lost to desertification, rising sea levels and soil salinity in coastal regions. Even with the UK’s natural population growth, strong as it is, there is a need for long-term planning regarding public services, infrastructure, the natural environment, how those populations will be distributed and the adequacy of housing to meet the need.

Two years later, the Migration Observatory at the University of Oxford looked at the “Say NO to 70 Million” campaign, which yielded 100,000 signers to a Government e-petition in 2012. The current population is at or about 63.2 million, with 53 million living in England. What the Oxford study did was take an objective, analytical look at population trends and their implications.

Key findings from the Migration Observatory include the following:

• An 11 million-person increase in the UK by 2035, by migration and natural growth (the net of births and deaths), will indeed bring the population to 73.2 million. Two-thirds of that growth will likely be by migration.

• Limiting population growth does not currently have supportive data. No one can currently say if 65 million people is optimal but 70 or 75 million is not.

• Reasons for limiting population or allowing it to grow, therefore, need to be stated. Growth can have a different (probably favourable) effect on the economy than it might on the environment. Acknowledging which objectives are the drivers should then inform policy as it affects both and other factors (for example, social issues in the face of housing shortages).

What the UK Government has said since 2010 is that land planning needs to loosen up, allowing greater local autonomy (e.g., the Localism Act) that speeds up the home-building process. This has opened up more opportunities for alternative investment funds - such as UK property funds - to buy and develop property that brings about much-needed homes.

Investors who consider participating in land and property financing can consider UK population growth a clear opportunity and signal for ongoing growth for some time to come. But no investor should get involved in real estate investing without considering its implications within the broader spectrum of wealth management; an independent financial advisor’s input is generally advised.

The UK’s Options in Population Growth and Housing Shortages

The implications of too many people and too few homes gives England much to worry about. In terms of solutions, there are several possible paths to follow.

A pressing dilemma in England is endlessly discussed and crystal clear: there are too many people and too few houses. And while it seems as if basic laws of economics - those of supply and demand, and the incentives that high prices create to increase supply - should correct for this problem, the unfortunate fact is those “laws” are imperfect.

Why haven’t more homes been built as the UK population rose dramatically over the past generation? Why haven’t investors - deep-pocketed homebuilders, large banks, real estate investment trusts (REITs), strategic land developers - jumped in to build townhouses, flats and single-family homes wherever needed?

The answers and dynamics are complicated, of course. The UK has a relatively robust economy, with young people working and starting families (where some of that population growth comes from). Immigration (another population driver) brings workers and consumers to the country, which typically adds to the economy and very often to the entrepreneurial class. Each of those suggests the money is there to buy homes. Unfortunately, the combination of the financial crisis of 2008 and the subsequent tightening of credit made it more difficult for those young families to buy their homes. The Government’s Help to Buy scheme has shifted the balance to a noticeable degree since 2013, such that more homes are being built - and bought.

But the housing shortage is deep and will last for years to come, even with homebuilders working overtime to catch up. So the country can continue to consider several options to managing the situation. Those include:

1.    Do nothing. The status quo necessitates cobbling together a 20 per cent deposit which is required to get a traditional bank loan to purchase a residence. This is unattainable for millions of working people. Help to Buy reduces that burden considerably, allowing as little as a five per cent deposit; however, the Government could discontinue this programme at any time. The net effect would likely be fewer buyers to stimulate construction, then fewer new homes added to the nation’s residential inventory. Supply-demand rules holding true would mean that the cost of owning and renting will continue an upward climb.

2.    Limit population growth. There are those who would like to see immigration halted, and others who feel birth control is an answer as well. It should be noted that the aging-but-healthy UK population - Post-War babies are now retiring, after all - also contributes population numbers and mathematically represents an increase when previous models assumed a higher/sooner mortality rate. Advocates for and against immigration are advised by Forum for the Future (a sustainable development NGO) to eschew arbitrary limits when discussing immigration, but also that resource consumption has to be part of the discussion as well.

3.    Build more. This seems the most straightforward approach, but of course the tricky dynamics of acquiring land, building infrastructure and contracting out construction for sale to homebuyers involves upfront investment with an uncertain return two or more years later - the work of visionaries with deep pockets, such as those involved with alternative investment funds. Social housing can fill some of the gaps, but the data show it’s lagged significantly over the past several decades. And both market-rate and social housing developers run up against those who oppose Greenfield and greenbelt development.

4.    Thoughtfully address population and housing issues together. Clearly, population and real estate development are vortices of a host of financial, social and environmental issues that should be addressed in relation to each other. No one claims this is easy.

As more investors are drawn to the “build more” solution, they should consider engaging an independent financial advisor to help them sort through the level of risk they can optimally bear within the context of their overall investment portfolio. The UK absolutely needs more homes, but investors need also to act out of their own financial needs and strategies.

The Help to Buy Program Explained - With Assessment of First Year Results

The Government’s scheme to help homebuyers, the Help to Buy program, is showing signs of success for buyers and builders. The numbers don’t lie.

Shareholders with homebuilder Taylor Wimpey may well be homeowners already. But they also might be celebrating the Help to Buy scheme, which is primarily designed to help first-time buyers get on the property ladder and for existing homeowners to buy something a little bigger. The scheme has helped approximately 40,000 people buy a home since it was implemented in early 2013. And as designed, the programme is goosing new-build construction activity.

The background of UK Finance Minister George Osborne’s programme is this: a reason homebuilding has been so limited in recent years is because the financial recession and other economic factors have made it hard for younger, working people to get financing for a first-time home purchase. With fewer buyers available, there was less incentive to build (although some new-build investors were steering their pounds to rental properties).

Note, this was at a time when real estate investment trusts (REITs) and land investment funds were available to investors. The interest in building was there - but the bottleneck in connecting homes with buyers was largely at the financing end. Particularly where it came to producing a 20 per cent deposit, as was often required.

But Help to Buy changed that - despite some grim prognostications of naysayers. Both first-time and existing homeowners could now access a mortgage on homes valued up to £600,000 with as little as a 5 per cent deposit. The scheme is available for primary residences only, not second home purchases. As of July 31, 2014, 15 months after the programme was initiated, here are some reported results:

• 27,167 properties were bought using Help to Buy.

• House building is at its highest level since 2007.

• The rapidity with which this is affecting house building is astonishing - according to Stewart Baseley, executive chairman of the Home Builders Federation, this is the steepest trajectory of growth seen in 40 years.

However it should be noted that this doesn’t satisfy all parties. The current level of house building fails to fully satisfy the need, a need which has been increasing for a full decade. The Census 2011 identified a 7 per cent growth in population at a time when home building was virtually nil; this deficit in housing is expected to last for a further decade or longer into the future, even with accelerated building.

And while Shelter, the housing charity, urges all forms of building to increase supply and therefore contain or lower costs of all housing - social and affordable market rate rental properties included - Labour party spokespeople are critical that new construction is not directly adding to social housing stock. Housing minister Brandon Lewis counters that average house prices rose by 214 per cent - from £58,000 to £184,000 on Labour’s watch, between 1997 and 2007.

Taylor Wimpey’s pre-tax profits rose 64 per cent in the first half of 2014, with 45 active sites in Yorkshire alone. Others, including those interested in alternative investments, are involved in the site preparation that is accomplished prior to homebuilders’ involvement, typically through strategic land partnerships. This is where raw land is purchased and use designation is changed to allow for residential development. Individual investors are advised when considering these and other real estate investments to consult with an independent financial advisor to weigh risk and opportunity relative to personal wealth building objectives and strategies.

How Do Eurozone Real Assets Perform Relative to the UK?

Do real assets perform differently in the UK vs. the Eurozone countries?

Real assets in Britain are preferred by land investors, particularly due to factors of transparency. It’s why homes are cheap in Ireland and expensive in England.

Real assets include land as well as developed property on which structures are built, but also any tangible goods such as mineral resources (oil for example), agricultural commodities and precious metals. In recent years, since the financial crisis of 2008, real assets have outperformed financial assets (stocks and bonds) in most markets around the globe.

For example, due to the finite nature of land in the face of a growing population, real estate is the type of real asset that captures the attention of many investors, not just those interested in land investment. But how land and developed property perform as an asset varies by country and economic system.

For example, The Independent reported in late 2012 that vacation homes in Ireland were attracting British buyers because the value of those properties have cratered since 2007, dropping in price by 50 per cent or more in five years. The steady gain of Sterling against the Euro in the first half of the year made such purchases all the more appealing.

But the prices in the Irish portion of the Eurozone are no indicator of what might be the case in Germany, Spain or even Greece. The banking firm UBS cites the UK for the transparency of all sectors of its real estate markets - office/commercial, industrial, retail and multi-unit to-let residential – as compared to the Eurozone and Australia.

“The UK is the only European market to provide a monthly index,” UBS says in its report “Real estate - All you need to know” (August 2012). This transparency is important to investors, allowing them to make “better-informed and more timely decisions.” It also helps that the UK population is growing by immigration and births, and in some sectors of London becoming a refuge for wealthy individuals from other, financially unstable countries.

Other key points in the UBS report made about real estate assets in the UK versus the Eurozone are:

• UK wins over the past decade - “At the aggregated level, Eurozone real estate has out performed the UK market only three times in the last ten years.”

• Differences translate into diversification - There is a “relatively low correlation between a diversified UK real estate portfolio and a diversified Eurozone portfolio...as a consequence, a portfolio combining UK and Eurozone real estate should provide higher risk-adjusted returns to investors.”

• Lease structure practices vary - “Leases are typically shorter in Continental Europe than in the UK,” but the UK leases are gravitating toward the Eurozone model of shorter lease terms, making them more attractive.

Of course the performance of many real assets between the UK and those countries on the Euro are in great flux at the moment due to uncertain economic factors. Investors continue to gravitate toward these investment alternatives because they tend to outperform stocks and bonds.

Before embarking in any investment, it is wise for the would-be investor to consider the counsel of a personal financial planner. Such investments need to be made relative to risk tolerances of the individual.