RICS: “UK Housing a National Emergency”

The UK housing crisis has significant economic and social implications. The Government is responding, but private investments can really make a difference.

The Royal Institute of Chartered Surveyors (RICS) has been particularly vocal in 2015 regarding the rising cost of housing in the UK. The Institute lays blame for increasingly unaffordable homes to a supply shortage and, more specifically, a shortage of land released for use as residential property.

This is a scenario that is familiar to housing investors who, while typically working through joint venture partnerships, find their most critical task in the process involves petitioning local planning authorities for a use change. When achieved, the value of the land increases significantly – to the landowners, and to the surrounding community. UK land investments that result in housing have a ripple effect on the regional economy, particularly in how they make affordable housing a tool for employers who want to woo workers from other cities.

But when planning approval is a long time coming or fails to materialise, the whole goal of applying funds to achieve capital growth through residential development is derailed. The Localism Act of 2011 sought to reduce that, allowing for local councils to determine when a use conversion should be granted – and it has had that effect. And yet RICS and others feel the Act didn’t go far enough.

In a statement issued in mid-May 2015, shortly after the national election, RICS said, “The affordability and availability of homes in the UK is now a national emergency and addressing this crisis must be the priority for the new government.” The organisation’s head of policy urged the Conservatives to develop a “coherent and co-ordinated house building” strategy – meaning, that public authorities and private investors (e.g., partners in capital growth funds) alike need to step up and add new homes at a greater rate than has been the case for more than a decade.

Home building in 2014 was up from previous years, with 141,000 homes completed by the end of December. But even that number falls short of what is needed, which is closer to 250,000 per year to make up for a million-home deficit that currently curtails household formation. The building rate has fallen since the 1990s for a variety of reasons that include more-stringent lending practices (particularly since the 2008 financial crisis), a growing population and a failure by Government to replace social housing sold to tenants in the Right to Buy programme begun in the 1980s.

Conservatives argue the programs developed under the first administration of David Cameron effectively helped first time buyers get on the property ladder. Indeed, Help to Buy and other programmes have been instrumental in helping younger adults save for and purchase their first properties. But Labour spokespeople counter that this is working from the “demand” side, pushing up prices even further because supply is not yet ramped up appropriately to meet this increasing degree of demand.

Given the political wrangling involved, it’s no wonder that many see greater solutions when private investors (i.e., financiers looking to achieve capital growth from the funds they invest) get involved.

UK land investment money is smart when it is spent first in the areas of greatest need (demand). PropertyWire.com reported in mid-2015 that where employment rates are highest, there too are the biggest gains in value to homeowners and real estate investors:

• “The 20 local authority districts with the lowest unemployment have experienced average house price rises of 25% since 2009 compared with an increase of 17% for Great Britain as a whole.”

• “The 20 areas with the highest levels of unemployment have recorded an average house price gain of 3%.”

So while publicly supported housing is an essential part of a stable and just society, private investments and skills (i.e., joint ventures with partners in finance, infrastructure design, house builders and estate agents) are more likely to foster healthy economic development.

Investments in housing and real estate can yield great results and they are interesting in a growing economy cycle, as is the case currently in the UK. But an independent financial advisor should be involved in every significant position for an investor, as the variables are many while the stakes can be high.