Increasing prices typically stimulate new building, but the UK housing market has friction. Despite many obstacles, investment groups continue forward.
UK Home prices have continued to rise in 2015, outpacing restrained expectations set by analysts in late 2014. According to PropertyWire.com, average home prices rose 2.75 per cent across Britain in the first six months of 2015, pushing the average price to £270,674 (this varies by region). Top performers included the North East (3.1 per cent) and North West (3.0 per cent). Scotland rose the most at 6.6 per cent growth (average home values there now are at £183,230). London prices, considered stratospheric by most observers, slowed to a 2.5 per cent increase in the January-June 2015 time period.
So with so much price pressure on the housing market, does this mean more homes will be built? Do investors engaged in UK joint venture land opportunities have a perfect set of conditions to achieve respectable asset growth?
Note that in 2014 there were 118,760 home completions in all of England, which is far short of the 240,000 to 250,000 homes that should be built annually over the next decade to meet the country’s growing population. With an adequate supply of affordable homes, higher ownership rates and a robust home construction sector, Chancellor George Osborne believes the overall economy benefits. He recently issued a 90-page blueprint (“Fixing the foundations: creating a more prosperous nation,” July 2015) that emphasises the role of both increased homebuilding and distributing economic power and populations to cities outside of London.
One argument for the shortfall in building is that the red tape and NIMBYism inherent in planning approvals stands in the way. But joint venture investors, institutional investors and homebuilders achieved 240,000 dwelling planning approvals in 2014, more than the 120,000 homes that were actually built (to be fair, a portion of those approvals are under construction in 2015).
Another argument is that landowners - be they legacy owners such as family trusts or farms, opportunistic investors, or local governments - are holding onto un-built properties in land banking schemes. That may be true in some situations but is not evidently widespread. Property fund management firms more typically wish to shorten the time between the purchase of land and when it is designed, built and delivered. They want to extract increased value that grows the property fund as quickly as possible.
That said, a concept similar to land banking is with non-dom owners of pricey homes in central London. Buyers rarely if ever actually live in the homes they buy; rather, they treat them as financial instruments that perform well with year-upon-year of double-digit capital growth. The stability of English society and our Government offers a financial safe haven for wealthy foreigners who see opportunity in properties in London and, increasingly, outside of London as well.
Chancellor Osborne’s blueprint placed a great deal of emphasis on brownfield building sites, as well as a scheme to increase density by allowing existing buildings to add up to two storeys. Brownfield building certainly has its merits; the downside is when expensive remediation to remove toxic substances is required, or when the location of the site requires extensive infrastructure development at public expense. Sometimes these added expenses have to be incorporated into the developer’s cost structure that then must be added to the purchase price of the completed properties. Often, those costs are prohibitive and effectively kill the project.
An argument has been that homebuyer financing, particularly for younger working people who have yet to buy their first homes, was challenged by stringent lending in the wake of the 2008 financial crisis. But several Government initiatives (Help to Buy, Starter Homes, Help-to-Buy Isa, among others) have and will provide access to much-needed mortgages. That said, with more buyers chasing fewer dwellings the added upward price pressure is almost inevitable.
It bears noting that public sector investment in affordable council housing -which peaked in 1967 at 196,000 homes that year - has dropped precipitously such that fewer than 5,000 homes have been built by local authorities in any year since 1992. Housing associations and the private sector have never been able to entirely pick up the slack.
So in short, there are many solutions that attempt to chip away at the problem - but no silver bullets. In the meantime, investors look to where they can buy land, achieve planning approval, then develop the infrastructure that enables homebuilders to deliver homes. Housing associations work in a similar fashion to the best of their abilities and wherewithal.
Investors should always engage an independent financial advisor to weigh opportunities and options. Real estate and land investing has historically been a solid means for growing wealth, however every investor’s portfolio operates by a unique set of variables and strategies.
UK Home prices have continued to rise in 2015, outpacing restrained expectations set by analysts in late 2014. According to PropertyWire.com, average home prices rose 2.75 per cent across Britain in the first six months of 2015, pushing the average price to £270,674 (this varies by region). Top performers included the North East (3.1 per cent) and North West (3.0 per cent). Scotland rose the most at 6.6 per cent growth (average home values there now are at £183,230). London prices, considered stratospheric by most observers, slowed to a 2.5 per cent increase in the January-June 2015 time period.
So with so much price pressure on the housing market, does this mean more homes will be built? Do investors engaged in UK joint venture land opportunities have a perfect set of conditions to achieve respectable asset growth?
Note that in 2014 there were 118,760 home completions in all of England, which is far short of the 240,000 to 250,000 homes that should be built annually over the next decade to meet the country’s growing population. With an adequate supply of affordable homes, higher ownership rates and a robust home construction sector, Chancellor George Osborne believes the overall economy benefits. He recently issued a 90-page blueprint (“Fixing the foundations: creating a more prosperous nation,” July 2015) that emphasises the role of both increased homebuilding and distributing economic power and populations to cities outside of London.
One argument for the shortfall in building is that the red tape and NIMBYism inherent in planning approvals stands in the way. But joint venture investors, institutional investors and homebuilders achieved 240,000 dwelling planning approvals in 2014, more than the 120,000 homes that were actually built (to be fair, a portion of those approvals are under construction in 2015).
Another argument is that landowners - be they legacy owners such as family trusts or farms, opportunistic investors, or local governments - are holding onto un-built properties in land banking schemes. That may be true in some situations but is not evidently widespread. Property fund management firms more typically wish to shorten the time between the purchase of land and when it is designed, built and delivered. They want to extract increased value that grows the property fund as quickly as possible.
That said, a concept similar to land banking is with non-dom owners of pricey homes in central London. Buyers rarely if ever actually live in the homes they buy; rather, they treat them as financial instruments that perform well with year-upon-year of double-digit capital growth. The stability of English society and our Government offers a financial safe haven for wealthy foreigners who see opportunity in properties in London and, increasingly, outside of London as well.
Chancellor Osborne’s blueprint placed a great deal of emphasis on brownfield building sites, as well as a scheme to increase density by allowing existing buildings to add up to two storeys. Brownfield building certainly has its merits; the downside is when expensive remediation to remove toxic substances is required, or when the location of the site requires extensive infrastructure development at public expense. Sometimes these added expenses have to be incorporated into the developer’s cost structure that then must be added to the purchase price of the completed properties. Often, those costs are prohibitive and effectively kill the project.
An argument has been that homebuyer financing, particularly for younger working people who have yet to buy their first homes, was challenged by stringent lending in the wake of the 2008 financial crisis. But several Government initiatives (Help to Buy, Starter Homes, Help-to-Buy Isa, among others) have and will provide access to much-needed mortgages. That said, with more buyers chasing fewer dwellings the added upward price pressure is almost inevitable.
It bears noting that public sector investment in affordable council housing -which peaked in 1967 at 196,000 homes that year - has dropped precipitously such that fewer than 5,000 homes have been built by local authorities in any year since 1992. Housing associations and the private sector have never been able to entirely pick up the slack.
So in short, there are many solutions that attempt to chip away at the problem - but no silver bullets. In the meantime, investors look to where they can buy land, achieve planning approval, then develop the infrastructure that enables homebuilders to deliver homes. Housing associations work in a similar fashion to the best of their abilities and wherewithal.
Investors should always engage an independent financial advisor to weigh opportunities and options. Real estate and land investing has historically been a solid means for growing wealth, however every investor’s portfolio operates by a unique set of variables and strategies.
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