What Will New Communities Secretary Greg Clark Mean for UK Housing Policy?

The new head of the Department for Communities and Local Government authored the Localism Act, which should please land investors, homebuilders and homebuyers.

Shortly after the May 2015 election, Prime Minister David Cameron announced that Communities Secretary Eric Pickles would be replaced by Tunbridge Wells MP Greg Clark. This provides much to cheer for among investors who seek a UK land investment as Clark has long spoke of the need to release more land for homebuilding.

Indeed, in an official press release from the Department for Communities and Local Government (DCLG), Mr. Clark and MP Brandon Lewis asked all Whitehall departments to “let go of surplus and redundant land and property for new homes - and for town halls to follow suit.” The statement from the new DCLG head urged England’s 326 councils to look at their own land assets and consider selling these public sector lands to private developers such as property fund management organisations. By Clark’s reasoning, public sector land alone could provide 150,000 new homes by the year 2020.

This isn’t terribly surprising, given how Clark is largely credited as the architect of the Localism Act of 2011. This fundamentally altered how land is approved for use changes, now determined by local planning authorities instead of regional planners who held this power prior to the Act. Now investors engaged in a joint venture land opportunity fund can be much closer to the land and the local authorities making decisions to add homes to a community. The devolution of authority is ultimately designed to help alleviate the country’s housing shortage.

What other evidence do investors and managers of property funds have of Clark’s commitment to building more houses at a faster rate? Consider Clark’s statements in the past few years, prior to his current appointment:

• “To be against new buildings and new infrastructure is to be against growth, which is in turn to be in favour of people becoming poorer than they are today - something that should be unconscionable to anyone with a concern for the wellbeing of their fellow man.”

• “We need more houses: for young people; for families; and for older people living - thankfully - longer than they ever have before. It may be convenient to imagine that our population is stable or shrinking, but this is just plain wrong - the fact is that our population is growing.”

• “To fail to provide the houses we need is to condemn today's young people and their children to overcrowding, homelessness and poverty driven by soaring rents and house prices. No progressive should have any truck with a course of such cynical selfishness.”

Indeed, in a May 2015 opinion piece published in the Daily Telegraph ("Why we want to hand power to local people") - a newspaper that has long championed the preservation of green countryside against development - Clark went so far as to say that an overbearing central government in the UK is at fault for the country’s London-centrism. The result, says Clark, is “our cities have lost the ability to thrive along the way…our great industrial metropolises have underperformed.” He contrasts England with Germany, France and Italy, where economic output and populations of non-capital cities are more robust and distributed than in the UK.

What that means is those joint ventures focused on land have more opportunities than ever before to work in partnership with local councils. Their shared mission is to increase the vibrancy of the local economy by providing homes that make living there affordable (the housing crisis hits hardest in central London and the rural areas, ironically enough).

Smart property fund management suggests that investors work closely with local council authorities to identify all types of land that might be suitable for development. This includes surplus public sector land, greenfield, brownfield and all other sources of redundant land. From his statements, it seems Secretary Clark is behind this and will likely respect local needs and nuances.

Investors of any sort, joint ventures or otherwise, should always consult with an independent financial advisor before taking a position in real estate, land or other asset classes.

What is the Position of the Home Owners Alliance Regarding New Home Building?

As many as five million residents of the UK wish to own their homes but don’t. Private sector investors are critical to alleviating the problem.

The name of the UK Home Owners Alliance (HOA) pretty much summarises its mission: this is an organisation that advocates for increased homeownership. Naturally, that includes encouraging strategic land developers to contribute to the nation’s housing stock on a simple economic principle: supply must meet demand if prices are to make home ownership accessible for the citizens of the UK.

It’s an association that has taken a strong position with research to back up what it says. And the collection of data as it corresponds with public policy and trends in UK land investment is hard to argue against:

• 86% of adults in the UK want to own the roof over their heads.

• Ownership rates peaked in 2002 at 69.7%, but are now below 65% and by some predictions will drop below 60% in coming years.

• The “homeownership gap,” the portion of the population that wishes to own but doesn’t, is now 5 million people.

• The average age for first-time purchasers is now 33 and is rising each year.

• This long-term decline places UK homeownership rates within the Eurozone below those of Portugal, Ireland and Bulgaria.

While the fingers of blame point in many directions - Thatcherism and the selling of social homes without rebuilding, the 2008 financial crisis and subsequent stringent lending, the London-centric nature of employment and business in the UK, foreign wealth that is buying up English residential property and distorting the market - the HOA also emphasises some of the less-quantifiable effects. “Many young people are having their dreams, and self-esteem, shattered,” said HOA in a 2012 report (“Death of a Dream”). “Research shows that people are happier owning their own home, rather than renting. Many adults are being forced to live with their parents even though they don’t want to - putting severe stress on family relationships. More limited homeownership makes us a more unequal society. With fewer people building up equity in their homes, fewer will have a big enough financial cushion for old age, putting strain on welfare systems.”

Land developers who work strategically with local councils are on the front lines of alleviating the shortage of homes. These are the private interests driving development, where real asset portfolio investing results in the transformation of under-used land in locales where employers need workers, ideally within close proximity of their workplaces. Of note, there is a noticeable exodus from London to other cities by both younger workers and employers who find land, homes and commercial property more price-competitive and where the quality of life is arguably better.

What do investors in real asset portfolios get from their involvement? The primary driver is individual asset growth, of course. Land and property are historically some one of the greatest engines of wealth development. The characteristics of strategic land include a relatively short timeline for achieving that growth and exiting (if the investor choses) the investment. This is made possible by working with asset portfolio specialists who identify land that is likely to achieve planning authority status changes. With that accomplished, the land is designed and developed with infrastructure (roads, utilities, etc.) to accommodate homebuilders, who then purchase lots and build to suit homebuyers.

Any investment decision involves some risk, of course. The investor should always contact an independent financial advisor to determine the smartest course of action.

What Does Retention of Minister for Housing Brandon Lewis Mean for UK Housing Policy?

The May 2015 election now past, housing policies will likely be kept intact. Given recent progress, that should cheer investors as well as homebuyers.

It’s not at all surprising that discussion about the housing shortage in the UK would turn into a political question during a national election year. And in fact the ideas were flying between Conservatives and Labour in the months leading up to David Cameron's resounding victory in May.

At issue were his various schemes, including Help to Buy, a Help to Buy ISA and various iterations of Right to Buy with social housing. Labour proposed that banks and building societies that participated in the ISA be forced to invest deposits in new housing, which drew criticisms from the right for skewing investments away from free market mechanisms. “Either a housing scheme that a property developer or housing association is seeking finance for is reckoned to be profitable – or it isn’t,” wrote a columnist on ConservativeHome.com.

The columnist further stressed his interests in liberalising the planning system in order to free up supply. Which is precisely what property fund partners, seeking a return on assets, do as a matter of course.

Despite England’s history with social housing, reaching back into the early 20th century, UK land investment forces were the driver of most building throughout the UK. With property funds, individual investors are tapped to buy land and develop it into homes and commercial property. The simple market forces of supply and demand produce housing as needed.

Which is part of why the retention of Brandon Lewis as minister for housing drew mostly praise following the election. The programmes that were instituted prior to May 2015 have begun to show promise, cheering those with real asset funds dedicated to purchasing land for development into housing.

PropertyWire.com, a global property news service, reported one month after the election that Lewis’ first term turned up encouraging results:

• 60,000 affordable homes were delivered in the 12 months prior to the election, up 63 per cent over the prior 12 months (6/2013-5/2014).

• This number makes 260,000 affordable homes built since April 2010, exceeding goals by 16,000 homes.

• The Government has pledged £38 billion in public and private financing, real assets that fund community building and home building to support Britain’s growing population.

• While London alone received a third of those new affordable homes, substantial numbers were also built in Cornwall, Birmingham, Wiltshire, Leeds, Liverpool and Manchester.

As for the ISAs, Lewis predicts the individual savings scheme “will support over a million first-time buyers to achieve their dream of owning their own home.” Clearly, he remains fixed on the programme actualising in late 2015.

Those who invest in property funds already are pushing much-needed inventory onto the market, which readily purchases the homes once built. But due to the overwhelming growth in population and a strong, upward climb in the economy, affordability for younger people has largely been the issue. But with the continued success of Help to Buy, the Affordable Homes Programme, and the promises of the proposed Starter Home Initiative (houses for first-time buyers, built on brownfield land and minus Section 106 levies), younger workers are starting to see opportunity.

So with the continuity of programmes from Minister Lewis, application of real assets by private investors can have a synergistic effect of increased housing stock in the country. Time will tell, of course.

Individuals who invest in land can do so with a sense of duty to country, if they so choose. But all investments need to be considered objectively, which is best done with the counsel of an independent financial advisor.

What Are National Homebuilders Forecasting for Newly-Built Home Sales in 2015?

The continued rise in home prices, new and existing, are incentive enough for developers and investors to build more. Fortunately, more land is available.

The trend-lines are clear: the high demand-low supply pressure on homes in the UK, while variable by region, continues a multi-year upward trajectory of house prices. The Halifax Price Index in June 2015 show a 3.3% hike over the first quarter, when uncertainty over the national election in May somewhat slowed sales.

And of note to investors engaged in capital growth planning and the like, this is not simply due to a low supply of homes in a country that needs to build more. The updraft causing loftier prices and brisk sales is also tied to higher employment levels, overall economic growth, increased real earnings to workers and very low mortgage rates, say Halifax economists.

Nationwide, the juggernaut building society and a big player in UK mortgages, shows that the average price of all types of new-build homes (terraced, detached, semi-detached, bungalows and flats) is now £188,980, up from £177,477 in the last quarter of 2014. Some average prices for new-build homes were higher in 2014, but the 2015 figures show a strong uptick in the years following the 2008 financial crisis (it was £137,062 in the third quarter of 2011). A UK land investment made four years ago could easily yield a good profit now.

What does this say for individuals, institutions and firms who invest through land investment funds? What are the prospects for growth, given the strength of the housing market?

“Supply remains very tight with the stock of homes available for sale currently at record low levels,” says the Halifax chief economist. “This shortage has been a key factor maintaining house price growth at a robust pace so far in 2015.” In other words, just about anything built as well as existing homes that become available for sale will find a waiting market.

But regionally, there are differences. The North of England as well as Scotland and Wales do not see quite the price growth of London and the South East. But what slows development of new homes, where capital growth can be greatest for investors, is the planning process. Driven to local (vs. regional) authorities by the 2011 Localism Act, which created the National Planning Policy Framework (NPPF), local councils now hold the reins on determining what gets built where. That said, many local planning authorities are playing catch-up on establishing plans for their councils, often depending on those capital growth-oriented investors to propose developments that they identify as likely to sell and serve local needs such as to provide housing for the area’s employment base.

One area typically considered controversial is when approvals are given to building on green belt land. Funds invested in such land can achieve significant growth when building is approved; in fact, there was a strong increase in the number of sites approved under the first Cameron government. Between 2010 and 2015, according to a BBC Radio investigation, building on the green belts topped 12,000 homes in some years (prior to Cameron, in the year 2009-2010, only 2,258 homes were built on green belts). The Conservatives have promised to increase the housing supply by 200,000 per year without encroaching on these green fields, but that claim is met with widespread scepticism. Population growth forces building both up and out.

Investors are most interested in property funds when they can perform better than other real assets. That may be possible on brownfield land, but not as often. Where cities and towns need employment is very often to the determinant of where the capital growth investor should put his or her money. Because the majority of councils have yet to develop a master plan, it is incumbent on the planners representing the investors to develop smart development rationales. Very often those investors will also fund requisite improvements to, or expansion of infrastructure to accommodate new homes.

Investors come in all stripes, but understanding the many variables of land and real estate development is not native to everyone. An independent financial advisor can provide an objective look at specific investments as well as how much to weight a portfolio in this type of asset.

UK House Builders Project 18% Increase in 2015 Output: Details and Implications

There certainly are hopeful signs for more houses in the UK. But it’s still short of goal - releasing more land in a faster permitting process would help.

After nearly two decades of inadequate homebuilding, and particularly following the 2008 financial crisis, construction firms are reporting stronger numbers in residential building. It turns out that private strategic land partnerships are playing an important role in this, but a real and necessary surge in new homes will come when one or several conditions change that would allow it.

The year 2015 started slowly, with fewer permits and completions being reported due to uncertainty in anticipation of the national election in May. Once that was past - and the Conservative victory erased worries over a mansion tax - the industry picked up. Surveyed house building firms project an overall 18 per cent increase over 2014, when 141,000 homes were built, which computes to 166,380 homes to be completed by year’s end. Financiers engaged in UK land investment should be cheered by that, but with full understanding that the country should be building closer to 240,000 or 250,000 homes per year in order to keep up with population growth and demographic change.

Another indicator is purchasing behaviours in the construction industry, as measured by the Markit/CIPS survey. It rose to 58.1 in June, eight points above the line that separates expansion and contraction. Even more, 62 per cent of construction industry managers predict increased output by mid-2016, the highest level of optimism in a dozen years.

For investors in alternative investment funds that target specific regions, the National House Building Council provides geographic breakdowns in house builder registrations. They include:

• Eastern England - Builders currently planning 4,318 new homes, a 70 per cent increase in new registrations.

• Northern Ireland - With a 42 per cent increase in registration.

• South East - Registrations are up 47 per cent.

• Yorkshire and the Humber - Registrations up by 33 per cent with 2,223 new homes.

• South West - A 38 per cent increase with 4,486 new homes.

Notably, London’s 5,622 new homes represent a 29 per cent decline relative to Q1 2014. The North East also experienced a 10 per cent drop in 2015 vs. 2014 (Q1 figures).

For investors who prefer working in strategic land (a purchase and development of land that requires planning authority change permission), it’s important to note that critics of the UK’s slow build in residences claim that the UK’s planning system bears much of the blame for failing to meet the critical demand. The Government reforms, devolving authority to local councils with the National Planning Policy Framework enacted in 2012, has helped. But the Home Builders Federation says moving from outline to detailed planning is a bottleneck, frustrating to builders as much as investors (for example, those alternative investment funds’ partners) and ultimately to homebuyers themselves.

NIMBYism on the local level can be just as stymying, often driven by the desire to preserve greenbelts. Releasing more land would almost certainly mean more homes. Research from the Institute for Public Policy Research found that between 2000 and 2007, residential land prices rose 170 per cent while built homes rose only 124 per cent. This explains in part why strategic land investing can be a good gamble, and yet why it can be so difficult - the planning authorities and communities hold a great deal of power in the equation.

To put all of one’s wealth into alternative investments would almost never make sense for the seasoned investor. But the opportunities in land and housing certainly appear to be good in the current economic cycle. Whether experienced or new to real estate, the investor is strongly encouraged to discuss land and building positions with an independent financial advisor.

Implications of Chancellor George Osborne's Manifesto on a "Northern Powerhouse"

The idea transcends elective politics. With Government devolution, the drive toward affordable housing north of London might strengthen the UK economy more broadly.

When Chancellor George Osborne started talking up the future economic prospects of Manchester and England’s North region in late 2014, many cynically believed it a ploy to curry votes for the Conservatives in the May 2015 election. But in the months that followed, indicators surfaced that suggest Osborne meant what he said. This should interest investors who believe that not all roads lead to London.

UK land investment, after all, pretty much follows the money. For anyone looking for capital growth properties, it only makes sense to buy and build where people are moving, where companies are hiring and where businesses are being established and growing. So is that happening – now or soon – in the cluster of cities that comprise what Osborne referred to as the “Northern Powerhouse?”

Perhaps. But this is not Osborne’s baby alone. Leading the charge away from the Capital City is the private sector’s own Jim O’Neill, the former chairman of Goldman Sachs Asset Management. O’Neill’s ‘retirement’ job is to chair an independent commission that looks to make Britain less centred on London and with economic forces spread about the whole of the country. His belief, shared by many including George Osborne, is that a redistribution of industry, finance, transportation, digital technologies and population will net out with a stronger UK overall. O’Neill concurs with many others who believe this also requires a redistribution of government authority.

Investors who might deem themselves capital growth partners would likely agree that this devolution of authority is a worthy strategy and with plenty of precedent. Germany, France and Italy have multiple cities that are as large or larger than their own capitals, to their advantage. As O’Neill observes, England suffers from London being almost too successful.

"I think it [the success of London] generates a lot of vitality, but it results in huge complications because you see these enormous distortions, particularly on things like house prices,” he says. “For young people, they finish university and think 'When are we going to London?', because it is the only place you can go. There is something a bit unhealthy about that."

He also notes that a great part of the population of London is made up of a very global polyglot, for better or worse. The British are largely found elsewhere.

The Office of National Statistics pegs shares of the UK economy by region, with London getting 22.2 per cent of GVA. Taken together, the North East, North West and Yorkshire and The Humber constitute a respectable 19.0 per cent. The trick is to get them working collectively. Away from the Capital, growth is a function of infrastructure, the energy economy (fossil and renewables), transportation, and improvements in broadband capabilities that can help with digital industry development.

The Guardian reported after the election that Osborne might have been making real promises after all. The nine councils of Greater Manchester now will have one elected mayor, and a devolution deal gives the municipality control over its transport budget, £500 million of skills spending and a £300 million housing investment fund. Residential properties away from the Capital are more affordable, but a need for more building to meet population growth and outsized demand exists in Manchester, Leeds, Liverpool and other cities as well.

The critical housing shortage and unmanageable cost of housing in London might drive all this in the end. Already young adults, particularly those equipped with knowledge economy skills, are leaving London for more affordable lives in Liverpool, Leeds, Manchester and other points north and west. Capital investments in the growth of commercial and residential developments increasingly make sense when these exoduses are counted and analysed.

O’Neill advocates strongly for regional organisations of cities (he has tried to coin the name “Manpool,” for joining Manchester and Liverpool, football allegiances notwithstanding) as a means to unlock the potential for growth, building, repopulating and revitalising the city centres. He clearly has George Osborne on his side, which certainly helps.

Investors in property funds or other assets, in the South, West, Midlands and North, need to consider all variables in developing a risk-reward analysis. Discussing a strategy with an independent financial advisor is strongly recommended.