How Effective Might the Help-To-Buy ISA Be for First Time Buyers?

Younger working adults in the UK struggle to buy homes, largely because a deposit is hard to save. This programme might help, particularly outside  London.

When UK Chancellor George Osborne announced the Help to Buy ISA in January 2015, it was cynically viewed by some as the Conservative’s election-year ploy, a response to Labour’s proposed stamp duty elimination for first-time buyers. There is another way of looking at this: the fact the topic of first-time homebuyers played into the national election certainly speaks to the importance of the cost and short supply of housing.

Post-election, the Help to Buy ISA is on track for implementation in the fall of 2015. It enables would-be homebuyers to deposit up to £200 per month – up to a total of £12,000 – into a tax-free account that will be matched with up to £3,000 from the Government (£1 for every £4 saved) if and when that money is used to buy a first home. It will give the new homeowners a structure for savings along with the financial incentives to do so.

Detractors of the programme suggested that the projected cost to the Government of £835 million could instead be used to directly build homes, including affordable housing. More building takes place currently in the private sector due to the work of property fund managers and the like, investors who develop housing where and when planning authorities allow and where it serves a local economic need.

At least the scheme seems to favour buyers of entry-level-cost housing. A spokesperson for property firm Savills told The Guardian in March that they predict “it is more likely to help get buyers over the deposit hurdle in the lower value, lower growth markets of the Midlands and the North.” He indicated that affordability was less likely for younger buyers in London and the South East, where capital growth land opportunities are less likely given the degree of development and high price of land in those areas.

So it seems that investors in property funds might do well to focus on economic development and growth industries in places such as Peterborough, Manchester, Birmingham, Allerdale and Liverpool. Younger families are reportedly moving out of London and to where jobs are available and property fund investors are building price-accessible homes that further facilitate the local economy (those involved in UK land investments take note).

This move away from the Capital City is a theme in capital growth investing for housing as well as industry. The increasingly high prices in London make it more challenging for entrepreneurs and established firms to set up business operations there and attract staff at reasonable wages. Commutes of longer and longer distances have become necessary. Property fund investors who can instead buy property near Southampton or Peterborough, for example, then convert it to more valuable residential or commercial property, are more likely to find a ready market of buyers due to the Help to Buy ISA programme.

There will always be opportunities for capital growth in London as well as the rest of the UK. However, the equation that can provide the fastest valuation increases – the conversion of unused land to housing by way of council approvals – may more likely happen up North, down South and to all points Eastand West.

Investors should always investigate risks relative to their investment portfolios. In almost every circumstance, the investor should speak with an independent financial advisor before taking a position.

The Controversy of UK Agricultural Land Conversions to Housing

What are seen as the controversies around converting land from agriculture to housing?

The value of UK Green Belt and agricultural lands is undisputed. But the environmental costs of modern farming and housing needs are part of the conversation as well.

Anybody considering making an alternative investment in strategic land will know that Britain unquestionably needs more homes to accommodate a growing population. According to the Office for National Statistics, more than 4.4 million homes should be built by 2016, largely in response to two factors: A decennial growth rate of 7 percent, as measured in Census 2011, and lagging new home construction that fails to keep up with this population increase, largely attributed to the stringent lending standards of banks following the 2008 economic crisis.

At least one group claims the solution is to build on Green Belt land. The Policy Exchange, a centre-right think tank, said in late 2012 that the supply of land near cities that is kept unbuilt is a drag on the housing market. They argue that swaths of English countryside that typically surround towns should be opened up for development. The fourteen Green Belts in England cover about 13 percent of the country, enveloping about 60 percent of Britain’s population (about 30 million people).

The Policy Exchange faces plenty of headwind in its positions. Since the “garden city movement” of the early 20th century, the effort to combat urban sprawl led by such groups as the Campaign to Protect Rural England (CPRE) and the London County Council sought to maintain open spaces dedicated to recreation, forests and agriculture as a social good. But the Town and Country Planning Association has proposed since 2002 the adoption of more flexible policies toward Green Belt lands, suggesting that instead of a growth-stifling “belt,” that “wedges” and “strategic gaps” might allow a natural expansion of urban areas.

Famously, the head of Natural England, whose charge is entirely to ensure protection and improvement of flora and fauna, said in 2007 “we need a 21st century solution to England’s housing needs which puts in place a network of green wedges, gaps and corridors, linking the natural environment and people.”

Agricultural land outside of Green Belts

Of course, land away from the major cities is green as well, much of it in use for agricultural, forestry and recreational purposes. More than 80 percent of the landmass in England and Wales, 12 million hectares, are used for farming and forestry. Local planning authorities can more easily rezone the lands outside Green Belts when market factors, such as the demand for housing development, call for it. Since 2000, about 1500 hectares of agricultural land has been converted to housing development every year.

Of course, similar sentiments understandably still exist relative to the bucolic perceptions of farming in the U.K. But environmentalists take exception to how modern agricultural methods, which include excessive application of fertilisers, can actually burden nature with its by-products:

• Toxic build-up. 100 million tonnes of sewage sludge, compost and livestock manures applied annually to agricultural lands is leading to a build-up of potentially toxic elements such as zinc and copper, and more than half of sensitive wildlife habitat experiences harmful acid and nitrogen pollution, according to a paper published by Environment Agency UK.

• Loss of soil. About 2.2 million tonnes of topsoil is lost each year due to intensive cultivation, some of which is instigated by compaction from heavy machinery and livestock, which precludes plant growth and leads to runoff in rain. (source: Environment Agency UK). To be fair, some runoff is noted as well from building sites before landscaping is completed.

• Water quality compromised. About 70 percent of sediments found in water come from agriculture, and those sediments can carry metals, pathogens, pesticides and phosphates.

Such problems due to modern agriculture plague the planet, as similar pollution levels are reported throughout Europe, Asia, North America and Australia. Africa, Brazil and Argentina, the newer frontiers for agriculture, are expanding arable croplands to meet global food demands but also exhibit a host of environmental sins.

The food-housing tug
There is no denying that the housing needs in the UK must be met - and soon. A whole generation of families are postponing children or living in cramped quarters, awaiting homes they can afford or at least rent to accommodate their members.

But Brits need to eat as much as sleep. So how to balance the use of land for each?

A number of approaches are being tested. One is to encourage development of so-called brownfield lands, which include properties that may require remediation from previous industrial uses. These lands are often within towns or immediately adjacent to them, some with excellent access to existing urban infrastructure while others are cost-prohibitive for a variety of reasons (no existing infrastructure, undesirable locations for housing or extensive environmental remediation required).

Sustainable Build.co.uk is a web publisher that considers the balance between development and environmental sustainability from a very pragmatic standpoint. The site offers several points on how land conversions to development can have a negative effect, which include: converted green fields are quite unlikely to be converted back to nature; there is inevitable loss of habitat for animals and plants; a loss of employment for agricultural workers; and a loss of Green Belt land that provides geographical definitions and separations of cities, towns, villages and hamlets (i.e., American-style urban sprawl).

Answering the problem of diminishing agricultural lands is a nascent movement to small-scale, organic agriculture on greenfield lands. Sustainable Build notes, “There are greenfield sites that are not being used for any purpose, for whatever reason. Development must consider all human and environmental factors, not just consume land and space for short-term solutions. A sustainable vision would look at all the options for land use, human population expansion, urban sprawl, economic considerations as well as environmental needs.”

Which, in a country with a growing population and a concurrent appreciation for the environment, is perhaps the most realistic and pragmatic approach.

Identifying Qualified Land Investment Agents: What To Look For

What qualifies as competency for land investment agents?

Land investments are a promising, alternative means to achieve growth under current market conditions. Working with qualified agents is key to managing risk.

Due to rising interest in alternative investments - a response to the middling performance of market-traded securities - there has also been increased concern about the legitimacy and transparency of many of these assets. For example, the broker-dealer Ponzi scheme of Bernie Madoff may go down in history for both its size of losses as well as its instructive value.

Preceding Madoff’s spectacular debacle in 2008 was the 2005 Langbar International fraud. Here, the Nominated Adviser failed to carry out due diligence while the London Stock Exchange concurrently neglected to check compliance with Alternative Investment Market (AIM) rules.

In the wake of events such as these, many investors - and certainly many investment advisors - have had to increase their skills at identifying where and in whom to seek real asset growth with minimized risk.

Land investments should be approached with the same kind of scrutiny, as should land investment agents. There is increasing interest in raw land, due to how the population increase in the UK has not been adequately met with sufficient home building. The consequential pent up demand for housing is spurring Local Planning Authorities to consider rezoning some tracts of land. To the investor, this is an opportunity to create significant asset growth in a relatively short period of time.

The wary investor is wise to go about this with caution. Several fraudulent schemes have been unleashed on less-sophisticated investors, garnering much attention in the press. But individuals (typically investing a minimum of £10,000) working through a third-party financial advisor should inquire about a property fund’s management team.  That conversation might cover the following:

•    Track record - What successes does the land investment agent have on its record? What about failures, or poor performers?

•    Education/Experience - While many professionals endeavour in the land investment field without a university degree in that specific area, they should have accumulated knowledge in their work. The excitement of rapidly appreciating land values sometimes draws in unqualified people only recently landed in the industry.

•    Expertise - Land investment is not a simple buy-sell proposition. In fact, a team of experts typically needs to work together to turn a property into something of greater value. That includes individuals who can provide the best analysis for selecting land that is ripe for acquisition, for negotiating a workable purchase price, for development planning, site assembly and to strategically time the forward sale, all in the interest of maximum returns.

•    Transparency - All accounting of activities, expenditures, milestones, transactions and returns need to be reported on a quarterly if not more frequent basis, audited by a third party.

Not all variables can be predicted in land investments just as uncertainty exists in all types of investments. With the use of a qualified financial advisor - whose job includes clearing qualified land investment agents - an investor can at least reduce the risk of working with the wrong parties in this alternative investment.