North Lincolnshire, Yorkshire and the Humber: Economic Conditions that Promise Growth

As in civilisations past, seaports are engines for human development in northeast England. But renewable energy is what heats up real estate investment here.

To say that North Lincolnshire and the Humber are brimming with energy is neither an exaggeration nor a lazy metaphor. Between traditional fossil fuel depots and a rapidly growing renewables (wind) industry - aided in no small part by the fortuitous Humber estuary - the power generated by the region is real, an economic booster and reason for the region’s considerable growth trajectory.

This is because water and access to the sea hold a two-fold promise in an era of energy alternatives. A £3 billion Government initiative to build the country’s largest deepwater port, the South Humber Gateway project, naturally makes the area a depot for trade. But the added value is in the nature of wind energy: winds blow most consistently across the water, therefore this port is a great place to launch the huge turbines heading to North Sea marine wind farms. A significant project involving a £450 million investment, the Able Marine Energy Park on the Humber estuary, has survived all court challenges as of early February 2015 and is expected to create 4,000 jobs in the wind turbine-manufacturing sector.

To a strategic land developer, this certainly is good news. Those jobs mean a likely inflow migration to the region that requires new homes, new commercial development and new services.

The existing energy companies along the Humber mean this is a region with the expertise, infrastructure and skills to foster that growth, be it in traditional fuels or renewables such as wind turbines. The ports of Immingham (which handles about a quarter of the UK’s energy-efficient rail freight), Grimsby (where Centrica, Siemens, Res Offshore, E.ON and Dong Energy already have operations focused on North Sea wind farms) and Goole (a key distribution hub for companies that include Tesco and E-buyer, as well as very large onshore wind turbine components) are already there. The waterway serves three of the world’s largest wind farms and ranks number one in the UK’s biofuel production.

But that is not the only reason investors involved in UK property funds might be drawn to the region. The local economy is a veritable smorgasbord of industry: transport (rail, road, mass transit and air, including the Leeds Bradford International Airport and relatively new Robin Hood Airport); manufacturing (Tata Steel Europe in Scunthorpe), food processing (Framingham, Crosby), oil refineries (Immingham), chemicals (Saltend in Hull and East Cowick), among many others. The region’s population of more than five million people put its economy on par with many countries in the European Union and abroad.

Yet, housing in Yorkshire and the Humber is in critically short supply, as in the rest of England, according to an April 2014 report from the National Housing Federation. The supply-demand dynamics show that over the decade from 2002 to 2012, house prices rose by 81 per cent while average wages rose just 25 per cent. Private rents rose by 34 per cent over that same time period, with an anticipated increase by another 42 per cent by 2020. Currently, less than half the homes that need to be built are built each year. With continued, robust growth on the horizon, those interested in UK land investment have a clear opportunity.

To investors from outside the UK, the general region around the Humber - which includes Lincolnshire and Yorkshire - is a reminder that economic activity and investment opportunities are not only in London and the South East. Geography, the costs of goods, land and labour make these areas increasingly attractive to industry and development. Where costs of living are increasingly driving young professionals and other workers out of London – thus creating challenges for employers – the eyes of executives and planners alike turn elsewhere. Developments in the North East area are likely to draw young professionals who see a better quality of life away from the Capital City.

Individuals and institutions who invest in real estate funds will keep a keen eye on such projects as the South Humber Gateway project. Of course, an investment always needs to fit individual asset-building goals, and as such they should speak with an independent financial advisor to discuss if and when such projects meet their long-term objectives.

North Lincolnshire Today: An Investor’s Perspective

A combination of fortunate land-sea geography and a population of skilled workers draws commerce to the region. Growth is largely organic, but inbound investment helps.

North Lincolnshire is on the cusp of significant forward movement. Its most significant natural resource, the Humber, is increasingly engaged in commerce with a collection of ports plus a £3 billion infusion of Government funding in the Able Marine Energy Park and Green Port Hull.

And yet Lincolnshire is historically a sparsely populated county (510 people per square mile) with beautiful wetlands and other natural features worth preserving. Planners and community leaders are not unaware of this. In fact, developers working with strategic land partnerships and other types of investors are building today in the 21st century manner: sustainably, sensitive to habitats and natural ecosystems. Wildlife corridors and biodiversity of this estuary region, along with hedgerows, ditches, swales and lakes, are foremost in the plans set forth by developers and their architects. The results are a strategic preservation of flora and fauna that can co-exist with a growing economy and population.

North Lincolnshire’s growth is the product of planning, but much of that growth was happening organically. In the recession years of 2008-2012, the greater Lincolnshire economic output, as measured by Gross Value Added (GVA), grew by 3.8 per cent. Growth rates were greater in England overall and the East Midlands in particular. But three North Lincolnshire industry sectors – agri-food, manufacturing and tourism – had much higher GVA numbers (11%, 13% and 5%, respectively). The Greater Lincolnshire Local Economic Partnership (LEP) is therefore urging that resources be applied to these three sectors for their historic and on-going strengths relative to the national economy.

The LEP believes the core assets of the region (and those that attract managers of UK real asset funds, for example, who are the builders of homes, commercial properties and related infrastructure) are the following:

Broad mix of entry-level and skilled employment - Engineers and medical professionals are already here, including the builders of wind turbines, the physicians who staff hospitals and researchers working with businesses through Knowledge Transfer Partnerships at the Lincoln Science and Innovation Park. This skills diversity extends also to housing and commercial activities, with a consumer market that is less susceptible to economic and business cycles.

Knowledge base, innovation-driven - The LEP proposes to create a “growth hub” to provide strategic coordination and create conditions for growth that feed the 41,000 small- to medium-sized businesses in the area. A goal is to help start-ups beat the survival rate of three-years’ existence, which nationally is 58 per cent. But make no mistake, these are firms and industries of greater importance and relevance in the emerging industries such as renewable energy and technology.

Increasing productivity - Historically, the region has ranked below the English average for overall worker productivity. But with a focused effort on one industry in particular, the agri-food sector, the LEP endeavours to apply world-class agricultural science and technologies, as well as process innovation across the supply chain. Further, investment in infrastructure such as the ports and highways and rail hubs will get more products to more markets in less time – yielding a net increase in product volumes and prices at market.

Export infrastructure - Within 24 hours sailing time from the several Humber ports are 800 million people in Scandinavian and continental European countries. But the infrastructure that makes this region truly equipped for handling exports as well as imports are the roads, rails and airports (Humberside as well as Doncaster Robin Hood and Leeds Bradford airports are all in relatively close proximity).

In laying out a strategic plan for economic growth, the Greater Lincolnshire LEP explains that investors should take advantage of "area-based schemes that unblock housing developments." As with any area planning for growth, this is essential for housing families and attracting skilled workers to an area from elsewhere.

Investments in industry, land and housing all come with unique circumstances and tradeoffs. Speak with an independent financial advisor before committing to any asset category or equity position.

North Lincolnshire History: Invaders Knew a Good Thing When They Saw It

Foreign elements of the past sailed up the Humber to find wealth. But the economics in this region today serves residents, investors and trading partners alike.

Due to its location, several rivers and North Sea access, the northeast area of England known as the Humber - which includes North Lincolnshire and North East Lincolnshire and East Riding of Yorkshire - has a history of invaders from all sides. Conquest and pillage were the goals of those foreign parties, however today those people from those same countries are more likely to be trading partners in this economically vibrant area.

The Humber, one should note, appears to be a river but is in fact an estuary, the point at which fresh water drains into salty seawater. Flowing into the Humber are the rivers Ancholme, Hull, Ouse and Trent. Today, environmentalists value the area for its wetlands habitat. But the conquerors came for other resources, beginning with the Romans and followed later by Danish armies, William the Conqueror (the first Norman King of England) and his successors.

Contemporary investors of land take note: Ancient conquests may have been about property, but what kept that land valuable was the produce thereof. Specifically, sheep farming and wool filled the ships that sailed to points north, east and south. The great, elaborate churches of the area (St. Botolph’s Church in Boston, St. Wulfarm’s church in Grantham and Lincoln Cathedral among them) were built upon the fortunes generated by the wool trade. Agribusiness and food remain important industries in the 21st century, as do manufacturing, engineering and tourism. But a low-carbon economy (wind farms in the North Sea), healthcare and the ports and logistics industries are what UK land investing focuses on now.

Lincolnshire has many castles - Tatter shall, Burghley and the thatch-roofed Alford Manor House (now a museum) - evidence of the wealth of the region then and a draw to tourists today. But investing in UK land in contemporary times is about building homes for working residents of the region.

Indeed, the Greater Lincolnshire Local Enterprise Partnership (LEP) strategic plan calls for the construction of 100,000 houses in the near future. While that means fewer sheep farms in the region than 1,000 years ago, this is because room is made for local residents (and those who are expected to migrate here for work) to engage in technology, shipping and other contemporary industries. Investment from the central Government of £3 billion in the South Humber Gateway project will build the largest deep-water port in the UK. Another major project, a 219 MW wind farm under development by Humber Wind, involves a £1.17 billion investment of private funds. The same winds that blew invaders to the area a long time ago brings clean, renewable energy to a vibrant, growing north England district.

Whether from UK property funds, institutional funds or private investors, areas such as Lincolnshire, North Lincolnshire and other areas enjoying their strategic location on the Humber are growing because of the foresight of public and private entities. Castles and cathedrals might have given way to commercial enterprise and homes, but the end result is just as grand: economic stability and growth, spread a bit more evenly among the populace.

Investors need to consider all matters of risk relative to every investment, including those made in land and building. Speak first with an independent financial advisor to identify the best risks and opportunities in the Lincolnshire and Humber lands.

North Lincolnshire Growth Factors

Expanded seaport and renewable energy sectors get all the headlines. But this vibrant region of northern England has its eggs in many baskets.

The renewable energy company Offshore energy Denmark announced in February 2015 that 4,000 jobs in wind farm operations and maintenance would be created in Grimsby within five years. This is part of a projected 10,000 jobs envisaged by wind energy manufacturing that should result from the Able Marine Energy Park and Green Port Hull.

But wind isn’t the only industry that is drawing skilled workers, investors (e.g., real asset investing focused on new housing) and supply chain companies to North Lincolnshire and areas surrounding the Humber. The renewable energy sector building significant assets in the North Sea is certainly a big part of that. With the Government’s £3 billion initiative to create the UK’s largest deep-water port, the South Humber Gateway project, the area will be a significant industry hub. Yet several other industry sectors are on a growth path – enough so that the Greater Lincolnshire Local Enterprise Partnership (LEP) says that 100,000 new homes need to be built to accommodate the influx of new workers.

What else might draw investors to think of North Lincolnshire as important to their portfolios? Here are the industries the Greater Lincolnshire LEP says are the growth sectors of the regional economy:

• Renewable energy -The low-carbon sector is worth £1.2 billion per annum. Add biomass, biofuels and energy from waste that continue to play an economic role as well.
  
  
• Healthcare - Already this sector employs 56,000 people but with an aging population and emerging educational institutions (Lincoln Science and Innovation Park), some of the new housing stock should include whole-life needs of seniors. Joint ventures between builders and healthcare providers can address the housing question.
  
  
• Tourism - 39,000 workers welcome and serve 22 million tourists each year, generating £1.3 billion. Many of the castles and forts originally built to keep out invaders are now where friends and trading partners visit on holiday ventures.
  
  
• Agriculture and fishing - Producing 25 per cent of the UK’s vegetables on about the same portion of England’s grade 1 agricultural land, the region is also responsible for processing 70 per cent of UK seafood. Already, 68,000 people work across this supply chain in North Lincolnshire.
  
  
• Seaports and transportation - By tonnage, Greater Lincolnshire ports handle more than any other in the UK. With 75 per cent of the UK population within a four-hour drive, the ports of Immingham, Grimsby and Boston, as well as the Humberside Airport’s perishables capabilities, make this an exceptional point of trade coming in and going out of the country.
  
  
• Manufacturing/engineering - Serving the power engineering, petrochemical, steel manufacturing and motorsports engineering industries, this portion of the local economy produces 20 per cent (£3.3 billion) of the Greater Lincolnshire output.
  
  
• Small- to medium-sized business - There are 41,000 small and medium sized businesses already in this region.

As the chair of the Greater Lincolnshire LEP, Ursula Ledbetter, states, "Our housing market also plays an important role in supporting the local economy. We intend to ensure that public and private finance work together to provide a wide range of homes to suit all budgets, in the right places to support business growth and stronger communities."

Those who choose to focus their finances in North Lincolnshire are obviously looking for growth. But a consultation with an independent financial advisor is nonetheless recommended.

Housing need, delivery and the political dimension to house building in the UK

Since the publication of the Barker Review in 2004 successive UK Governments have agreed that around 245,000 homes need to be built each year to meet the country’s housing needs. In 1977 314,090 new homes were built in the UK. Two years later that figure was down to 251,820 and since then there has not been a single year where house building completions in the UK have reached 245,000. During the 1980s the average annual completion rate stood at 217,314; by the 2000s it was down to 191,332. Last year the UK housing industry built 140,930 new homes.

This long-term undersupply has manifested itself into what we are now calling a ‘housing crisis’ leaving many working people with longer commuter times, smaller homes than they desire, high levels of housing debt or excluded from home ownership altogether. The average home in England now costs 8 times the average wage. In a country with high economic ambitions we need to deliver greater housing choice at more affordable levels.

But if house builders have a product which is in huge demand then why do they not just go out and build more? Is the town planning system preventing them from doing so?

To be fair to the Coalition Government they have presided over a significant overhaul of the planning system in England with publication of the National Planning Policy Framework (NPPF) in 2012. They have also sought to reduce the barriers to accessing housing finance with the introduction of the ‘Help to Buy’ scheme.

Most planners I speak with agree that the NPPF has been an improvement to the planning system. It puts ‘sustainable development’ at the forefront of planning decisions and establishes a ‘pro-development’ agenda to which the industry can respond. But frustrations still exist as a result of the application of the NPPF’s policies and how these policies can be used as a barrier to prevent housing developments, which could and should be built.

Much of the problem lies with local politics. New housing is the most contentious of all new development proposals. This is not because it is somehow less attractive than power stations or industrial estates but because it is typically sited next to existing homes. Irrespective of the fact that their own house stood on what was once a green field, many home owners are vehemently against proposals for new housing in their area. Local politicians know that this affects votes and, within this context, too many local authorities plan for ‘just enough’ new housing.

But this is where we need strong leadership and an honest, grown-up debate. In England just 1.1% of our land is occupied by housing. This is less than the total land occupied by golf clubs. In a country with a growing population and a dynamic labour market our housing supply seems to be driven (or constrained) by the ‘haves’ rather than the ‘have nots’.

There is also a strong economic argument for the building of more homes that I hope will start to become more readily used by all within the development sector. The Home Builders Federation and Nathanial Lichfield and Partners have recently published a paper titled ‘The Economic Footprint of UK House Building’. The paper calculates that increasing the number of housing completions from 140,000 per annum to 240,000 would create £1.1bn additional net capital expenditure, 430,000 extra jobs, increase economic output by £13.6bn and deliver both an additional £1.2bn of tax receipts and £432m of local infrastructure each year. For a country in need of new jobs and growth this seems to be a pretty compelling case for us to up our game when it comes to housing supply.

Read through the manifestos of the political parties for the forthcoming May elections. Most show a desire to increase the current levels of house building but lack the detail to say how they will do this. Lucent Group has itself produced an alternative manifesto, which gives some very clear ‘fixes’ to the planning system and UK land market which can be read here:

Lucent Group Manifesto: The Catalyst for Solving the UK's Housing Crisis

Whichever political party or coalition of parties makes up the next Government I hope they show the strength of leadership and political will to address the housing crisis. A good start would be to encourage a rational debate about the issues at hand. I am sure many in the housing sector will doubt that this will transpire but if we are able to have a difficult debate about Government spending cuts and deficit reduction then surely we can workthrough the changes needed to build the level of homes both current and future generations require.

Family Loans for First-Time Homebuyers: What are the UK Housing Implications?

To get on the property ladder, young Britons are going to "the bank of mum and dad." What does this adaptive financial strategy mean for housing development?

Much has been written about the difficulties that young working people have at buying their first homes in the UK. While the situation is exceptionally difficult in London, where a deposit of more than £100,000 is all but essential for a first-time purchase, home prices throughout the country have risen back to 2007 levels and higher. The reason so many younger people either rent or live at home with their parents is because bank lending standards are very tight and deposit requirements are very high.

But two organisations that track the state of housing in the UK - lender Halifax and Shelter, the housing and homeless charity - both report that first-time buyers increasingly turn to parents or other family members for loans or gifts. This reflects the increasing difficulty at getting on the property ladder for younger working people, but it also suggests that buying is not impossible.

For homebuilders and developers who are financed in the private sector - think joint venture partnerships that bring together consortiums of investors who recognise the high demand for housing - this is heartening news.

Across the UK, the average price for a home purchased by a first-time buyer in early 2014 was £192,000, meaning that the requisite 10 per cent deposit would run close to £20,000 (a poll by Shelter UK found the average parent-to-child loan was £23,000). This was a 10.5 per cent jump over the same time in 2013. For young people caught in the rent trap or whose slack wages simply prohibit them from saving that much, the options for getting a deposit by an alternative means include the following:

• Below market-rate loans from family - Whether it be for a deposit or the mortgage itself, it’s not unusual for family members to make loans to each other. What’s highly recommended is that documents be drawn up to specify how the loan will be paid back and with what interest charges, if any.
• Deed of trust - Using a solicitor, draw up a document that indicates how much you’ve loaned to your child (or niece, or grandchild, or family friend) that specifies how much you would be paid back if and when the borrower sells the home in the future.
• Collateralise parents’ home - Raise cash with a secured loan against your home. This does risk the parental home if for any reason the borrower defaults on their loan.
• Lifetime Mortgage (early inheritance) - This basically releases the borrower from debt with the parent at the time of the parent’s death with the sale of the parent’s home; of course, this complicates inheritances if there are multiple siblings.
• Guarantor mortgage - With the mortgage lender’s agreement, the parent guarantees the loan, agreeing to cover mortgage payments should the homebuyer not be able to do so.

What is implicit is that the post-War generation, the parents of younger homebuyers, in each case are sharing their generational fortune with their adult children. For people whose parents are unable to provide any of these things - say, if they themselves have low incomes and live in private rental or social housing – these methods are largely unavailable.

What can alter this significantly is an increase in the supply of homes, building 200,000 residences per year instead of less than half that (as has been the case for the past decade). Financiers who make alternative investments in land, where planning authorities permit conversions to residential from (typically) agricultural land, are able to build near emerging employment centres. Given the state of housing expenses in London, entrepreneurs and other employers are locating away from the capital city to reduce labour costs.

Investors in the housing sector, both individuals and institutions, are clearly tapping into a high demand market. But individual investors should speak with an independent financial advisor to judge where an investment in housing, in UK land - or a loan to adult children - is most rational.

Better Paying Jobs, Lower Cost Housing Mean Growth in the UK

The unaffordability of home ownership is tough on families. But if a major city lacks for affordable housing, it can also negatively impact overall development.

Is it possible to read a British newspaper or UK land investment or real estate website without running into a story about the shortage of housing? If supply is so short, why aren’t homebuilders responding with new homes?

In fact, discussions about the supply of housing in the UK - in London, as well as the rest of the country - are really about affordability. Currently, the woefully inadequate supply intersects with the demand line at a very high point, driving the costs of an owner/occupied home beyond the reach of the average English worker.

Investors (think about people investing in UK land), economists and local planning authorities alike have closely studied this factor. And the most meaningful number that surfaced in late 2014 and early 2015 is the average home price-to-earnings ratio, hovering just above 5.0. As home prices rise, as they have rather rapidly since the country emerged from the financial crises of 2008-2010, the ratio gets larger if wages do not keep pace.

And wages have not kept pace. The BBC reported in January 2015 that average weekly earnings increased in 2014 by 1.6 per cent per annum, while house price increases were 7.8 per cent.

Now to be fair this ratio is not at historically high levels. It was higher (around 5.75) in 2007, the height of the last housing price bubble. Then it dropped to below 4.5 after the bubble burst in 2008, where the ratio largely remained up through mid-2013.

Nationwide, the financial services company, breaks down the numbers that distinguish London proper, the north of England and the UK overall. For first time buyers, that price-to-earnings ratio is much higher in the Capital City (around 6.8) and below average (3.2) compared to the country averages.

Keeping overall home ownership somewhat in check is the relatively low cost of mortgages, aided in part by the Help to Buy scheme sponsored by the Government.

So why aren’t homebuilders and land investors building more? With low interest rates on mortgages, wouldn’t that be incentive enough to build? This isn’t the easiest equation to work out as there are several variables. One is that the 10 per cent average deposit is difficult to muster for cash-strapped younger families. Another is that so much of the population and employers are clustered in London, where housing and land costs are high. And another is that homebuilders depend on capital growth partners to first buy the land, then get planning authority approvals to convert that land to residential housing – but that several factors can trip up that process from converting land capital into built properties.

The cities with the lowest home price-to-earnings ratio, where homes are more affordable (in 2012 numbers) were found by a study from PwC consultancy and Demos think tank (“Good Growth for Cities, a report on urban economic wellness”) to be the following:

• Liverpool - Also distinguished by a good work-life balance.
• Manchester - Work-life balance and overall income distribution are favourable here.
• Newcastle - Also distinguished for good transport factors.
• Sheffield - At best, Sheffield hits at “average” for a number of factors including work-life and sectoral balance, homeowner occupation rates and income distribution.

Unfortunately, each of these cities is not poised for growth due to poor jobs, wages, health and other factors. In each case, less than favourable conditions kept demand and prices for homes low.

Cities most noted in the PwC/Demos study for high house-price-to-earnings ratios - and on the radar screen for investors in land, hoping for capital growth - are Birmingham, Bristol, Leeds, Nottingham and London.

Myriad factors affect homebuilding, of course, and investors are cautioned to go about it with good resources. In addition to meeting with land fund partners, would-be investors should speak with an independent financial advisor to determine the proper balance of risk to reward in this class of investments.

The lack of houses, stymying growth in many UK cities, is not due to a lack of investors. It’s more linked to wages that fail to enable ownership.