The Lyons Housing Committee last year found public concern over housing at its highest in 40 years.
At government level, too, the housing crisis has become a primary concern, with Chancellor Philip Hammond identifying a shortage in housing – and its impact on the UK’s productivity – as an ‘urgent’ problem in last year’s autumn statement.
Smith & Williamson, GGW Corporate Services and Freeths hosted an event to highlight the problems facing the housing sector and identify potential solutions. Ian Sutcliffe, CEO, Countryside Properties Plc, and Martyn Chase, Director, Stanhope Plc, shared their thoughts on how development capacity could be unlocked to ease the housing crisis in the UK.
The space race
Our debate revealed that, in theory, space shouldn’t be an issue when it comes to developing new housing in the UK. The public sector currently holds enough land to satisfy housing targets for several decades into the future. The problem isn’t finding land that’s ripe for redevelopment: it’s the slow rate at which local authorities are opening this space up for development, whether for the public or private sector.
Unlocking development capacity
To unlock these spaces, the government first needs to do more to support local authorities, either by promoting public sector affordable housing projects, or reviewing the strict ‘best price’ requirements imposed on the sale of public sector land to private developers. The risk of hefty fines if a sale should fail ‘best price’ testing can make local councils hesitant to dispose of space.
Secondly, more could be done to shift the focus from a few large-scale developers to alternative builders. SME development firms and registered providers have the potential to fill some of the shortfall in housing targets, given the right support. The £3 billion Home Building Fund could be a step in the right direction.
Consistent with the findings of our 2016 Property Survey, the UK’s planning process is seen as unwieldy and the appeals process costly. Higher planning and financing costs can often be borne or absorbed more easily by large scale firms, disadvantaging SMEs.
Another factor that continues to tie up usable development space is the lack of infrastructure in high demand areas. To unlock viable development space, public bodies need to ensure that appropriate infrastructure is provided at the right time. The £2.3 billion Housing Infrastructure Fund, announced in the Chancellor’s Autumn Statement 2016, should start to alleviate this issue, but more innovative funding was called for at the event to finance infrastructure.
Funding future development
Funding issues aren’t restricted to local authority infrastructure projects.
Although bank funding is still the most prevalent source of finance, enough capital isn’t available from them to meet the full spectrum of development demand. This has opened the door further for the expansion of non-traditional and innovative forms of lending for the forward funding of schemes.
A recent leaseback ‘income strip’ deal between Legal & General and property regeneration firm Places for People provides an interesting example of alternative funding. Yet, without mainstream access to funding, smaller developers, who could be crucial to the development eco-system, could face difficulty.
Making homes, not houses
In recent years, we’ve seen a shift from house building to “place making”, as developers, local authorities, potential homeowners and tenants alike look to housing that offers efficient use of space as well as promoting a community’s assets and well-being.
As the amount of units built increases to meet demand, this type of development – incorporating innovative, efficient design, integrated transport, and a sense of community – will be key to facilitating planning consent.
Additionally, the majority of urban developments will need to combine privately owned, privately rented and affordable housing. As a large percentage of the population, particularly in London either want , or are being forced, to move away from home-ownership, the need for long term private rental stock needs to be addressed by government, developers and estate managers to meet demand.
Bridging the skills gap
The construction industry is being hit particularly hard by skills shortages. Unfortunately, Brexit could exacerbate this issue, with a potential trade skills crisis on the horizon unless fundamental changes are made to training, skills and employee retention, at both industry and government level.
Modular construction methods are also being considered as a potential solution to meeting housing demand in light of a reduced skilled workforce. While it’s likely that modules – constructed off-site under controlled conditions – will play a more prominent role in the future of construction, how much they can revolutionise the sector remains to be seen.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.