The blame for this is often pointed at investors and developers in the private sector. Evidencing this, they will point to the sector’s frequent preference to build fewer, higher spec properties – in the year to April 2020, less than 60,000 affordable properties were completed. Certainly, a portion of this blame must be shared; but it must be noted that the public sector itself does very little to alleviate the issue.
The roots of this stretch back to the Thatcher government’s Housing Act 1980, which implemented (among other historic reforms), the Right to Buy. This had the immediate and ongoing impact of liquidating a significant portion of the UK’s social housing stock, built up over the post-war decades. In their place, the state afforded little resource to replacing them. In entire decade of the 2000s, only 208,000 social homes were built, with the vast majority constructed by housing associations. Local councils instructed only 4,000.
Of course, these reforms have emboldened property investors and developers, and played a significant role in accelerating the UK’s housing market into the ever-ascendant behemoth it is today.
In turn, all parties must recognise that the housing crisis is of no benefit to the long-term health of the sector. Sincere efforts to provide greater stock of affordable housing have been made, but are often piecemeal and limited in their requirements – there is a broad recognition that more needs to be done to incentivise housebuilding.
Overcoming this deficit will not occur instantly, nor is there a single quick fix. Instead, all stakeholders in the sector should take stock of the UK’s timid response to the issue over the last decade, and recognise the need for compromise and creativity to facilitate more and better housing, with greater opportunities afforded to investors, who can play a vital role in galvanising development activity.
Just build more houses
If only it were so simple! While the private sector produces the vast majority of new properties in any given year, there has been only a minor response to efforts to encourage mass homebuilding. Between 2018 and 2020, there was a vanishingly small 1% increase in the volume of build completions in the UK.
It is evident that there is a lack of incentive for investors to prioritise mass homebuilding over more fashionable smaller projects with potentially higher short-term upside. It is also worth considering the impact the housebuilding boom would have on investors and developers.
Were the property market to suddenly flood with new housing stock, a likely consequence would be a downward correction in house prices, as buyers would be afforded greater choice and sellers would be forced to compete more aggressively. Put simply: with the property market we know today, an ongoing shortage of housing works to the benefit of those who could resolve it with investment.
Accordingly, the government should look to entice investors towards mass builds. Offering tax breaks, extended grant schemes, and encouraging councils to partner more frequently with private firms to complete-scale building projects would be a positive step towards eliminating the economic barriers which prevent developers from building.
Naturally, this will be a controversial change. Nobody wishes to see a completely free approach to construction, which would inevitably lead to poor quality builds and inadequate integration. Nor would anyone particularly like to see the UK’s renowned natural beauty blemished with opportunistic developments and perpetual construction sites.
However, a fine balance must be struck. At present, certain aspects of planning regulations are somewhat draconian, and limit reasonable projects being completed (or even initiated). A slight liberalisation of rules, and hastening of the process, would contribute to the structural issues which prevent mass builds, particularly in built-up urban areas.
Build something different
Innovative builds do not have to be luxury or high end. Increasingly, buyers are looking for a particular spec for their property. A particularly recognisable shift in buyer trends is towards sustainable and thermally efficient properties.
Meanwhile, a convenient consequence of the pandemic is that more people are looking to leave urban areas in favour of the countryside; facilitated by home-working. This has breathed some new life into the under-invested provinces of the UK, but also struck up an interesting opportunity for developers who were beginning to run out of capacity to build big – or smart – in cities.
Accordingly, developers who can recognise the value of this, and instruct large quantities of fashionable housing stock in emerging areas with vast amounts of available land will quickly reap rewards.
Particularly due to the challenges Covid posed to the construction industry, there are a number of developments with planning approval and partial construction, but no funds left to complete.
Councils should look to take the initiative and entice investors to help finish these projects. With no protracted planning headaches to negotiate, and much of the fundamental design work in place, developers should be able to produce quality housing at scale in a fraction of the usual time.
Promoting off-plan property investment is a beneficial way of ensuring developments are suitably finances, while also presenting exciting new opportunities to homebuyers and property investors alike.
Restore and renovate
The UK also has an abundance of another property class that is lying dormant and producing little value – derelict and long-term empty properties. In England alone, there are estimated to be more than 250,000 homes that have been unused for six months or more.
Local councils already have the powers at hand to bring these properties back into productive use. Of course, those which have been out of use the longest will require some investment; including renovations, safety assessments, and modernising. However, all new properties incur such costs. In place, this provides a highly cost and resource-efficient method of repurposing existing properties to help tackle the shortage.
*Jamie Johnson is the Chief Executive Officer of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices.