Regions versus London

It has been an interesting week and on Wednesday night we hosted a dinner with Richard Parker, who advises Government policies on housing and was part of the Lyons Commission. It was very insightful but also highlighted there is no clear party in the election when it comes to housing.

It did not surprise me lately to learn that growth in home ownership was stalling in the largest English cities as lets be honest the market is starting to price people out. Now this doesn’t apply to London but it is becoming a wide scale problem and its clearly on the radar of politicians with a number of manifestos outlining options to address the “housing crisis” through Right to buy or Use it or Lose it

 

The study performed by the National Housing Federation shows that in core cities (Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield) only 52% of people are home owners compared to 63% nationally. Interestingly though if you compare that to overseas, say Germany or Switzerland, it’s positively high given the European rental models.

 

So when we say a housing crisis what do we mean? I bought my first house on a four times salary mortgage – fairly stretched but we made it work. In Bristol, the average house price is nine times the average salary in the area; somehow I doubt a bank will stretch that far! And this replicates across other cities. This is simply driving people to short term lettings in a hope of saving cash for a deposit or longer term privately rent accommodation – either way it fuels the lettings market, which in turn drives up prices.

How do you address this issue in cities? Well there is no one size fits all but a lot of these cities are in need of regeneration with houses in central parts lying vacant. There is also infrastructure improvement needed which makes the commute that bit easier – this gives you more choice for that house and reduces the “demand” part of the equation.

The next key step will be found out on 8 May 2015 – all parties have slightly different approaches to address the housing situation, they all will in their own way help but everyone needs to get behind them.

But while the regions battle, London ploughs on. In a recent survey it was found that there were 264 on going towers being constructed in London (a rise of 10% on the prior year) and further than that certain housing associations are becoming self-sufficient and delivering on their housing commitments. It is going all too well for them.

 

The interesting point of the survey was that 80% of these towers were residential, which if you think about the regions, is a different way of life – I do wonder how many of these “houses” are second homes for those working in the city. It is needed though with the rising population of London either way – it’s a two pronged attack of population growth and commuter growth.

 

But it’s not just London on the up. In 2014 the European property market could only be described as a good one with 2015 shaping up the same. In total £156bn of investment was ploughed into Europe with hotels and industrial benefiting the most.

 

But why? It comes down to liquidity. Liquidity is an issue for investors and people are therefore putting money into safe havens (like London above). The global low interest rates means real estate is attractive to increase returns,

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

Follow me on Twitter

Connect with me on LinkedIn

#GE2015 impact on housing

So not too long ago the Government announced a number of infrastructure schemes to support the North of England, the Transport for the North (TfN) schemes. The aim was to provide increased capacity in the North and further support the devolution aim. The main exciting scheme would be “HS3” a new high speed rail between Leeds and Manchester. I do wonder why not Hull to Liverpool with a connection to Sheffield though. Will cost more but will truly connect the North.

The schemes ranged from rail investment to even creating a tunnel under the Peak District. Now all these schemes are just bits of paper at the moment however one thing that is for sure is the delivery of any will support jobs in the North and also provide increased connectivity to really drive investment in the region – certainly a positive step for those seeking to attract more businesses to the North. And more businesses means more homes for them. It’s all a perfect circle for the industry if it is delivered. It would be good to have all parties commit to supporting this going forward to really make some change in the North.

The potential swinging vote for House builders is the impact of the coalition on their share price. They have massively outperformed their contractor rivals on the London stock exchange over the course of this parliament, seeing on average 238% share price growth. Don’t you just wish you’d made an investment 5 years ago! Certainly Help to Buy was a driver behind this and no doubt some of the wider policies. Also though don’t forget they took the hit 2008/9 with large scale write downs. It does skew the numbers somewhat when showing large scale profits.

All this made me wonder what policies are out there as part of the General Election 2015 campaign:

Conservatives

The Conservatives say that the Help to Buy scheme has worked and the introduction of the Help to Buy ISA furthers this scheme. Largely I agree it has been a welcome move providing more access for first time buyers – it still does not fully address the issue. The manifesto for the 2015 election builds on this by extending the scheme to 2020 and committing to building 200,000 at a 20% discount. Clearly the focus is about getting people housing but my only thought would be does this fully address the increase in house prices which even with Help to Buy is pricing people out of the market.

Labour

It gets a little similar now as yet another commitment to 200,000 homes per year. Labour are also seeking to find funding for first time buyers and cap rent increases in long term tenancy agreements. It was also interesting to hear Shadow transport secretary Michael Dugher comment that Labour has a better plan for the North around devolution. Look forward to reading about this more (didn’t jump out at me in the Manifesto). What did prick my ears was the creation of a £5 billion fund to build homes that the community need. Practice will show if this is actually what it delivers (if they get in power). How does Labour plan to convince the banks to use Help to Buy ISA funds in this way, I know what my response would be.

So “lose it or use it” for large developers, hmmm I don’t think they hold land solely for it to go up in value and I’m aware that some simply get stuck in the planning process - they want to build. This will need careful consideration before any implementation.

Liberal Democrats

Over the past year there has been talk of the new “Garden Cities” and yes it is a policy now, with at least 10 planned. Sounds such a nice idea – a garden city, a city surrounded by green belt but there needs to be care and planning to ensure cities/towns are appropriately considered, provide sufficient resource and infrastructure and maybe think North not just South. They also go one further and commit to 300,000 homes a year, well where to start (a) the country builds nowhere near that, (b) massive planning reform would be needed to allow approval for all this and (c) where is it going to be? My local town has hundreds of houses planned – each one has been opposed by locals.

In conclusion

I’m undecided. Each has policies which appeal but each in turn needs to really think about implementation. They all address the need to build more houses but I feel they all lack the clarity on how this will be achieved. I look forward to the knock on my door so I can ask for the detail.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

Follow me on Twitter

Connect with  me on LinkedIn

 

Devolution just makes sense

If there is one thing we have seen over the last year it is increased discussion around devolution. I’m all for devolution and devolving more to regional cities because one thing they have shown since the world financial crisis is the ability to come back fighting. Yes London is the capital and let us be honest it will never be matched in the UK, however with improved infrastructure and connectivity it’s only fair for other cities to take their fair share of the pie.

 

In 2014, investment outside of the capital rose by 35% - so why the sudden change of sentiment? Well the reasons are vast. Firstly the class of assets is improving in the regions, the strong economy in the overall UK compared to the rest of Europe (basically less chance of deflation here, apparently) and consumer demand. There is also the relative excitement, for some, of large infrastructure projects like HS2 and HS3 on the horizon which will increase connectivity across both the north and slightly improve to London.

 

To aid devolution there needs to be more transfer of power than at present, further schemes like that announced for Manchester is a start but a wider review of business rates is needed and particularly a rebasing of rates. By allowing local authorities a much greater say will allow the right level of development to really boost the local economy.

 

So how would I invest, simple, I’d take up workspace properties across the northern cities. If you take Sheffield or Leeds there is a large number of unique and quirky buildings. They look run down and need more than a lick of paint but at a reasonable price and some tender loving care (or even just making modern with Wi-Fi) then you could see a decent return. Call me a risk taker but it makes sense.

 

Locally Leeds has benefited most recently, I mean not many places can claim Google as a tenant, and in 2014 witnessed a significant increase in activity. As further developments begin to soar from the ground the key is taking advantage of the success and really shouting about it.  Across Yorkshire they are using their heritage to create business clusters. The success of steel making has seen local steel and titanium manufacturing expertise and further manufacturing expertise championed as places like the Advanced Manufacturing Park and Advanced Nuclear Research Centre.

Ultimately devolution has the potential to really boost economic growth and here’s hoping that local economies like Leeds, Sheffield and Manchester firmly step from the shadows of London. The recent deal struck for West Yorkshire Combined Authority provides for a different working relationship with agencies like the Homes and Communities Agency which will allow for greater say over housing planning – focussing investment in priority areas. However the current deal doesn’t go far enough and to really create a “Northern Powerhouse” then further devolution (including fiscal devolution) needs to be put in place.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

Follow me on Twitter

Connect with me on LinkedIn

 

Housing – SMEs and Public Sector

Well I started watching the Leaders Debate but I lost interest fairly quickly so had time to right my latest blog. It’s been a strange week, I’ve managed to meet a couple of local smaller house-builders and it fascinates me the innovation and creativity that they demonstrate showing that you can take a small plot of land and create something special. I’m not against the larger developers but I’m just a sucker for something a bit different.

 

Housing is always going to be topical and it’s clear to see why. Since 1952 house prices have risen by 500% and you can see that in real life having just seen a relatives’ house sold for 58 times what it was bought for, now yes that doesn’t factor in inflation but it gives a flavour. Land is scarce and this scarcity will always continue to drive the price higher.

 

As well as the land scarcity, remember in 1979 the public sector stopped building large scale housing developments meaning it was left in the private sector. They aren’t charities they need to make money. Is there an argument to push the public sector more to take back the lead on house building, not sure where funding would come from but could be an idea?

 

Since the public sector closed shop for house building the industry has consolidated and it has seen the number of SME house builders reach its lowest. It is therefore reassuring to see the return of the SME house builder fuelled by wealthy individuals and to an extent the banks.

 

The way I see it is that England still has sufficient undeveloped land (something like only 15% is developed). Whether you invest in developing brownfield land – which is successfully happening across Yorkshire or seek to convert run down areas in inner cities into thriving communities – there is space to do this without even touching our precious green belt land. The Lyons Housing Review focuses on reaching 200,000 houses a year with the growth coming from public sector and PRS. The figures highlight that by 2013 housing delivery had reached a low of 109,400 and growth can come from a number of areas – volume developers opening up their land bank, supportive for new home owners and actually investing in local infrastructure, SME house builders returning to capitalise on sites the volume developers won’t touch and big growth from PRS and public sector.

 

Housing is topical and it always will be because underlying it is big money. But to me there is clear ways you can deliver the targets set out. Continued support to SME house builders benefits local communities and adds something to our landscape, accepting the larger house builders as they contribute largely to the economy and provide housing that help people onto the ladder and invest in housing as its value is only going up! The public sector should return to house building at the scales in the past, providing more affordable homes and controlling much more of the process.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

Follow me on Twitter

Connect on LinkedIn