Are modular homes the answer to the housing crisis?

Flat-pack, pop-up, modular homes - whatever you want to call them, off-site construction has long been held up as a potential solution to the housing crisis, but despite becoming mainstream in Europe its time in the UK never quite seems to arrive – yet every day we seem to read more and more about it.

The creation of a 550,000 sq ft warehouse in Leeds will see the largest modular housing factory in the world – and yes it’s in Leeds! The plan is for the first homes to come out of production by June 2016 with the ambitions of L&G Homes to build thousands a year. Yet why should it be any a surprise? This has been occurring across Europe and North America for a number of years yet for once not in the UK. This is likely to be an image problem – flat pack is associated with cheaper materials and generic designs – and even Ikea haven’t changed our view on this.

 

Now we are in 2016 so let us not forget that times have changed. Modern manufacturing methods can produce high-quality homes without the high construction overheads and in a greatly reduced timeframe. In a world of skills shortages surely a process that can reduce up to 70% of on-site time should be applauded.

But even if modular housing manages to overcome its image problem, other stumbling blocks remain, not least achieving economies of scale and building an industry around a model that in the UK has largely been used for small-scale projects. To do so requires significant upfront investment but that does not come without risk – though surely we can look at countries like Austria, Germany and Scandinavia where this is simply the normal.

It is not just L&G that see the potential with Roger Stirk Harbour & Partners seeking to scale up the production of Y:Cube modular housing to as many as 7,500 units a year with backing from the mayor of London, and support within City Hall. There is also regeneration developer Igloo who have announced plans to build floating custom built houses on the Thames next to the ExCel conference centre in London.

Up to 70% of construction projects could be built using off-site manufactured components. Whether these growing calls are heeded and the alternative housing revolution, whether modular or floating, finally takes off will depend much on the success or otherwise of ventures such as L&G’s and Igloo’s. After all, if these alternative housing schemes are to make any dent in Britain’s severe supply shortfall, the method must be successful at scale - and that has yet to be proven.

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

 

 

 

First time buyers are getting older - no kidding sherlock!

Recently the English Housing Survey was released and it has further supported by two trends within the housing market. Let’s explore these further:

• More families are renting privately – private rented sector for families is increasing with the survey highlighting 37% which is a big increase since the last survey. It is a strange scenario – for me I’ve always been part of a family that owned our house. It may not have always been the best house but certainly allowed us as a family to call somewhere our home and build equity in it. I do have close friends who rent and always will rent – it gives them the flexibility they need and they can still call that place home. I’m not saying one is right and one is wrong but it does highlight that there is an increase and is this could be explained by a lack of affordability of homes.
• First time buyers are getting older and currently stands at an average of 33, up from 31. I purchased my first home in 2008 at an age of 25. Some of my friends were sooner and others still haven’t. Basically it is not surprising that there is an increase. Again highlighting a lack of affordability of homes. In total 46% of people now live privately in the 25-34 age group. There is a reverse fortune of young people with mortgages, which has decreased. Young people are still buying houses but not as often.

The interesting dynamic though to me is when you look at social housing.  People in social housing are feeling more optimistic – presumably because through right to buy they are more likely to own their own home than if they weren’t in social housing. So although I believe right to buy is not beneficial at all to housing associations due to them being starved for a number of years. There has also been a reduction in people receiving the housing benefit, which I believe is due to circumstances in their control (as opposed to them simply not been allowed it).


Times are changing with more people owning their house outright than with a mortgage – a reflection of an aging population where young people cannot afford to get on the ladder. Yet at the same time the private rented sector has doubled since 2002 – a recent select committee report highlighted that 40% of properties bought through right to buy are now in the private rented sector – so clearly a scheme that has worked as it was intended.


I do wonder, based on this report and other similar reports, whether deep down there is housing crisis or really a market delivering badly for some and well for others – and because the ones it is delivering badly for are the more vulnerable it is highlighted as a crisis. Could a simple answer be to tax people who do well (via council tax or capital gains) from the housing market and support those who don’t (via housing benefit or social rents).


If there is a “crisis” let’s look at the supply of land for housing. We set the supply back in 1955 and let’s be honest times have changed. We certainly shouldn’t build everywhere. We have more than enough brownfield land with a number of specialists able to create space that is suitable for housing. We need planning to preserve environmentally valuable land and lots of space for recreation but there is 514,000 hectares of green belt surrounding London, and you only need a tiny fraction of it to more than satisfy housing supply.

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 rest of the week

Lee

The branching out of TfL

In a modern world developers are appearing in the most unlikely places. Take Transport for London (“TfL”) which due to its original structure has a large amount of potential prime sites within London for development. TfL has so far identified 75 sites which will have an eventual value of £3.6bn. The challenge to TfL, like others, is that it is not a development company – so how can you maximise the value, well simple – have a development agreement with someone who can develop a site.

This is the beauty parade of all parades. So far 13 companies have been shortlisted to develop the 75 sites and for those looking for a steady income stream could easily secure that here. In terms of the sites, well zones speak louder than words – 300 acres in zone 1 and 2 capable of delivering around 10,000 homes and 10 million ft² of commercial space. With this much value, would it not be appropriate to simply become a development company.

Imagine, a transport business being responsible for 10,000 new homes in central London. Well if they partner well they could create some great spaces generating a significant amount of income to be reinvested in the transport network. Clever isn’t it – maybe they could lend some to the regional train networks.



I was discussing some of sites recently in London and they are standard and unusual. It would be good to see the Victoria coach station redeveloped into commercial and residential units but apparently even a roundabout is up for grabs – fancy living on a roundabout? Quirky but would be a unique design to see what you could do to make money from it. So far TfL has submitted planning applications for a mixed-use development of a former Underground depot at Parsons Green and schemes on top of the new tube stations planned at Northwood and Nine Elms. This seems the key – build on top – land is limited, so why not reach for the sky.



What is pleasing to see is how they developments will work – joint ventures – so good to see TfL not selling off for a small profit rather than waiting for the large prize. Now okay values can go up as well as down but if sensible this will provide a steady income stream to TfL replacing its prized government funding. TfL then plans that it will either make money from the development sale but hopefully retaining some for rental income.



Overall this will hopefully demonstrate to other public bodies that they can work with the private world to utilise the assets they have and generate a better return – just think of large land owners such as the NHS. The approach taken, through a partnership approach has all of the potential to deliver high-quality places and the 75 sites are just the beginning.

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

A broken housing market

Depending who you ask depends on whether there is or isn’t a crisis for UK housing. I see it that research has been conducted which highlights housing completions should be around 250,000 per annum (based on the current growth of the UK population). The Government has set themselves a target of 200,000 per annum (up to 2020). You will notice the difference – so how do we solve this situation?

There are potential solutions and none really jump out to me. You could take a real hard line and reverse QE or even stop Help to Buy in an attempt to pop the bubble but years of cheap and easy credit availability (albeit at reduced and sensible levels) have literally fuelled a long term fire.

The ultimate problem is nothing more than a problem of supply and demand. It's true, supply and demand has a significant influence on prices. When markets are functioning properly, that is. But we don't have a properly-functioning market for housing in the UK. What we have is an asset-price bubble and state interference which is based on politics and not economics. In a bubble, the normal laws of economics go out of the window.

During the recession one clear thing happened. We had a supply and demand problem. New household creation continued to rise strongly relative to the building of new homes. So prices rose, right? Wrong. Prices fell on average by 20% across the UK fuelled by debt being harder to acquire and the perception that a property was a good investment were dashed.

So is the current bubble nothing more than a fire fuelled by cheap and easy money coupled with property speculation. The market then retained low interest rates and allowed debt to be acquired cheaper followed by the Government implementing Help to Buy and general QE – all this lead to property becoming an investment again and the supply and demand point meant that prices simply went up.

This is not an immigration problem as many people suggest. It is a supply and demand problem coupled with a housing market that doesn’t function. The current housing supply barely meets new demand let alone demand that is sat waiting from the past.

• So why not increase interest rates? This would make houses less affordable reducing the demand but a larger mortgage means people have less to spend, therefore impacting on the economy and less people can get mortgages short-medium term as mortgages become too expensive. It’s all one big mess.
• Another answer would be to flood the market with supply – but we can’t even build what we need let alone more – there is simply not enough construction workers. So let’s encourage apprenticeships – it has started but a lot more needs to happen and should happen via the tax system.
• Towns and villages across the country are surrounded by brownfield sites – incentives from the Government to build here (rather than green sites) will help and ultimately support regeneration of some areas of the country; and
• the final point will be to change the powers of planning officers – I’m not a huge fan of centralised government but I’m inclined to say let’s have a central planning authority that can look at the needs of the country and apply a common approach to planning applications.

I wish I could give a definitive answer on what can and can’t be done. Some people say there is no problem in the first place and that over time it will correct itself. The latter to me lacks credentials and therefore action needs to be taken. To me the first step has been taken by the Government setting up an advisory panel involving some industry heavyweights but the solution comes from a holistic approach involving all stakeholders.

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 rest of the weekend

Lee