The hokey cokey of politics

In, out, in, out and then shake it all about. To be honest I’m becoming a little sick of the EU referendum hokey-cokey. In true political style both sides have made a mockery of providing the voting public good honest information and instead have resorted to scare tactics and over ambitious promises. Imagine what society would be like if politicians just told the truth – that would be front page news (well apart from the Sun which would no doubt be showing us a photo of the latest hairstyle from a member of the latest boyband sensation!).

Earlier in the month politics delivered us a new Labour Mayor of London and a Scottish and Welsh government run by the SNP and Labour respectively. Irrespective of whether you think the best, worst or middle runner won at least they all have on the agenda “plans” to sort out housing. I say “plans” because until they happen I don’t particularly believe a politician.

Khan and the returned governments of Scotland and Wales have all put affordable housing at the top of their priority lists, alongside policies to boost infrastructure spending and address skills shortages in construction. Music to my ears but what are these plans and do they really stack up? The biggest challenge as I see it will be developers adapting in London to Khan, who has a very different style than Boris. Set a target that 50% of all new housing should be “genuinely affordable” to low-income earners

Khan

• “Set up a construction academy to help address the capital’s skills shortages” – yes like this idea but will need to see the detail – how and who will fund this and why is it only applying to the capital’s skills shortages – can there not be linkage to a more broader national need?
• “50% affordable housing target” – yes in an ideal world this would be magical but it needs to be sensible. I’m a small housebuilder, am I really going to develop a site knowing half is affordable? Sense would make a size limit criteria – 50% for developments over say 200 homes and ratchet down. We want to encourage affordable not terminate development.
• “Maintain the London Plan’s commitment to zero-carbon housing” – never really believed this could be done properly until I saw some houses in the North that are zero-carbon. It is possible and if London can even convert a few percentage it will make a huge difference.

Scotland

·        A promise to deliver 50,000 affordable houses with 70% being for social rent is a welcome promise and certainly aid the housing supply issues in Scotland. This coupled with further investment in Help to Buy will make the housing ladder easier for first time buyers.

Wales

·        An interesting development here with similar promises as above – 20,000 affordable homes but key being an end to landbanking for housebuilders. Look forward to seeing this in action.

The policies proposed by all are welcome and certainly benefit the respective locations. Hopefully in a few months we can all glow in the bliss that some have actually come to fruition. 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 week ahead

Lee

The failure to deliver homes continues

Another year has passed and another year where the delivery of homes last year failed to live up to long-term averages. The interesting dynamic though is the move for housebuilders to bigger units therefore offering lower density on developments.

Growth in the private housing market has increased year on year and is now significantly up on the lows of 2009 yet this is underpinned by three/four bedroom homes and an ever increasingly percentage taken up by Help to Buy – currently standing at 27%.

April 2016 saw average house price increase by a marginal 0.2% - though most did expect a decrease. The monthly rise was the lowest since November and brought the year-on-year rate of increase down to 4.9%, from 5.7% in March. In London, prices were up by 13.9% over 12 months, to an average £534,785 – five and a half times the average price of a home in the north-east, which fell by 0.7% over the year to £97,581.

The UK went through a phase around ten years ago of building more apartments than houses in major cities, nowadays this has moved to more than 80% of homes being developed being houses and more interesting that in a number of cities, like Sheffield and Hull, these houses are being built in the city centre.

The house price growth over the last few years has largely been driven by London where growth has been at 75% since 2009 driven by significant lack of demand and a strong demand from buyers wanting to move into the city. Broader into the regions has a mixed bag of results largely due to the recovery from recession taking longer but most regions are now seeing positive growth, although nowhere near the levels London has experienced.

The perfect storm though has materialised for most regions. Economic growth has largely returned to most areas in the UK coupled with mortgage rates still being relatively low, Help to Buy is supporting those first time buyers who need a hand with a deposit and then to top it off the price-to-earnings measure is broadly in line with the long-run average. Why wouldn’t people want to buy a house – let’s deep dive and take a look at five key areas:

1.     Conservatives made a pledge to build 1,000,000 homes by 2020 and they simply are behind the target. Help to Buy was introduced to encourage house builders to build – it has, look at how well house builders are doing – but it is now allowing people to buy houses they cannot afford.

2.     Starter homes are being introduced – 20% discount to market price (so basically the price they should be rather than the inflated price) – the sector that needs housing is social housing, support this. You have to wonder how the 20% reduction will be addressed – how will costs be cut to ensure some profitability on the site.

3.     Private rental sector – well what to say, reduced tax breaks, stamp duty surcharges and much more means although PRS is encouraged it is also becoming a costly business yet it was the safety net for so many providing housing solutions to those unable to buy.

4.     Planning – short and sweet – it does feel to have got slightly better but more can be done to improve efficiency and reduce red tape.

5.     The government wanted to introduce innovation into home buying – erm…still waiting. There has been improvements and I’ve met a few businesses that they themselves are making improvements not through anything the government has done though.

So to sum it up we see ourselves with a housing market that is faltering on delivery, failing completely on private rental sector, sort of helping first time buyers but could do much more and completely failed on introducing innovation into the housing market like it promised. 

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 your week

Lee

Property well and truly has gone digital

Technology is taking over the world – if I think back 10 years how times have changed. A tweet back then was the calling sound of a bird, and now billions are sent each day to each other via some boheamth called twitter – which in itself is practically new in a corporate sense! Now some may sense that property has certainly not excelled in the technology arena but it is certainly playing hard to catch up. 

You’d have to have been in hibernation in the last few years not to have noticed the plethora of proptech companies that have sprung up, supporting and challenging the industry in equal measure. From companies seeking to take on the high-street estate agents to clever apps helping property owners to reduce energy costs, the sector is awash with dynamic young firms, many of whose founders have little direct property experience. But who are these new found proptech companies:


Virtual walkthrough is addressing a fundamental need within the property industry – the lack of tools to connect buyers and occurpiers with buildings. Connecting buyers on social media, mobile devices and over email with one aim – to provide a more compelling buying experience. It allows you to experience a property without setting foot in it, taking the experience to the next level from the simple photograph and with plans to expand from current LA and London offices it could be heading near you soon.
Pi Labs has been set up and launched as Europe’s first proptech accelerator which has invested in 10 proptech companies, has a mentor pool of over 100 people and seen one company seed £350k. The mentor part stands out to me, by giving back expert advice across a wide variety of sectors, as a way to give future proptech companies a fighting chance.
Appear Here feels like it’s been around a lifetime but in fact like the others it’s relatively new – you want space for your business short term then go to Appear Here, simple as! No risk in owning the asset but paid a fee to rent it out on short term leases to new and innovative businesses or simply pop-up shops for larger corporates. Fund raisings and global expansion have followed but shows that a simple idea can go along way.
Yopa is claimed to be revolutionising the estate agency market and too right to. Having sold a few houses I am unsure how the fees by estate agents can be justified – the amount of face time you get means they may as well be online. Offering fixed fees but all the services shows they are forward thinking in a very active market place and with national reach they cover everyone. It’s the future!
Over such a short period of time much has changed and in each sense they are significant advancements as the digital world integrates into the property world. It won’t and shouldn’t stop here and I imagine by this time next year there will be further advancements – and if I knew where I’d be looking at it myself. For those not digitally minded, embracing the above would be wise but it’s not the end – for example there will still need to be high street estate agents, they will themselves though adapt to the online challengers.

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

The government raids the property sector

Last year Sir Howard Davies delivered a report – the report looked at airport capacity in the South East and what did it say? Back a new runway at Heathrow. I’m not going to say that is right or wrong, the point is that Britain needs more airport capacity, sadly due to our rail network air capacity needs to be dominant in the South East yet when the budget was delivered this significant infrastructure project was not mentioned. Odd!



Infrastructure was mentioned in the budget in the shape of Crossrail 2 (largely irrelevant to me as a Northerner but agree needed) and HS3 (thank god!). In the London centric world we live in HS2 seems to have been getting more priority but HS3 is more needed. It’s a joke that the cities of the North struggle with hourly connections yet in the South, similar mileage is covered at significantly high frequencies. One can hope HS3 doesn’t become another Heathrow – all talk and no action.



That was strike 1 in the budget swiftly followed by strike 2, another raid on the property industry with higher rate of stamp duty for commercial property transactions – talk about a kick in the teeth and well done to the BPF for criticising so quickly. With deal sizes large in London compared to the regions and the amount of Sovereign wealth it may dampen the market but in the regions it will dent it big style! And then to complete the phrase that things come in three, he then hit the PRS market with a 3% levy on stamp duty for second homes – because that will help tackle the housing crisis, put a dent in PRS initiatives.



So yet again the property industry plugs a gapping whole in Osborne’s finances – yet he’s still praised for helping recover the economy? Some would beg to differ. As coupled with this hard cash impact there is Brexit which is causing uncertainty in the marketplace and will do until a resolution is reached – either we’re in or we start the 3 year process of exiting – more uncertainy. Shouldn’t we be feeling positive in the market at the moment? Can’t think why we’re not!



The decisions taken was a blow to the sector and completely at odd with the direction of travel the Government was taking with the housing sector. This will not end institutional investors in the sector but wil, certainly curb demand and appetite.

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

Crowdfunding in the property sector

Being a buy-to-let investor has meant decent returns over the past two decades but the life of a landlord is not without its stresses - and costs. You have to work hard to find the best areas for rental income and growth, maintain a property and keep it tenanted, but the biggest barrier to entry is finding the substantial amount of money to put down as a deposit to buy in.

So it should be no surprise that the combination of Britain's obsession with the property market and the rapid growth of alternative finance, has delivered new routes for investors to get into property, with both lend-to-save and crowdfunding offering a way in for as little as £10.

Crowdfunding is quickly became the alternative way to kick start your development and over the last two weeks alone I’ve had the pleasure of listening to two developers explaining how they reached out and were amazed by the amounts they were able to raise. According to crowdfunding research firm Massolution, in 2014 the global crowdfunding market grew by 167%, raising £11.3bn. Let’s be honest the number will continue to grow and the property industry accounts for a large slice of the pie. But let’s learn a little more:

• In the property world how do you reward the crowdfunders? To help keep costs manageable offering attractive interest rates may not be the best route so developers have thought of more innovative ways ranging from equity stakes through to part ownership of the actual development to longer term profit share upon sale of the development.
• Investors who can’t afford to purchase an investment property outright can have the ability to buy a stake in a property or a series of properties. Some investors receive a percentage of the rental income on the development.
• In tandem with the rise of equity crowdfunding property platforms, there has also been significant growth of peer-to-peer lending platforms. In property, peer-to-peer lending has been used to finance development projects and also to fund property purchases.

But is this something to be worried about – the rapidly growing fintech sector that is. One individual says “As a general rule, I would say the higher the returns a platform offers to investors, the worse the underwriting process will be.”


Whether or not you believe in who is investing in you, the matter of fact is that it is an alternative way to finance a project and until funding becomes more readily available. Those which have been set up by those who are inexperienced will be the first to fall when the property market starts to go sour, which might stop the nascent property crowdfunding market dead in its tracks. If this scenario eventually plays out, the wisdom of the crowd will truly be put to the test.

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

 

 

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