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Property Developers

NAO report damns government, local authorities and developers

Plenty of problems identified, but no real solutions

The recent National Audit Office (NAO) report, Planning for New Homes, is pretty damning toward the government’s ambition of building 300,000 new homes per year in the UK. It also points out the shortcomings of local authorities in achieving planning goals, slates the methods used to forecast housing demand, and pours scorn on the methods used to impose penalties on underdelivering local authorities. Oh, and the NAO recommends that developers should contribute more to infrastructure.

Here we look at the main findings of the report.

The 300,000 new-homes-per-year target will be ‘challenging to meet’

The NAO notes that the target of 300,000 new homes per year set by the Ministry of Housing, Communities & Local Government in the 2017 budget will be ‘challenging to meet’. There were 222,000 new homes delivered in 2017/18. While this is a step in the right direction, the NAO notes that to meet the 300,000 target consistently from the mid-2020s will require an increase of 69% in the average number of new homes delivered each year between 2005 and 2018. This will be difficult for many reasons, including:

·      There is a skills shortage in planning

Without enough planners working in local authorities, it is difficult to get planning permissions processed at the speed required. Local authority planning staff numbers fell by 15% between 2007 and 2016, and spending on planning functions has decreased by a colossal 14.6% in real terms between 2010/11 and 2017/18.

·      Local authorities have struggled to produce up-to-date local plans

Unsurprisingly, given the shortage of planners, local authorities are struggling to provide updated local plans. By December 2018, less than half had set out their strategies to meet the demand for new homes.

·      The standard method for assessing housing need is flawed

It isn’t clear whether the Department’s standard method is consistent with the ambition of delivering 300,000 new homes per year overall. The Department intends to revise the method, but in the meantime, four of nine regions have seen an increase in housing need compared to the need assessed by local authorities. For example, in London the mayor has assessed a need for 66,000 new homes annually, while the combined assessed need of local authorities is just 46,000 new homes annually. Whatever the real target should be, the delivery of 31,723 new homes in 2017/18 falls woefully short of target.

·      The standard method reduces the need for new homes in other regions

According to the standard method, other regions don’t need as many new homes as assessed by their local authorities. For example, the North West, Yorkshire and the Humber, the North East, West Midlands and East Midlands need 24%, 23%, 19%, 11% and 3% fewer homes than assessed by their local authorities.

This means that local authority plans to regenerate and stimulate economic growth would be hampered – local support for new homes could be difficult to obtain.

Local authorities could be penalised unfairly for not delivering on their promises

This year the Department will start penalising local authorities that don’t deliver on their promises of new homes delivery. On the face of it, this is an acceptable strategy to ensure that new homes are built. There is just one small problem with the strategy: local authorities can only influence house building, they cannot ensure it happens.

Local authorities have, by and large, delivered planning permissions more quickly; but generally, it is not the local authorities that build homes. If developers don’t build the homes that they have been given permission to build, it is the local authority that is penalised. Of course, developers have many restraints on what they can deliver – including, for example, economic conditions and a shortage of skilled labour. If developers can neither build nor sell in sufficient numbers, the 300,000 target for new homes will be missed.

Developers should contribute more toward infrastructure

The report also concluded that the system for getting developers to contribute to the cost of infrastructure is not working properly. The system enables local authorities to obligate contributions from developers (mostly through 106 agreements) and the Community Infrastructure Levy. But the system is complex. To date, only 47% of local authorities have implemented the Levy, as against Department targets of 82% to 92%.

The £5.5 billion Housing Infrastructure Fund should help local authorities to close funding gaps for infrastructure spending, but the NAO believes that developers could do more. The Department is introducing reforms to enable local authorities to negotiate higher contributions, but these may take several years to implement.

The NAO’s recommendations lack clarity

In its 52-page report, the NAO makes five recommendations. I reproduce them here, as they appear on page 12 of the report:

  1. The Department needs to regularly monitor the gap between the number calculated by the standard method, local authorities’ own assessment and the ambition for 300,000 new homes and assess the risks of not meeting its ambition.
  2. The Department needs to assess the numbers of, and the potential implications for, local authorities that are at risk of failing the housing delivery test and set out how it will support those local authorities.
  3. The Department’s performance metrics for local authorities and the Planning Inspectorate for dealing with planning applications and appeals need to reflect performance more fully, the process in its entirety, and take capacity into account.
  4. The Department needs to work with local authorities and other government departments to ensure that the necessary infrastructure is funded and delivered.
  5. The Department should work with industry bodies on detailed research on the skills gaps in local authorities’ planning teams, particularly on the shortages of experienced planners with specialist skills sets.

In conclusion

Sir Amyas Morse, the head of the NAO, concluded that, “For many years, the supply of new homes has failed to meet demand. From the flawed method for assessing the number of homes required, to the failure to ensure developers contribute fairly for infrastructure, it is clear the planning system is not working well. The government needs to take this much more seriously and ensure its new planning policies bring about the change that is needed.

In response, Housing Minister Kit Malthouse said: “I recognise the challenges identified by the NAO, and the simple truth is over the last three decades, governments of all stripes have built too few homes of all types.

It appears that everyone knows there are too few new homes being built. Government and the National Audit Office have both identified the problem of inadequate supply to meet demand. But problems are easy to identify. What these bodies appear to struggle with most is finding proper solutions. Perhaps if they involved property developers in their deliberations more fully, they would find some workable proposals.

To connect with investors with long-term horizons, get in touch with Castlereach today. Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

property development

How can developers build community in the evolving economy?

The value of co-working spaces on residential developments

I’ve been talking to a friend of mine recently, who is travelling to the UK on business soon. A self-employed freelancer, he works from his home in Europe, providing services remotely to his clients around the world.

My friend will be staying with his family in the UK, but will also need to work. From experience, he knows that this will be difficult. The space isn’t conducive to productivity. So he has rented an office for the duration of his three-week visit. This could be a big clue as to the future for residential property development in the UK.

By 2020, 50% of people may ‘work from home’

The desire for office space in the home is growing in the UK, with the number of people working from home rocketing. Between 1998 and 2014, homeworker numbers rose from 2.7 million to 4.2 million – almost 14% of the UK’s workforce. Nearly two-thirds of these were self-employed.

Remote working has been made popular and accessible by factors which include improving internet capabilities, costs, and employer attitudes.

Since 2014, the number of employed people who regularly work from home has increased by almost 10% to 1.6 million, according to research by the TUC. IT and cloud computing consultancy and operator hSo has forecast that 50% of the UK’s workforce could be working remotely by 2020.

The problem for tenants and homeowners is the cost of space

Many of those working from home will be young professionals or people with young families. Providing dedicated space for what may be just one or two days each week is a costly exercise. It means, for example, buying or renting a three-bedroom property instead of two, with one of those bedrooms used as an office – and effectively a dead space for 250 days or more per year.

Whether a tenant or homeowner, the need for dedicated office space when it is needed is an expense that destroys a major benefit of working from home: saving money on commuting costs.

The solution for property developers is reassigning common space

Amenity space in residential blocks has usually been allocated to gyms, lounges, community laundry rooms and cinemas. Areas dedicated as office workspace have usually been preserved for student accommodation.

With changes to how people work, property developers that turn over community space to co-working facilities could sell more smaller apartments and improve profitability.

What do work-from-home residents expect?

Co-working spaces are likely to be included in increasing numbers of residential developments. As they are, the expectations of residents is increasing. A room with desks and electric sockets is just a room.

The qualities that are attractive to homeworking residents include:

  • A kitchen area for tea and coffee making, or an on-site coffee shop
  • Audio-visual rooms for client meetings
  • Superfast broadband connectivity
  • A lounge area with soft furnishings for downtime

When comfort combines with practicality, and is presented with a luxurious rather than spartan finish, co-working spaces will become hubs that help develop communities – in which co-working with residents matching complimentary skills really can develop.

Property developers providing residential units that deliver to the evolving needs of residents are likely to be the big winners in a marketplace in which the lines between work, rest and play are becoming increasingly blurred.

To connect with investors with long-term horizons, get in touch with Castlereach today. Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

foreign investors

Why foreign investors should be the Brexit target for property developers

A temporary Brexit blip provides opportunity for long-term returns

Investors from the Middle East are mostly unfazed by Brexit. Instead, many have begun taking advantage of what they see as a temporary opportunity to buy into a property market that is underpinned by long-term fundamentals. The weak pound is good for the UK’s exporting companies, and it is good for foreign investors who get much more bang for their buck. In London, softer property prices are helping that buck go even further. In regional cities, price increases are already providing profits.

Cheaper properties in a tight market

With lending readily available, the low exchange rate of the pound against the dollar has created a value bubble in a market where the supply of property is limited. It is estimated that London needs to build around 66,000 new homes each year. Delivery to date has been woefully short of this number.

In a market so supply constricted, prices should be rising; but Brexit has caused some uncertainty and put a dampener on demand. However, those with a longer-term view are of the opinion that this is creating pent up demand and that, when Brexit uncertainty is removed (as it will be, we just aren’t sure when – which is part of the uncertainty, of course), demand will return and could cause a hike in prices. Therefore, now is a rare buying opportunity. The London market is therefore one in which those seeking long-term capital growth are buying, rather than those seeking income.

Income-seeking Middle Eastern investors are more likely to look at regional cities, where rental yields are higher. Liverpool, Manchester, Birmingham and Leeds are high on the list of areas in which foreign investors are most active.

Brexit – is it really the elephant in the room?

If the result of the current political shenanigans is a no-deal Brexit, some are worried that UK property prices could crash. This concern has at least in part been caused by the Bank of England’s ‘scenarios’ that forecast a worst case of complete doom for just about everyone and everything.

However, businesses have not been showing such pessimism. Since the vote to leave in 2016, more than 800,000 new jobs have been created. Employment and the employment rate are both at record highs, and the unemployment rate is at a four-decade low. Wages are rising faster now than they have done in 10 years. Hardly the actions of a business community that sees the future as the storm that will sink all ships.

Sir Richard Branson may believe that a no-deal Brexit will be worse for the UK than World War II, but others in business are far more upbeat. The latest to pour cold water on the heat of the debate is TransferWise chairman Taavet Hinrikus. TransferWise conducts billions in currency transactions every month. It is headquartered in the UK, and Hinrikus says the company has no plans to relocate elsewhere. He sees ‘zero risk’ to business from Brexit.

Research also shows that the UK property professionals believe that Brexit will not harm the property market. Three quarters of those surveyed in MRI’s Charting UK Property Trends see demand for residential rentals increasing and that Brexit will not seriously hamper the ability to get financing.

Where should property developers focus their attention?

Despite Brexit, the underlying fundamentals underpinning UK residential property remain largely unaffected. The highest demand is likely to be in the locations that have suffered undersupply in the past. These locations, where economic growth is strongest and prices most affordable, are likely to be the best performers in the future. As lifestyle desires evolve, high streets are also evolving. The MRI research shows that increasing numbers of people now wish to live in town centres. Two-thirds of property professionals believe that former retail premises could be the largest untapped source for new retail development – perhaps in a similar way to how so many former warehouses have been redeveloped for the residential property market.

The key takeaway is that Brexit is unlikely to be as bad as forecast. While a no-deal Brexit may cause a temporary blip, the fundamentals underpinning the property market will remain. Foreign investors mostly see the current lull as an opportunity to buy at great value prices for long-term returns.

To connect with more foreign investors, get in touch with Castlereach today. Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

What-does-this-policy-tell-property-developers-about-their-future

What does this policy tell property developers about their future?

Unbuttoning the Homes England Strategic Plan 2018 to 2023

At the end of October 2018, Homes England set out its new policy and plan in the ‘Homes England Strategic Plan 2018 to 2023’ with the subhead of “Making Homes Happen”. It introduces the plan in the following way:

This five-year strategic plan sets out our ambitious new mission and the steps we will take with industry to respond to the long-term housing challenges facing this country. We plan to be bold, creative and think big. We hope the whole of the housing sector – big and small, up and down the country – will join us for the next five years and beyond.

We’ve dissected the nearly 40-page report. Here’s our view of the main thrust of the new policy.

The government is getting more involved in housebuilding

It’s inevitable that the government wants greater involvement in the housing market. After all, it has promised delivery of 300,000 new homes each year by the mid-2020s. In a recent article, we asked what is stopping property developers hitting government targets for new homes?

In that article, we identified three of the inhibiting factors as:

  • A lack of supporting infrastructure
  • A shortage of skilled employees
  • A planning system that puts up barriers to development

All these factors are impacted by government policy and action. It’s right that it should seek greater involvement – providing it is constructive, of course. This report sets out how it wishes to become more involved, with a plan that includes:

  • Unlocking land
  • Unlocking investment
  • Increasing productivity
  • Supporting local areas
  • Delivering home ownership products

Sounds like the government wants to tackle those three factors we identified as critical to delivering on its targets, doesn’t it?

Delivery targets

Home England sets out several delivery targets and promises to help all property developers, housing associations and local authorities to meet them. It plans to do this with funding, support and providing ready-made sites. This is its part of the collaboration. In return, Homes England demands that commitment is made to building more homes and increasing the supply of housing by all its ‘partners’.

It’s bold stuff, and the confident and aggressive tone is evidence of the increasing importance of housing in public policymaking.

In the report, Homes England specifically targets deliveries for two housing funds:

  • The £1.03bn Land Assembly Fund – set up to acquire and prepare land for development – is targeted to complete 23,000 projects by March 2030
  • The £630m Small Sites Fund – to help public bodies provide infrastructure to accelerate delayed housing projects – is targeted to unlock the land required to build 27,000 new homes in the ‘long-term’

This type of direct involvement could help to address the structural problems that hold back supply in the housing market, especially in a more uncertain environment such as we are currently witnessing through the Brexit shenanigans.

Is brownfield land enough?

The Homes England strategy paper sets out a compelling case for developing brownfield land, saying that it has the potential to deliver one million homes. It also says that other land owned by the government and local authorities could provide for a further 160,000 new homes.

This is all very well, but based upon the target of 300,000 new homes per year by the mid-2020s, this land availability is less than four years off total target.

While development of brownfield land is crucial, making greenbelt available for property development is also essential. This could be the blockage that derails the project. Plus, as we’ve seen with Sadiq Khan’s London Plan, words and action are two very different things. When mayors can meddle in local planning issues, developers are likely to think twice about undertaking larger-scale projects.

Accelerating delivery

Homes England is backing the increasing use of modern methods of construction (MMC) such as modular housing. It quite correctly asserts that using such methods to deliver new homes could speed up delivery and reduce the impact of a tighter labour market – as we discussed in our article ‘Could modular housing be the future of property development in the UK?’ several months ago.

What Homes England says is that it will provide incentives for property developers to use MMC, by accelerating “delivery on [its] land by incorporating a requirement to use MMC into our leases”. It also proposes to provide financing to property developers who use MMC and partner with Homes England.

Access to land and financing are convincing arguments for property developers to use MMC, but some investors are hesitant to own homes constructed with modular build techniques. This becomes less of a problem the more that MMC is seen as standard.

The bigger problem associated with MMC is local authority design and build requirements and lenders’ acceptance of MMC when offering mortgages. There needs to be more work done to bring these two vital components onboard with MMC.

In summary

This new strategy is certainly a step in the right direction, and it’s good news to see the government finally putting some weight behind the main issues facing the industry. Homes England could yet prove to be the force behind a more dynamic housing sector in England.

However, for its strategic mission to be successful, it is clear that more work needs to be done on changing policies toward MMC and modular housing – property developers are onboard, but other essential pieces of the puzzle must still be convinced. If lenders won’t advance mortgages on modular homes, but Homes England only aids developments where modular homes are to be built, the impasse could be the biggest of all roadblocks to hitting new homes targets.

For now, then, the Homes England Strategic Plan 2018 to 2023 is a welcome and positive step in the right direction. However, I feel that more work and the political emphasis is needed before the government can really claim to have ushered in the reforms needed to deliver on its promise of 300,000 new homes each year by the mid-2020s.

Are you a property developer seeking to maximise opportunity through larger-volume sales? Contact Castlereach to discover how we can help boost sales.  Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

How-property-developers-can-use-social-media-to-hit-off-plan-sales-goals

What is stopping property developers hitting government targets for new homes?

Infrastructure, skills shortages, or planning – what is the bottleneck?

The government has identified 300,000 new homes per year as the number required to catch up with pent-up demand for housing and then keep pace with it by the mid-2020s. However, there are many factors which may inhibit property developers from delivering more homes. In this article, I look at some of these issues and examine what the bottleneck could be.

New homes are behind target

The number of new homes being built has increased in recent years, but we’re still some way off target. In the 12 months to June 2018, there were 235,000 applications for energy performance certificates for new builds. A step in the right direction, but not the leap required.

There are many factors inhibiting new home building

The will to build more new homes is there – from the government to property developers, to a population demanding them – but there are many factors inhibiting supply. Among these are:

  • A lack of supporting infrastructure (roads, schools, hospitals, etc.)
  • A shortage of skilled employees to build traditional homes in the required numbers
  • A planning system that puts up barriers to development

The government is taking steps in the right direction

In its defence, the government has recognised the need to remove some of these inhibitors. In the 2017 Budget, Chancellor Philip Hammond announced a raft of measures and new funding of billions of pounds aimed at uncorking the home building bottle. Such measures include:

  • The £5 billion Housing Infrastructure Fund, to aid the allocation of development sites and encourage greater investment from the private sector
  • The £3 billion Home Building Fund to support housing development and infrastructure delivery

Property developers are finding ways to deliver more homes faster

With pressure on margins, tough targets for new home delivery, and a workforce that could be inhibited by a shortage of workers from the EU thanks to Brexit, property developers appear to have been painted into a corner. They want to deliver on promises, but all are against them. But property developers are resourceful.

The Letwin Report suggested that property developers should hire more brickies. The House of Lords Science and Technology Committee suggested that property developers should invest more in technology and innovation. Housebuilders are doing both.

More workers have been hired to deliver more traditionally built homes. However, it is the way in which property developers are embracing off-site manufacture (OSM) that could really make the difference. Modular fabrication techniques decrease build times, reduce costs, cut environmental impacts such as air and noise pollution, and reduce the need for thousands of more brickies.

Lenders are now willing to finance OSM homes

Many lenders have been reticent to fund OSM developments or offer mortgages on OSM homes. However, this does appear to be changing. JLL has noted that nearly two dozen of the UK’s biggest lenders are now willing to offer mortgages to those wishing to buy OSM homes.

With the issue of how homebuyers and property investors will finance their purchases of new OSM homes put to rest, you might expect the housing bottle to be uncorked. So, what is inhibiting an explosion in the delivery of new home numbers?

The bottleneck strangling new homes supply is planning

Despite a relaxation in the stringent planning laws in the UK enabling accelerated planning permissions, local authorities are granting fewer planning applications.

While the number of planning applications fell by 4% in the April to June 2018 quarter compared to the April to June 2017 quarter, so, too, did permissions. The 12-month figure is more concerning: the number of major and minor decisions granted was 374,200 – a 5% fall (to 83%) on the percentage of permissions granted in the 12 months to June 2017. These figures provide evidence that:

  • Property developers are being more circumspect about their planning applications
  • Local authorities are less keen to permit applications

The dots need to be joined

Property developers are gearing up to deliver more new homes. They’ve boosted workforces and have invested in OSM fabrication to deliver more homes between 30% and 70% faster.

The government has taken measures to release this potential. It has provided targeted funds and relaxed planning laws, with the aim of speeding up the planning process and allowing local authorities to agree to more applications.

It is now up to local authorities to join the dots and agrees more planning applications. Once they get with the programme, property developers may have the opportunity to deliver the number of new homes that the government has set as its target.

Where planning permission has been granted, the only question remaining for property developers is how to maximise the opportunity. For the answer, property developers should contact Castlereach. Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

3-areas-where-innovation-will-help-UK-property-developers-build-faster

3 areas where innovation will help UK property developers build faster

Support and creativity needed to hit homebuilding targets in the UK

If the UK is to have any chance of building the government’s target of 300,000 new homes each year by the mid-2020s, it’s becoming clear that some big changes will be needed in the property development sector. This is going to require a more innovative approach in three key areas: planning, finance and construction. If other countries can put a rocket under new home numbers, shouldn’t we be able to do the same?

Property development planning

The planning regime in the United Kingdom is mostly working to rules developed two or more decades ago. While this is beginning to change – finally, government and local authorities have realised that the process needs to be streamlined and sped up – it’s still got some way to go to match planning processes in other countries.

Finding sites and getting consents is imperative to building hundreds of thousands of new homes each year. The slower and more laborious this process, the fewer homes are likely to be built.

As an example of what can be achieved, in Singapore, there is a much simpler planning process. From the start, developers there are provided with master plans that show what can and cannot be built. This forward-thinking approach means that developers can move much faster, safe in the knowledge of what they can build and the margins they could make.

Property development financing

Increasingly, we’re seeing innovative financing options being used to fund developments abroad. Crowdfunding and peer-to-peer lending, for example.

In the United States, where development debt is more expensive, property developers use debt in tranches, settling as milestones are reached. They do this by repaying the current debt tranche with new, cheaper financing options.

Options that developers are beginning to use more commonly in the UK include mezzanine debt and equity, as well as providing more opportunity for off-plan investors to buy property at earlier stages. But the regulatory environment does not help developers access more innovative lines of financing easily and certainly does not help smaller developers.

Property development construction

While city centre sites are developed for multiple families, suburban and out-of-town developments remain focused on providing single-family homes. These homes take months to build.

Property development in other countries is managing to keep pace with demand by encouraging multi-family properties, and then building for co-living** (with common areas such as gardens, gyms, laundry rooms, etc.). In addition, single-family homes and multi-family apartment blocks are increasingly built using modular housing* strategies.

*Read our article “Could modular housing be the future of property development in the UK?”

** Read our article “Could co-living be the solution to UK homes affordability issues?”

In Sweden, eight out of 10 new single-family homes are built using modular, prefabricated housing techniques. In the United States, 80% of new multi-family developments (more than 20 units) receive planning permission within three months, with around 50% completed within 12 months (United States Census Bureau, New Residential Construction).

Multi-family, co-living properties enable developers to build for different demographics, different needs, and different budgets – providing housing for more people faster.

In summary

We seem to struggle with redefining the three key areas needed to speed up the delivery of new homes in the UK. Maybe this is the problem – we’re trying to redefine and remodel the whole system, almost ‘from scratch’. Perhaps the government is making it too difficult. We don’t need to rewrite all the rules on a blank piece of paper. We just need to look at how other countries are managing to meet ambitious homebuilding targets, and then pinch a few ideas that work.

There is much that the UK property development sector could learn from looking abroad. But it relies on the lead from the government. Developers are already seeking new and innovative ways to build properties and raise finance to do so. The government must provide the structure that makes this innovation practical.

The government has started with making changes to planning permission law. This should make it easier to build on inner-city sites, and build up, too. But, small- and medium-sized developers will require support – including with access to cheaper financing.

Get your new development off to a flying start. Contact us at Castlereach by calling 0207 923 5680. Discover how our access to a global database of property investors keen to buy UK property could help you.

Live with passion

Brett Alegre-Wood

Do-property-developers-and-the-construction-sector-need-an-overhaul

Do property developers and the construction sector need an overhaul?

Has the House of Lords hit the nail on the head or hammered its own thumb?

Hot on the heels of the Letwin Review finding that property developers are not guilty of land banking, a House of Lords Science and Technology Committee report has suggested that housebuilders need to embrace innovation to meet new home targets. In particular, the report urges greater use of off-site manufacturing processes.

House of Lords Committee criticises current construction practices

The report first states that it has found the housebuilding and construction sector as incapable of meeting the government’s targets of building 300,000 new homes per year by 2020, due to the way in which it currently operates:

  • It says that traditional construction methods do not offer the capacity to build enough homes
  • The report also casts doubt on the ability of construction companies to create the infrastructure required to support the targeted level of housebuilding
  • Additionally, it suggests that the industry must work towards more environmentally friendly solutions which ‘reduce labour demands’
  • It also cites poor productivity within the sector as a major disadvantage

Pretty damning stuff.

The report agrees with Letwin about labour

While the Letwin Review and this report tackle two different areas of concern, they do share at least one common conclusion: the construction sector is severely short of qualified labour resources. The two parties have different ideas about the solution needed.

Letwin says hire more brickies

Letwin puts forward a solution that would see 15,000 more bricklayers recruited and trained in a fast-track manner. This, his review says, should provide enough manpower to increase the number of homes built, providing it is combined with faster planning permissions and easier access to land.

The House of Lords says use OSM

The House of Lords Science and Technology Committee comes to a different conclusion. Perhaps unsurprisingly, given its focus, the committee concludes that the sector should invest more in technology and innovation. Specifically, it says that housebuilders should give greater emphasis to the off-site manufacture of homes. It believes this is the only way to ramp up completions to the 300,000-per-year target.

OSM – could it be the solution?

The report concludes that OSM will increase productivity, reduce labour demands, and be more environmentally friendly. It notes that take-up of OSM is patchy and limited at present, placing the blame firmly at the doors of developers, saying that the sector generally works with outdated and unsustainable business practices.

It suggests that there should be more collaboration between clients, designers and contractors, instead of the fragmented and distrustful environment from which the sector currently suffers!

But there is still a problem with OSM

It all sounds so plausible, but there is one problem. And it’s a problem that the report acknowledges. The UK labour market is lacking the skillsets required to step up with OSM. People would have to be employed and then trained in areas such as digital, procurement, and site implementation.

So, the report says that OSM would tackle the labour shortage in the construction sector, and then goes on to state that there is a labour shortage in the entire labour market to enable OSM to happen!

Encourage young people to train for OSM

The report says that:

The Government must, therefore, ensure that young people entering the workplace are equipped with the digital skills needed for modern methods of construction, including off-site manufacture.”

The chairman of the committee, Lord Patel, said, “There are clear and tangible benefits from the off-site manufacture for construction which make a compelling case for its widespread use. We heard evidence that OSM could increase productivity in the sector by up to 70%.”

He added, “The construction sector’s business models are no longer appropriate and are not supporting the UK’s urgent need for new homes and infrastructure. The construction sector needs to build more trust and create partnerships so that companies can work together to improve the uptake of off-site manufacture, and the Construction Leadership Council should provide the necessary leadership.

Are Letwin and the Lords missing the point?

We believe that whichever way you cut it, property developers are under serious strain. And whether you build using OSM or traditional methods, you can only build as fast as your sales allow you to – a basic rule of business that neither Letwin nor the Lords appear to fully grasp.

If you want to build more and faster, you must sell more and faster. Contact us at Castlereach by calling 0207 923 5680. Discover how our access to a global database of property investors keen to buy UK property could help you achieve this.

Live with passion

Brett Alegre-Wood

Letwin-finds-property-developers-are-innocent-of-land-banking

Letwin finds property developers are innocent of land banking

Good business practice and poor government policy could be behind the housing crisis

The Letwin Review was published with no fanfare, no ballyhoo, and little media attention. This may be because it concluded what those in the housebuilding industry said all along: property developers are not guilty of land banking. All that money spent, and all the time it took… all to conclude what we already knew!

Land banking – a figment of imagination

Sir Oliver Letwin has concluded that the government is being prevented from meeting its target of building 300,000 new homes every year within a few years, but, contrary to the beliefs of many, it is not land banking that is to blame.

In fact, for want of a better phrase, Letwin found the concept to be no more than a figment of the imagination. Still, I guess that politicians and ‘experts’ must have someone to blame for the housing crisis – and usually that someone turns out to be the easy target of ‘money-grabbing property developers’ or ‘pickpocketing landlords’. Letwin has found the buck doesn’t stop with property developers.

Letwin says land banking is implausible

Letwin noted in the review that:

“Major house builders need to maintain a sustainable business and seek to do this by ensuring that they, rather than their competitors, hold as much of the land on which they will later wish to build as is compatible with their capital constraints. This may well enable them to minimise market entry and thereby enable them to maintain market share while building out at a stately pace; but it does not, in itself, drive slow build out rates.

“Indeed, if anything, one would expect faster rates of build out to require builders to hold larger supplies of land – since we have been told by market analysts that the stock market valuations of house builders depend not only on the current annual profits of those builders but also on the degree to which those profits are made sustainable by the holding of supplies of land that can be developed in coming years.”

Here is the crux of the matter:

If property developers buy land and sit on it, they won’t make any profit. They’ll go bust. And to buy land in the first place, they must make a profit. So, it is imperative that developers build. Fancy that… a business model that requires you to produce a product and sell it, rather than simply sit on the raw materials.

In other words, what property developers have been saying for years.

Property developers are not entirely blameless, though

Letwin has, however, pointed the finger of blame partially at property developers. Not for land banking, but for controlling the rate at which they build. In other words, Letwin feels that property developers could build faster, but choose not to. The reason? To restrict the numbers of new properties coming to the market, so that a flood of new builds doesn’t drive market prices down.

Um, excuse me – this, again, sounds like good business sense. Can you name a single company that would flood its market with product, thus putting pressure on prices and slashing profits? How long would that company last? And when it folded because it was no longer viable to produce the product, how many people would lose their jobs, and how would the economy be affected?

The government also need to shoulder some of the blame

Letwin has also realised that there is a systemic problem restricting the number of new homes built in the UK: we don’t have enough bricklayers. The Letwin Review highlights this as the second major cause of difficulty meeting the government’s new homes targets. Too few bricklayers mean we can’t turn on the building tap and see a stream of new builds coming to the market.

Letwin has concluded that property developers and the government should work together on a ‘five-year flash programme’ of on-the-job training, to increase the number of qualified and competent bricklayers by 15,000 – an increase of around 25% on the current number.

So, good business practice and the wrong type of education is to blame for the housing crisis, according to Letwin. If we analyse this:

The first is helping to keep people employed and produce wealth for homebuyers, property investors, and homeowners (often wealth that is then used to fund retirement). Profitable businesses help to grow an economy, not crash it.

The second can be laid directly at the foot of government. Most notably the ‘education, education, education’ policy of the Blair years. Instead of encouraging young people to take up trades such as bricklaying, electrics and plumbing, it suddenly became the desire of all youngsters to go to university and get qualified in media studies, creative studies, and social studies.

Keep selling property

To grow your profits, buy more land, and employ more people, property developers need to sell property. It’s a conclusion that Letwin has taken around nine months to come to. It’s a basic business principle that we understand. Our mission is to help property developers sell their off-plan property faster.

To connect your new development with waiting investors from around the globe, ready to buy today, all you need to do is contact Castlereach. Then let us do the rest.

Call us today on 0207 923 5680.

Live with passion

Brett Alegre-Wood

why-property-developers-should-not-dismiss-the-IPPR-housing-policy

Why property developers should not dismiss the IPPR housing policy

Left-wing ‘blame-thinking’ could make new home sales harder

If the Conservative government collapses and a Corbyn-led Labour party is voted into power, property developers may be forced to work under a new regime in which the Bank of England targets zero house price inflation. At least, this is the hope of a left-wing think tank, the Institute for Public Policy Research (IPPR).

IPPR started pushing for affordable housing reform in November 2017

In November 2017, the IPPR published a report titled “Priced Out? Affordable Housing in England”. In that document, it noted that only 71% of England’s demand for new homes was being satisfied by new builds by property developers.

It clearly laid the blame for the housing crisis on developers when it said “While other factors, such as money supply, play their part, this is impacting on the affordability of housing. House prices have risen by 76 per cent since 1995, far outstripping inflation (ONS 2017).

While it noted that the product range to make housing more affordable has increased in recent years (e.g. models for rent, ownership and intermediate housing), it made a number of recommendations to increase affordable housing, including:

  • A minimum of 35% of all residential developments be allocated to affordable housing
  • A minimum of 50% of all residential developments be allocated to affordable housing, where the development is on public land
  • Housing companies to be formed by mayors
  • Local authority pension funds to be combined with local authority funds to invest in affordable housing projects
  • Compulsory purchase orders to enable the buying of land at lower values (presumably to enable the housing companies formed by mayors to build using the local authority and local authority pension funds monies)

Now the IPPR want zero house price inflation

The IPPR has not let the dust settle on this report. Not content with recommending the above measures – which may mean that private property developers would get the worst land at the highest prices, and still have to provide 35% to 50% of development as affordable housing – it has now suggested the Bank of England should step in and target zero price inflation over the next five years to increase housing affordability.

In its latest discussion paper, “On Borrowed Time: Finance and the UK’s current account deficit”, the IPPR suggests that the Bank of England take measures such as:

  • Insisting on higher deposits
  • Placing stricter ceilings on loan-to-income ratios

Oh, it also suggests boosting house building.

Zero house price inflation means a fall in real terms

If house price inflation is held at zero, prices would drop by around 10% in real terms, after accounting for wage inflation – assuming wages continue to grow at their current rate. Thus, housing would become more affordable.

Serious questions avoided

The IPPR appears to believe it can wave a magic wand at the housing market. By placing more stringent monetary measures on buyers, it believes that demand will fall. It may very well do.

It also believes that it can somehow increase the number of homes built, in an environment where housebuilders:

  • must provide up to 50% affordable homes
  • face competition for the best land from authority-subsidised bodies with access to the best land at knock-down prices
  • will suffer from house prices that are falling in real terms

The IPPR also doesn’t address what happens after the five years:

  • Should the Bank of England leash be loosened?
  • And if it is, what effect does the IPPR believe the pent-up demand for homes – caused by its policies in the first place – will have on property prices as new buyers flood the market with higher deposits saved?
  • And will these new buyers opt to live in local authority-built properties built for affordability, or private-built properties developed to the highest standards?

It’s a crackpot policy. Maybe it should be described as infantile economics. But could it become government policy? Perhaps only Jeremy Corbyn and Labour can tell us that, but I doubt they would wish to divulge their plans.

In the meantime, property developers would be wise to prepare for a tougher sales environment should the UK electorate lean left in the near future. Contact Castlereach to discover how we can help you to do so.

Call us today on 0207 923 5680

Live with passion,

Brett Alegre-Wood

Could-the-UKs-ageing-population-be-the-property-developers-next-big-market

Could the UK’s ageing population be the property developer’s next big market?

Demographics and international experience point to an underexploited opportunity

I read some research recently, from Key Retirement, that found one in five homeowners aged 65 and older are considering downsizing in the next five years. It also found that most cannot find the home they want. With the UK population ageing rapidly – the number of over-65s is forecast to grow by almost a quarter by 2025 – could this rapidly changing demographic present lucrative opportunities for property developers?

More than half a million buyers are waiting for smaller properties

The research finds that around 620,000 older homeowners want to downsize, but cannot find a property suitable for their needs. According to Legal & General, only 7,000 homes were built for this sector in 2017. Think tank Demos puts current demand at 30,000 per year. There is clearly a large shortfall: one that property developers could take advantage of.

Why do older people want to downsize?

There are many reasons why older homeowners may wish to downsize; some financial, and others for lifestyle. These include:

  • For greater community, easier socialising, and access to leisure activities
  • Worries about paying the bills on a larger property
  • Concerns about maintenance and repairs

It is certainly not the case today that retirement living means taking things easy. Older people want to live near their grandchildren, and while they may desire comfortable homes in which to live, they also want security and to be close to recreational amenities.

What is important to older people?

Older downsizers want somewhere smaller to live, possibly also to release equity from their current home to help fund their retirement. They also desire properties that are large enough for guests and grandchildren to stay over. In addition, they need lifestyle facilities close to hand. This means:

  • Two or three bedrooms
  • A small or communal garden
  • Close to local shops
  • Near to leisure amenities such as bars and restaurants
  • Highly energy-efficient homes
  • Gyms, hairdressers and beauticians within walking distance
  • GP surgeries and pharmacies nearby
  • Little or no maintenance

Security is also high on the list of key wishes.

The types of property that these downsizers are seeking are somewhere between what they currently own and the care home satisfying the health needs of the very old age. Innovative developers could satisfy this growing niche, by building homes that provide comfort, community and security, and which will adapt to life as the resident ages – effectively, building mixed-use developments targeted at the rapidly growing and more affluent ageing population.

Opportunity for property developers and property investors

In other countries, retirement housing is more common than it is in the UK. For example, in the United States, Australia and New Zealand, you’ll find that as many as 20% of retirees live in purpose-built retirement communities. Here in the UK, this number is only around 1%.

If the ageing population of the UK follows the lead of developed countries elsewhere, demand for suitable properties in retirement communities could explode in the UK.

While the majority of such retirement community homes are likely to be owner-occupied, it’s probable that many such downsizers will choose to rent in retirement communities. This presents property investors with a unique opportunity to benefit from what could be lifelong tenants, willing and able to pay premium rental prices for the type of rental property that is currently in short supply.

Building retirement communities could be the next boom sector in the UK housing market. We’ve got the investors who could wish to take advantage of the UK’s ageing population’s housing needs. Have you got the property to satisfy them?

To connect your development with waiting investors, ready to buy today, all you need to do is contact Castlereach. Then let us do the rest.

Call us today on 0207 923 5680.

Live with passion

Brett Alegre-Wood

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