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Could Slump in High Street Retail Prove Positive for Residential Developers?

As High Streets Are Reshaped, Exciting Opportunities Will Surface

We’ve seen the trend growing stronger for some time, and recent retail figures appear to confirm it – consumers are turning their backs on the high street and shopping centres, and instead of shopping online. In response, we have witnessed high street changing. Shops are closing in their thousands – and not reopening. In their place, local authorities are allowing new residential to be developed. The decline of retail could provide the inner-city space that residential property developers crave.

High Street Footfall Slumps in June

Latest figures from the British Retail Consortium show that footfall on Britain’s high streets fell by 4.5%. This follows a 4.8% fall in May, and adds up to what is being called a ‘summer slump’. This appears to be an optimistic assessment of the changing nature of shopping in the UK.

Currently, internet shopping accounts for around 20% of retail spending in the UK. Recent research by Retail Economics suggests that this could rise to more than half within 10 years.

Indeed, retail data from the ONS confirms just how well e-commerce is faring compared to the high street in the UK. Between April 2018 and April 2019, online retail increased by 10.1%. In the three months to April 2019, all retail sales increased by 1.8%, while within this non-store retail sales increased by a whopping 9.4% compared to the previous three months. The shift from the high street to online is not the only forecast, but it is also happening.

More High Street Stores Will Close

We have already seen huge numbers of store closures in response to the rise of internet shopping. Lower footfall translates into retail losses and this forces closures. And shops are closing at an alarming rate:

• In 2017, around 5,900 stores closed
• In the first six months of 2018, 24,000 stores closed
• Big companies such as Poundworld, BHS, Toys ‘R’ Us and House of Fraser were forced into administration
• More recently, Mark & Spencer has announced the closure of 110 stores

There does not appear to be one sector of retail that is safe from evolving consumer habits. High rents and business rates have combined with lower footfall to harm all types of stores, including fashion, food, shoes, travel agents, estate agents and even banks.

High Streets Are Becoming More Residential

For local authorities, store closures spell trouble. They no longer benefit from the revenue that high business rates produce. Town planning departments have responded to redefine high street use. In 2017, we witnessed a mini-explosion in the number of cafés, bistros, ice cream parlours and the like on the high street. Beauty stores, too – it is still impossible to replace such experiences online.

Instead of shopping spaces, high streets are becoming community spaces, where people meet and make merry. We’ve also seen a shift to more residential on our high streets. Population growth on or near Britain’s high streets has doubled that of elsewhere. Between 2012 and 2017, the high street residential population grew by 6%, to stand at more than 10 million (ONS ‘High Streets in Great Britain’).

Store closures present a financial problem to local authorities. These same authorities are being required by the government to provide more new homes for a growing population. Turning the high street into high-density residential communities provides revenues in the short and long term, while also helping to solve a local authority’s housing needs.

Will Institutional Investors Play Their Part?

Institutional investors should have a role to play in this shift away from retail and into residential on the high street. The evolving retail market is making an investment in retail space more difficult, yet institutions must maintain diversified portfolios.

Institutions have followed the shift of retail from high street to online with a shift of their own – from retail to residential. They are focusing on buy-to-rent (BTR) and purpose-built student accommodation, providing strong income flows that align with their need to produce returns for their pension funds. Research from Savills suggests that the BTR sector could be worth £550 billion when the sector reaches maturity, from its current £10 billion.

Are Mixed-Use High Street Developments the Future?

While BTR and student accommodation are set to boom, unless some retail is provided, they will be set to fail. As we noted earlier in this article, people seek community and entertainment. They also desire convenience. They don’t want to drive miles to buy that pint of milk they suddenly need.

The future of the high street appears to be one where high-density residential of mixed tenures meshes with bars and bistros, coffee shops and convenience stores. This will satisfy local authorities’ needs, prevent high streets from becoming ghost towns, and provide much-needed housing where it is needed most.

For property developers, high street opportunities could provide the potential that they always knew existed.

To learn how Castlereach helps developers realise the potential of their development sites, 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

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News for Property Developers – Government Proposals: All Bluster or Real Progress?

A Raft of New Proposals Should Spell Good News for Homebuilders – But Will They?

On 27^th June 2019, the Communities Secretary The Rt Hon James Brokenshire announced a raft of new measures that will impact the sale of new homes and provide many opportunities for developers to build more. Speaking at the Chartered Institute of Housing Conference in Manchester, the minister outlined several plans, which include:

• Ground rents on new leases to be reduced to zero
• All new houses to be sold on a freehold basis, except in exceptional circumstances
• A reduction in planning bureaucracy
• A New Homes Ombudsman
• 19 new garden villages delivering more than 70,000 new homes

We outline these new measures in this article.

Leasehold Changes and Ground Rents

The government is introducing new measures that will explicitly prevent property developers from selling leasehold properties. Simultaneously, the government is reducing all ground rents for new leases to zero.

The government has instructed Homes England to renegotiate all contracts with Help to Buy developers, specifically with the objective of stopping the building and selling of leasehold homes and ensuring only freehold properties are sold – except in exceptional circumstances.

While on the face of it this sounds like a sweeping change, it may introduce law for law’s sake. The minister confirmed that the government’s proposals in this area have already had a major impact. Where once leasehold sales constituted 11% of new home sales, this figure has fallen to only 2%. It could be that these 2% of new homes fall under the government’s ‘release clause’ of allowing developers to sell leasehold homes in exceptional circumstances.

In addition, the leasehold debacle has been headlining in mainstream media for several years, and more than 60 property developers (including the latest signatories, Crest Nicholson and Keepmoat Homes) have signed the government’s industry pledge to free existing leaseholders from deals in which ground rents double every 10 to 15 years.

So, the industry has already taken great strides to self-governance in this area. Formalising these proposals simply puts into writing what is currently happening.

Planning Bureaucracy to Be Cut

The government will make it easier for councils to approve planning applications by removing red tape bureaucracy. Later this year, it will publish an ‘Accelerated Planning Green Paper’. This is part of a renewed effort to ensure that planning authorities have the resources they need to act faster and deliver a better service.

This announcement comes just two days after land agent Aston Mead said that planning delays are forcing building projects to be abandoned and forcing some small- and medium-sized property developers out of business. Aston Mead Director Adam Hesse said that quick turnover is “Prevented by a planning process which is clunky, time-consuming and not fit for purpose”. However, Hesse also cited staff shortages as a major contributory factor to planning delays – with planning applications that go to appeal taking an additional six months. Total time for the planning process ranges from eight to 14 months on smaller sites.

While the government’s measures are welcome, the fact remains that planning departments in local authorities are seriously understaffed. Reduction of red tape should ease the burden on planning employees, but the government also need to make town planning more attractive as a career option.

The New Homes Ombudsman

A 2017 YouGov survey conducted on behalf of housing charity Shelter found more than half of new homes were delivered with major problems. These problems included construction, fittings, and faults with utilities.

The government has now announced a New Homes Ombudsman, to be set up to protect the rights of homebuyers and hold property developers to account. A consultation on redress has begun, and views will be collected through to August 22^nd 2019. A shadow New Homes Ombudsman is being considered, with the aim for the position to work closely with industry, consumer groups and government, to help shape the future scheme.

New Garden Villages in the Pipeline

The minister also announced that the government proposes a further 19 garden villages across the country, with more than 73,000 new homes planned. Each project will be provided with £150,000 of government money to help progress planning applications.

This is welcome news, and offers developers more opportunities to build. However, the speed at which these sites can be delivered is likely to be dependent upon the government delivering reduced planning bureaucracy. As the government tries to meet its target of building 300,000 new homes each year from the mid-2020s, we repeat that not only planning procedures must be streamlined but also more staff employed in planning departments.

In Summary

While much of these proposals are to be welcomed, we can’t help thinking that it is more bluster from a government that has lost its way and is wrapped up in leadership contests and Brexit. What the housebuilding industry needs is action. Where it has been able to, it has delivered this action itself – such as reducing the numbers of leasehold homes sold.

To accelerate the rate at which new homes are built, the government must do what it has been talking about doing for several years – cut red tape on planning. However, this will not be enough. More staff are needed to cope with planning applications, whatever the planning process.

To connect with investors and sell the homes you are building, 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

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Government policy on new homes could scupper the government’s target for new homes

Target for nitrate neutral stops housebuilding

In our last post, we discussed the National Audit Office (NAO) report, Planning for New Homes. The report poured cold water on the potential for property developers to hit the government’s target of 300,000 new homes each year by the mid-2020s. The outturn of 222,000 new homes in 2017/18 was strong, but can this level be sustained?

The ONS report highlighted several roadblocks to delivering the numbers of new homes the UK needs. These include:

• The skills shortage in planning
• Local authorities struggling to produce updated plans
• Assessment methods flawed

The NAO report damns government, local authorities and developers. It recommends that developers should contribute more to infrastructure, and that the Ministry of Housing, Communities & Local Government should work more closely with local authorities and industry bodies.

Is it 300,000 or 200,000 new homes per year?

Hot on the heels of the NAO report, the ONS has recently produced its own estimate of the number of new homes needed.

Based on net immigration remaining at current levels – 215,000 per year – the ONS forecasts that there will be another 4.2 million households needing homes in the UK by 2041. This suggests that housebuilders will need to complete almost 200,000 new homes each year for the next two decades.

Whether the figure is 300,000 or 200,000 may be a moot point. It could be that government policy stops government policy from working. We know that the government’s handling of Brexit has been a shambles. Their bid to pummel landlords has been a comedy of errors. Now, it appears, their incompetence has spread to housebuilding.

Government wants housebuilding to go green

In its attempts to stay in power, the government has been trying to jump on any policy that it thinks would prove popular. The housing market, property investment and landlords have been prime targets. Climate change has galloped strongly on the outside to be a leading issue today. So combining both should be a real electorate pleaser.

This must, surely, have been the thinking behind Philip Hammond’s announcement of plans for a Future Homes Standard in the Spring Statement. One target is for fossil fuel heating systems to be outlawed in new homes by 2025. A worthy cause. I don’t think anyone would argue that we can all do more to help save the environment. New cars are going electric, why not new homes to go carbon neutral?

It’s not only fossil fuel that pollutes

Of course, it is not only fossil fuels that pollute the environment. Plastics are another hot topic (and quite right, too). So are nitrates. In fact, water that is contaminated by nitrates is suspected of causing blood poisoning in infants and stomach cancer in older people. Mostly, nitrates enter the water supply because of inorganic fertilizers used in agriculture.

What do nitrates matter in housebuilding?

Natural England, a government department, has recommended that all new homes must meet strict environmental rules over nitrate levels in South Hampshire. It says that high levels of nitrates are affecting the Solent area. It believes that new housing is contributing to the issue.

Natural England wants developers to build houses that are nitrate neutral. There is, of course, a small problem with this target. Developers have, quite rightly, pointed out that nitrate neutral is impossible. Nitrates are already present in drinking water and wastewater. They cannot build nitrate neutral homes.

Consequently, local authorities in South Hampshire are in a difficult position. They are expected to be issuing planning permissions to boost housebuilding. But they can’t issue those permissions if the development will not meet the need for nitrate neutrality.

Local authorities in the South have taken the only action they believe possible. They have stopped issuing planning permissions. Some councils have cancelled planning meetings. There is no point in holding them. As leader of Fareham Borough Council Seán Woodward said:

“It is a shambles. Government has set us the highest ever housing target, but with another hand they have stopped us being able to issue any permission. The whole system is wrecked. It is a huge issue and it has stopped the planning process in its tracks.”

Nitrate neutral is affecting all developers

All developers are being harmed by this stupidity. Small developers risk going out of business. Large housebuilders face rising costs that will damage margins.

Developers must jump through hoops to assess nitrate levels produced by existing land use compered to that of proposed land use. The rules are challenging for all.

At present, this ludicrous situation has brought housebuilding to a crunching halt in South Hampshire. But developers around the UK should be concerned. Anywhere nitrate levels are considered high could be affected in the future.

Government policy is to build 300,000 new homes each year. Government policy is stopping this goal – and costing developers and housebuilders their livelihoods. In South Hampshire now… but where next?

To connect with investors and sell the homes you are building, 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

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Should housebuilders offer snagging retention schemes?

Can property developers stop the unwanted yet likely government meddling?

The HomeOwners Alliance has launched a campaign aimed at reducing the escalating number of snags experienced by buyers of new homes. It wants the government to step in and act against property developers with a poor record of selling new build homes with numbers of unacceptable defects and snags.

Is there a problem with snags on new builds?

A recent survey carried out by YouGov for the HomeOwners Alliance found that new home buyers have mixed feelings about their new home. When snags were found, fewer than six in 10 felt their warranty provider was able to resolve disputes with the housebuilder within the first two years of ownership.

Considering that a recent New Homes Review found that 91% of new homes have defects, the HomeOwners Alliance survey casts a huge cloud over the new build sector. If nine out of 10 homes suffer snags, and six out of 10 of these are not put right within two years, this means that half of new homes are sold with defects that are not put right within the two years applied under builder warranties.

Sales of new homes will suffer

Homebuyers are coming to expect some snags in a new build property. There have been some real horror stories published in the media recently.

Cracking walls, subsidence, poor brickwork, gaps in windows and doors, central heating and hot water systems that don’t work, inadequate drainage, unpainted walls, poorly-fitted kitchens… the list is almost endless of the defects reported and the complaints made.

It may be that the government’s push to build more homes, and build them faster, has put such a strain on property developers that quality is being compromised. However, such reasoning doesn’t sit well with homebuyers. Most are not builders or tradesmen themselves. They feel that if they can spot defects, then experts should be more than able to do likewise.

The result is that the number of buyers of new homes that would recommend the housebuilder to others has taken a tumble.

Are snagging retention schemes the answer?

There is a growing feeling among consumers that it is money that talks. Buying a new home is the biggest investment most will ever make. The HomeOwners Alliance is campaigning for snagging retention schemes to be mandatory. Their suggestion is that at least 2.5% of the sale price should be held back, and only released when the homebuyer is satisfied that all snags have been taken care of satisfactorily.

The homeowners survey found that nine in 10 new homebuyers support snagging retention. It also found that 76% of the general public support it. The feeling is that holding back money would incentivise housebuilders to either get it right first time, or to fix issues quickly.

Will a snagging retention scheme work?

While a snagging retention scheme may appear a good idea, there are question marks over whether it could work in practice. For example:

• Might housebuilders simply increase their sales prices to compensate for the retained amount, therefore eliminating much of the incentive to improve quality of build and defect repair?
• Could new homeowners be tempted to ‘make up’ complaints to retain the snagging retention money?
• How would a scheme be monitored?
• What arbitration process needs to be formed to solve disputes?

While such practicalities may exist, they are unlikely to stop the government from considering and implementing a snagging retention scheme. The housing market is firmly in their sights.

They government has already banned tenant fees, increased stamp duty on investment properties, decreased tax relief on buy-to-let mortgages, and increased regulation in the private rented sector. They have attacked property investors and landlords, despite advice that they shouldn’t. It would not surprise us if they take up the mantle of a popular suggestion that ‘helps’ new homebuyers, irrespective of any advice they may receive.

So, should housebuilders offer snagging retention schemes?

Regulation is weighing increasingly heavily on property developers. The idea of a snagging retention scheme is certainly popular – and the government needs to build on its poor popularity. In the current environment, a mandatory snagging scheme is more, not less, likely to be introduced.

A proactive approach to the perception that build quality is reducing and housebuilders don’t care could be to offer snagging schemes as part of the new home sales package. If housebuilders offered such a scheme as a matter of course, potentially punitive legislation might be avoided. It could also be a good commercial decision – if homebuyers are more likely to buy from a housebuilder with a snagging retention scheme, those that offer snagging schemes are likely to sell more property.

The first snagging retention scheme is here

Persimmon has taken the first step. It recently announced the introduction to what it believes to be the first snagging retention scheme in the UK. The scheme should be in place by the end of June.

An average of £3,600 will be held back for defects that are detected at the point of purchase. This equates to 1.5% of home value, or around 6% of build fabric costs. Persimmon’s CEO Dave Jenkinson said:

“We are now accelerating the pace of change through the introduction of a contracted retention which will give homebuyers far greater satisfaction at the completion of the purchase.”

He also said that the housebuilder is“determined that the house buying experience is not overshadowed by teething problems. Providing a homebuyer’s retention is an important step towards achieving this.”

Amid calls for snagging retention schemes to be obligatory, other housebuilders are likely to watch Persimmon’s scheme with interest. If it proves a commercial success, then it is probable that more developers will include such schemes in their sales strategies. This could put a halt to meddling by the government.

Self-regulation is always better than oversight by a government that doesn’t understand the housing market.

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

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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

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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

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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

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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

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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