Social housing, build-to-rent, buy-to-Let – 3 lanes for property developers
Examining the latest news gives clues for property development sales potential
The government is seeking to boost the delivery of new homes to achieve its target of 300,000 completions each year by the mid-2020s. It has already put in place billions in funding towards this goal.
The question for property developers is, on what type of residential development should they concentrate? It’s not a clear-cut decision. There are many factors involved, including demand, competition, and government funding programmes.
In this article, we look at how three streams of demand for property stack up for the property development sales potential.
Social housing – the slow lane?
The government has ambitious plans to increase the availability of affordable homes in the UK. To this end, it wants to deliver tens of thousands more homes in the social housing sector. The government will be delivering the first part of this plan later this year when it publishes its green paper on social housing in England.
What is the problem?
Research by the Joseph Rowntree Foundation has concluded that the UK has underdelivered affordable homes by more than 180,000 since 2011. To make up the shortfall, it’s been estimated that the UK needs to deliver an extra 30,000 affordable homes each year.
What will the green paper tell us?
The green paper is likely to address several areas of concern, examining what has worked and what hasn’t, what and why things have gone wrong, and how to repair a broken sector of the market. In preparing the paper, the government has consulted with around 8,000 people either directly or online.
The government is now in the process of collating the results of its consultations, and these will direct the green paper.
Could the social housing green paper help to fix the housing crisis?
As we’ve seen, an average of 78,000 affordable homes (a mix of low-cost rent and shared ownership) are required in England every year between 2011 and 2031 to tackle the housing shortfall in the UK, according to the Joseph Rowntree Foundation.
The green paper may come up with some solutions to the affordable housing conundrum, but the real issue may prove to be the appetite to fund the expansion of delivery. The experience to date is that funding has hardly dented the shortfall. For example, the Chancellor of the Exchequer announced an additional £1.67 billion for London to deliver affordable homes – a huge amount of money that will deliver only 27,000 new affordable homes by 2022.
Could the green paper fuel social housing projects?
To deliver the real numbers of affordable homes needed in the UK, it is not green papers that will make the difference, but real funding of tens of billions of pounds – and that is something that any government is unlikely to sanction.
The green paper is a start towards the ambitions of delivering more affordable homes in the UK, but it is no more than turning the key in the ignition.
Build-to-rent – the middle lane?
In a recent article, we asked if property developers should focus on the build-to-rent sector. The first annual data on the sector has now been published and shows that the number of build-to-rent homes either under construction or in planning has increased by 30%. There are now 117,893 at all stages of development in the UK. Completions are rising, too, with more than 20,000 delivered in the year.
Finally, a blueprint for build-to-rent
The build-to-rent sector is accelerating in the regions outside London, and the government is backing it. But the planning to date has been somewhat haphazard, without a central government blueprint. However, with the National Planning Policy Framework now in place, this could change. Local authorities will now be obligated to identify how many new rental homes are needed in their locations.
According to the conclusions of the build-to-rent research conducted by Savills when compiling the buy-to-rent data, the build-to-rent sector is building up ahead of steam. Its director of residential investment research and strategy, Jacqui Daly, said: “At this rate of growth, we expect that the build-to-rent pipeline could double to around 200,000 within the next two years.”
Well, perhaps not quite double – but an increase from 117,893 to 200,000 is certainly not to be sniffed at.
Government backing for this sector includes £4.1 billion to fund roads, schools, and medical centres – the infrastructure that huge development will rely on.
Does build-to-rent need to evolve further?
Much build-to-rent development has concentrated on serviced apartments, but there is a growing concern that this will fail to cater for the needs of a diversified population. The need for low-rise, quality family homes are being overlooked.
The momentum building in the sector is good news for property developers but does not come without challenges. The higher average rental prices do not meet the needs of affordable housing, and the overreliance of serviced apartments, if continued, could fail to deliver housing needs in years to come.
It may be that some readjustment is needed before build-to-rent can move across to the fast lane.
Buy-to-let – returning to the fast lane?
Despite the government’s attempts to put the brakes on the buy-to-let sector, it is once more accelerating in the fast lane. The tax changes (including a reduction in mortgage interest tax relief), changes to how wear and tear costs are treated, and an increase in stamp duty liability on investment properties, have now filtered through. Investors appear to have learned to live with them.
Buy-to-let landlords are buyers, not sellers
Contrary to the doomsday forecasts of buy-to-let investors fleeing the market, recent research shows that the appetite for buy-to-let investment property has strengthened. Surveys by Aldermore and OneSavings Bank indicate that:
- 41% of buy-to-let landlords expect to expand their portfolios over the next 12 months
- Only 8% of buy-to-let landlords expect to reduce their portfolios
- Buy-to-let landlords are diversifying their property portfolios
Tackling the effect of tax changes
Investors have very quickly become adept at tackling the tax changes. They have learned to restructure their portfolios to mitigate higher tax liabilities. Developers have played their part, too, by showing greater flexibility when it comes to negotiating – often reducing (or negating) the effect of the 3% stamp duty surcharge on investment properties.
Mostly, though, investors are taking a long-term view. They understand that costs become less of a factor when considered over 5, 10, or 20 years.
Why the renewed enthusiasm for buy-to-let investment?
Despite the tax changes, property investors have realised that the positive dynamics in the UK property market remain intact. These include:
- Undersupply and increasing demand
- Rising rental prices
- Rising house prices
- An ageing population in city centres
There are somewhere between 1.75 million and 2 million buy-to-let landlords in the UK (HMRC and Paragon, 2016). If the Aldermore research is correct and was it extrapolated across the entire buy-to-let community, this means there could be as many as 880,000 buy-to-let landlords considering adding to their property portfolios in the next 12 months. That puts buy-to-let firmly in the fast lane for UK property developers.
To take advantage of the demand from buy-to-let investors, call Castlereach on 0207 923 5680.
Live with passion