Investing in Britain’s Housing Shortage
Britain’s housing shortage remains as a major social challenge for many communities especially those such as Cambridge and Oxford which are experiencing economic growth. The new budget announced this autumn by Chancellor Phillip Hammond vowed to “fix the broken housing market” with an increase in construction from 217,000 to 300,000 new homes. The government will spend £44 billion as a capital investment over the next five years to help the housing market with plans for 300,000 new homes to be built every year by 2020. Local councils will also have the green light to charge a 100% tax premium on properties that are unused. The Telegraph reports that additional measures include an additional £15.3 billion capital investment for increasing available land and another £204 million for better skills and innovation for the construction sector.
The response by the housing industry was mixed. In a meeting before the Treasury Select Committee in Parliament David Orr representing independent housing associations was quoted in the Telegraph as saying to MPs:
“There are a range of useful measures in the Budget, which will have a combined effect of seeing ...some relatively small growth in the number of homes built.
“I think it was quite striking that the Office for Budget Responsibility’s assessment of the delivery of new homes post the Budget was precisely the same as pre-Budget.
“Their assessment is that it isn't going to make a difference.”
In a recent Savills analysis nearly 100,000 homes are needed for the sub-market sector every year. Since 2013 the delivery of sun-market homes has averaged of 45,000 with London and the South seeing a 93% shortfall with the North and Midlands being the more likely to keep pace in meeting the needs of the communities.
It is estimated that it would cost £7 billion per year to deliver social rented homes to match the need in the sub-market sector. The analysis indicates that in expensive markets this could provide a savings for rented homes because social rent is at a discount.
One recommendation for addressing the maximum number of homes to be built ‘...funding packages should give housing associations the opportunity to tackle local housing issues. This may be addressing housing quality in areas where affordability is less of a constraint.’
‘For most housing associations the profit generated through market sale is equivalent to less than 20% of their total surplus, but for some this rises to over 60%.’
The PRS Reit
Earlier in 2017 the UK government invested £25 million in share purchases in the Homes and Communities Agency a real estate investment trust. The goal was to raise £250 million on the London Stock Exchange for investment in the private rental sector.which also included plans for raising £200 million for constructing 3,300 new homes for renters. The government views this investment trust will not only be a benefit to housing sector construction but should reap future dividends for more investment.
The cost of housing has increased the need for more rental properties because of the difficulty for Britons to afford a mortgage. The Financial Times (FT) reports that by 2020 the private rental sector will grow from 19% to 25% of all UK households.
One of the property groups in the development of managed estates is Sigma Management which is the investment manager of the PES Reit. It is reported that buy-to-let transactions declined by 13% in 2016 once plans were announced that the government would remove higher-rate tax rates for mortgage interest payments for buy-to-let properties.
Graham Barnet, chief executive of Sigma, told the FT that he was expecting more private investing to the trust :
“We will be a top 10 housebuilder,”
“The government would have to come up with £450m itself to do this alone. This way they invest £25m and leverage in private investment. It is more bang for the buck.”
Sigma has started with a redeveloped estate in Liverpool at Norris Green. The site is on 60 acres with 829 homes with 294 available for affordable rents and 394 available for purchase. Three bedroom homes be available for £750 per month that will also include service an maintenance charges.
Stephen Smith, chairman of PRS, also commented to the FT that PRS brings:
“Demand for high quality, professionally managed new rental homes, especially family homes, is strong and growing.”
“This reflects the structural undersupply of homes in the UK and the growth in the private rented sector.”
Not surprising there was opposition to this plan by John Healey, Labour (Wentworth and Dearne) shadow housing secretary states:
“Since 2010, ministers have cut investment and outsourced responsibility for building new homes to big developers.”
“It hasn’t worked: fewer homes have been built on average since 2010 than under any political party since the 1920s and the number of new affordable homes has fallen to a 24-year low.
“To build the number and range of homes the country needs, we need a much bigger effort from councils and housing associations as well as commercial housebuilders.”