Earlier this year the Government released the new Levelling Up white paper, presenting new policies and analysis explaining why levelling up is needed with 12 broad missions they want to tackle.
None of the white paper looks truly transformative for the residential sector and much of it appears to be reverting to pre-Jenrick policy.
One of the Government’s main goals relates to the extension of devolution. The idea is to improve the smaller and less densely populated areas that may need it most, not just developing the top performing cities outside of the capital. A few examples include inviting locations such as Devon, Norfolk and East Yorkshire to start formal negotiations to agree new County Deals, with the aim of agreeing a number of these by autumn 2022. These will provide funds which will be locally managed and authorities will be able to use in the most beneficial way to the overall area. Naturally this is more than just housing focused, this is whole-scale regeneration to create stronger local economies, and in turn stronger local communities to support these, and residential development will play its part.
The Government has also commented that more simple and local plans would also be welcomed and it wants localism to be reinvigorated.
They want to see regeneration of failing town centres accelerated by giving local authorities enhanced compulsory purchasing powers. This is good for developers wanting to build, and councils who are trying to re-shape and improve the area. However, we’ve heard of promises of planning reform before, but not much action has taken place.
When you look at the big picture, only 39 per cent of local authorities have produced and followed through with a Local Plan over the last five years. And now the concept of “zoning” appears to have been abandoned, which would have also accelerated these programmes. This is to encourage greater empowerment of communities to shape regeneration plans, but we’re already aware that the current public consultation process is subject to nimbyism which holds back development progress, even when it is supported by local planning officers.
Being a housebuilder at the moment is not particularly enticing.
Despite the fact that there will always be a demand for housing, and apparently the Government knowing we’re in a housing crisis. But by creating a muscular form of localism it is likely to mean that securing a planning consent will be even harder. This, along with additional taxation to pay for the cladding crisis, the imminent closure of Help to Buy with no replacement yet announced and construction cost inflation stretching the viability of most schemes - in particular in the areas where the levelling up agenda is focused - it’s a difficult sector to navigate at this time.
However, there’s lots of institutional capital now interested in the operational markets sector, particularly the burgeoning build-to-rent (BTR) market in the UK. The supply of new housing from BTR has been positive, it has created a great deal of additionality – often providing new housing that would not have been built otherwise. It has also introduced a new level of customer service to renting customers within good quality accommodation, another focus of the levelling up agenda.
There are now 212,177 build-to-rent homes in the pipeline in the UK, of which 70,785 are complete, 42,119 under construction and 99,273 in planning. In London, there are a total of 89,678 units; outside London, there are 122,499 units. The 212,177 total sounds high and is a major achievement for a sector which only resurfaced in 2013/14. However, in context of the overall UK housing stock, it’s a mere 0.9 per cent of the estimated total. Given its relative size, it is hardly surprising that many planning committee members plead ignorance when it comes to BTR planning applications.
What will happen with the pent-up demand for build-to-rent investment?
Perhaps it could go into other sectors of the residential market or to other asset types such as the booming logistics or resilient office opportunities. But there are still other residential opportunities which could be attractive such as social housing or social impact vehicles which will provide the long-term results.
There’s a long way to go to solve the housing crisis, and the levelling up agenda will take a significant time to kick in. But with house prices forecasted to continue growing there’s still lots of opportunities and the beauty of residential is its optionality.
About the authors
Andrew White is head of UK Residential and International Properties at Colliers. Andrew Stanford is Head of Build to Rent at the firm. Both work with developers, land owners and investors with the new build sector of the residential market.