People are making do with what shelter is available. But so many renters, flat-sharers and home-with-mum-ers all indicate the need to build more homes.
Some call it “generation rent,” but the situation goes deeper than that. The shortage of housing in the UK by more than one million homes means that people are finding all kinds of ways to cope with the dearth of affordable housing. At best they cannot buy but can find a place to-let; at worse, they have no address to call their own.
Homelessness has steadily risen in the UK over the past decade. A 2013 report, “The Homelessness Monitor: England 2013” from the Institute for Housing, Urban and Real Estate Research and several universities, revealed that rough sleeping rose 6 per cent in 2012 and by 23 per cent in 2011. The growth in statutory homelessness rose more markedly in London and the South. The report also notes that temporary accommodation places were up 10 per cent in 2013 with B&B placements rising at a 14 per cent rate. Additionally, the study found that there are hidden forms of homelessness – shared households and overcrowded homes.
All of which suggests that building more homes is the simple yet daunting challenge. Surprisingly, it’s not just about council housing, as many of these under-housed individuals are working people with good prospects for eventually buying a home of their own. But that requires easier financing as well as a robust engagement of real asset fund managers who marshal private investment in market-rate housing.
This phenomenon of home sharing was reported in The Guardian in early 2014, where the trials and tribulations of flat sharing by way of various websites (Spareroom, for example) have led to households of convenience. Quite often, these are people who have experienced relationship dissolution, or the situation when one parent must take employment far away from a family home. Notably, many flat-sharers are middle-aged and at a place they never expected to be at this stage in their lives.
At the base of all this is simple supply-demand economics. The country’s population rose by 7 per cent in the census decade (2001-2011) and yet the rate of house building plummeted in this time for various reasons, the financial crisis of 2008 being a major cause. The consequences go beyond how much space and privacy a person or family has – the ripple effects are in fact quite enormous:
• Family/social delays – Young, never-married professionals are living with parents or, at best, with friends. But with stagnant incomes they are less likely to get married, and the young marrieds less likely to have children.
• Failure to begin accumulating housing value – The UK’s property ladder culture of asset accumulation falls short when people can’t get on that first rung. Working people are paying tens of thousands of pounds to landlords for a decade or longer before being able to put that into a mortgage instead.
• Failure to make household purchases – When young people aren’t buying houses, they aren’t buying furniture, appliances and other components of homes. This therefore has a downward effect on other parts of the British economy.
There are several programmes established in just the past few years that are designed to increase the numbers of houses being built and make them more affordable. One of course is the Help to Buy scheme, enabling first-time buyers to make smaller deposits while the Government guarantees the larger loan size. Another is Help to Build, directed specifically at homebuilders. In June 2014, Communities Secretary Eric Pickles announced major investments in several additional efforts, include £1 billion for projects such as large developments (7,000+ homes) currently underway in Manchester, Medway, Kettering and Swindon.
The planning system has been streamlined by the National Planning Policy Framework (NPPF), which has enabled local authorities to open more land to development. Pickles further has freed up £3 million to empower local planning authorities (LPAs) with additional capacity to finalise section 106 agreements, which has the effect of accelerating starts on work sites (up to 25,000 homes on 85 sites could be immediately affected).
But the real funding for development comes from the private sector. Individuals are keen on identifying investment opportunities in housing, many of whom work through capital growth funds that buy raw land, achieve planning approval, develop infrastructure then sell shovel-ready plots to homebuilders.
But before investing in property funds or any form of real estate, investors should discuss overall wealth building strategies with an independent investment advisor. With such pent-up demand for housing it seems that investments there can only do well, however an IFA can determine whether the specific fund meets an investor’s risk profile.