Paresh Raja, CEO of Market Financial Solutions
Of all the sectors contributing to the UK economy, few can match the size and complexity of the residential property market.
Worth an estimated £7.14 trillion, the value of all homes in the UK has risen by more than a third in the past decade, demonstrating the resilience of property as an asset able to weather periods of political and economic shocks.
While this is positive news, recent figures suggest that the rate of house price growth is slowing. This does hold some truth, but it is also necessary to evaluate the performance of property when compared to other assets. For instance, with interest rates currently sitting at 0.5%, the returns on offer from bank saving deposits is minimal. Moreover, economic uncertainty arising from Brexit combined with a looming trade war have made the share market increasing susceptible to volatile shocks.
Evidently, investor appetite for real estate remains overwhelmingly strong. Market Financial Solutions research recently found that 53% of investors would rather invest in traditional asset classes such as property instead of newer asset classes. And nearly two-thirds (63%) of investors said they consider property to be a safe and secure asset in the current market.
Despite these positive observations, the UK property market currently finds itself at a critical juncture – market demand is rising, and while this is positive news for investors seeking a safe and reliable asset as it pushes prices upwards, limited supply has also made it more difficult for people to jump on, and move up, the property ladder.
This is particularly true of young people. Recent research from the Building Societies Association found that 70% of people aged between 25 and 34 consider getting on the property ladder the biggest problem facing young people today. Homeownership should not be confined to a limited few butshould rather stand as a realistic and attainable goal for everyone from investors looking to consolidate and expand a real estate portfolio through to prospective first-time homebuyers eager to leave the rental market.
To address the imbalance between supply and demand, and to ensure that more people are able to pursue their property investment intentions, structural reform of the market is clearly needed. This can only be led by the Government, and based on my experience supporting investors, borrowers, brokers and homebuyers in the UK, a multi-faceted strategy is clearly needed.
Increase the output of new-build homes
It may seem like a simple an obvious proposal, but building new homes will play a fundamental role in increasing supply. The Government has been vocal in its desire to increase the number of new-build homes entering the market, with an aim of delivering an average of 300,000 homes a year by the mid-2020s. A positive step forward, but there are nonetheless concerns as to whether this target can be met in light of the challenges currently facing the construction industry.
SME developers are currently feeling the strain. A survey by the Federation of Master Builders found that 54% of small to medium-sized developers find accessing funds the major barrier to building more homes. Applying for finance from mainstream lenders can be a protracted, complicated and time-consuming experience, preventing these developers from reaching their full outreach potential.
Fortunately, there are ways of addressing these problems, such as a willingness from small developers to look to alternative sources of funding to support their developments. In fact, the Association of Short Term Lenders announced that 93% of its members believe that short-term finance is ideally positioned to support SME house builders in the future.
Reform house planning laws
One creative measure under review by the Government is the relaxing of planning laws and incentivising councils to approve housing extensions in areas of high demand. The reforms aim to encourage homeowners in metropolitan areas to extend their properties upwards by as much as two storeys, removing unnecessary processing times and reviews.
Building upwards is something we are already seeing in European cities such as Barcelona and Paris, and this has been having a noticeable impact in alleviating some of the housing demand. What’s more, for buy-to-let landlords, extending a property can also increase the amount of rental yield that is potentially delivered. Evidently, relaxing the regulations surrounding house planning could be a great opportunity, particularly in areas of high demand such as in the centre of cities like Birmingham, Manchester and London.
Support for renovation and refurbishment projects
Building a new property requires both time and money, which is why there is a need to consider renovation and refurbishment projects that can put derelict properties back on the market quickly. The numbers are revealing – more than 11,000 homes across the UK have been empty for at least 10 years. Moreover, 216,000 homes across the country have been empty for six months or more.
Evidently, more support must be offered to councils and homeowners to ensure they can bring derelict homes back onto the market. A 2017 Market Financial Solutions survey found that 79% of adults think the Government should focus more on refurbishing run-down properties to meet housing demand. This resounding figure demonstrates the need for Westminster to recognise the popularity of traditional housing over new-builds and introduce new initiatives so that vacant properties are made available on the market.
Following the recent appointment of James Brokenshire as the new Secretary of State for Housing, Communities and Local Government, now is an opportune moment for government and industry bodies to implement bold new measures to address the housing crisis. With Brexit fast approaching, the challenges facing the property sector cannot be ignored; doing so would risk seeing demand continue to outpace supply, ultimately cutting off more people from accessing the housing market.