Britain’s housing crisis and what it means for property investors
With the Government’s inability to build enough homes, what impact is the housing crisis having on the property market and what are the investment opportunities? Britain today has a backlog of 4.3 million homes missing from the national housing market – homes that were never built. With the UK property market undergoing a severe housebuilding crisis, we look at what is needed to deliver enough homes in Britain.
Compared to the average European country, the housing deficit in the UK would take at least 50 years to fill, even if the Government’s current target to build 300,000 homes a year is reached, according to thinktank Centre for Cities. Tackling the problem sooner would require 442,000 homes per year over the next 25 years or 654,000 per year over the next decade in England alone.
Major planning reform required in UK housing market
According to statistics, housebuilding rates in England and Wales have dropped by more than a third after introducing the Town and Country Planning Act of 1947, from 2 per cent growth per year between 1856 and 1939 to 1.2 per cent between 1947 and 2019. Experts believe this is a critical factor behind Britain’s long-standing housing crisis and that planning reform – significant reform – is the key to ending the housing shortage.
For property investors what might this new housebuilding reform look like? Replacing the discretionary planning system with a new rules-based, flexible zoning system; increasing the certainty of the planning process and the supply of land for development – is crucial for any massive increase in housebuilding, whether by the private or public sectors. The principle of shifting away from uncertain, case-by-case decision-making to a system where development is lawful so long as it follows the rules should guide all new planning reform proposals and increase private sector housebuilding to fulfil housebuilding potential.
Successive governments have failed to build enough homes and Centre for Cities. England’s system is internationally unusual – most other countries don’t have construction bans outside their most innovative cities. Instead, they have rules-based planning systems where applications that follow the local plan must be granted planning permission. Introducing these rules-based decision-making processes is the fundamental goal of planning reform.
How close has the Government come to its housing target?
In 2019-20 there were 242,700 additional net dwellings, which fell to 216,490 in 2020-21, partly due to the pandemic. Net other dwellings is the headline figure for housebuilding, including houses being converted to flats or commercial buildings switching to domestic use and new builds. But just how many homes were built previously? On average, almost 250,000 homes were built in England in each year of the 1970s. But there was also a great deal of demolition, mainly due to slum clearance, which made the overall figure under 200,000 a year. The 1990s saw fewer homes built and fewer demolitions, making the overall average about 150,000 a year. This annual figure rose until the 2007-08 financial crisis, recovering in the mid-2010s.
What does it mean for property investors looking into 2023 and beyond?
For property investors, the falling house prices with rising mortgage interest rates, maybe concerning with many wondering if it’s the right time to invest – but now could be one of the most valuable times. Those who can afford to invest in property can make significant returns, and coupled with a booming rental market, the need for property investment is high. A Zoopla report revealed that demand for rental property is 46% above average, while total supply is 38% below average, leaving many people needing a home.
Buy-to-let property investment opportunties
With the Government missing new build targets for the past three years, the demand for new housing is growing. At Magna Partners we believe the rental market is likely to continue to increase. Property investment is still required and favourable to many, and Buy-to-let properties offer a great investment opportunity. Property prices are currently significantly lower making it the perfect time to invest and make a good profit on higher rental value higher. The market is volatile, but the opportunity lies with investors to purchase properties and rent them out. Lower acquisition costs for investors, coupled with strong demand is set to remain for rental property. That means that buy-to-let property is still favourable for investors. Purchasing off-plan property and contributing to new housing developments aids the housing shortage while creating new housing opportunities where they are most needed.
Build-to-rent growth for UK property investors
Traditional buy-to-let property investment continues to be an excellent long-term property strategy and should feature in any portfolio, but other types of property investment can also be considered. The rising cost of living in the UK has bought affordability into sharp focus, and co-living has seen an increase in popularity. When constructed to high standards and in a suitable location, this type of property receives overwhelming demand from tenants and achieves considerable rental returns.
Unsurprisingly, property investors are increasingly focusing on Build-to-Rent (BTR) opportunities. BTR refers to purpose-built housing explicitly designed to rent rather than to sell, such as student accommodation and blocks of rental flats or housing developments. The sector is growing massively – and over the next decade, the number of completed BTR homes is set to increase by a factor of five, reaching 380,000 by 2032 with an estimated value of £170 billion, according to recent research by the British Property Federation and Savills.
Property Investment to combat housing shortages
The key is to continue investing in housing development, to combat housing shortages. At Magna Partners we expect investors to continue to add to their property portfolios despite the falling house prices, as we know there is still exponential demand for new housing in the UK. As the housing shortage looks set to continue, it offers viable opportunities for property investors to provide the housing needed through investing in pre-construction homes at favourable prices.
