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11 November 2009
Why we’re still confident about the Thames Gateway
The Thames Gateway is the number one regeneration project in the UK and probably in Europe too, and therefore it is very important not just to London and the South East, but nationally too. However the biggest constraint to progress currently in the Gateway is the state of the housing market.
Developers will not start projects unless they can be sure of sales. Many sites are large and complex and are burdened with large upfront capital costs and this is all the more reason why developers and investors will think twice before commencing a project. Therefore many schemes in the Gateway won’t get underway until market conditions improve. Most of those projects that are in progress have been slowed down to reflect current sales rates and that is certainly true of our schemes in the Gateway.
The benefit of Kickstart
Some projects are being helped by the government through the HCA and others where they are prepared to bear some of the upfront risks and indeed such intervention is often welcome. Initiatives such as Kickstart, where phase one of funding is now complete, are very welcome and it is beneficial to everyone who’s concerned with keeping new housing supply moving. I was pleased therefore to see HCA Director, David Edward’s recent comments in Building about their continued commitment to the Gateway.
Confidence in the Gateway
I regard the current setback in the Thames Gateway as being relatively short-term. My confidence in the Gateway has not waned and the long-term prospects are still very good.
Whilst we are experiencing this period of slowdown we can nevertheless continue with the preparatory works and then developers will be ready to go once sales prospects improve. Considerable emphasis therefore needs to be placed by public sector bodies on important infrastructure works such as highways investment around Ebbsfleet Valley. Such preparatory work should be progressed now rather than waiting until development programmes can be speeded up.
Learning the lessons
There will no doubt be a number of schemes that will have to be planned rather differently. Lessons learnt from recent years include the fact that too many schemes have been designed to too high a density with a predominance of flats. My concern has always been that this is not conducive to the creation of sustainable communities the success of which, from a social viewpoint, requires a balanced mix of house types and tenures creating a broad spectrum of price ranges and buying options. All stakeholders will need to be very conscious of this issue.
The move away from mono housing types is all to the good, I believe, and from it we’ll get more balanced and superior development solutions. The lessons learnt in recent years must not be forgotten in planning future schemes.
Sustainable solutions
The current pause also gives developers and others time to think how best to include environmental objectives into future schemes. The regulatory demands have of course not gone away in the recession. We need to research how we can best achieve more sustainable developments and move forward with solutions that will have a lasting and positive impact, rather than a potential maintenance nightmare if we do not use proven systems.
Need for public/private partnerships
It is inevitable in my opinion that there will need to be more private and public sector partnering arrangements in place in the future. This will be necessary as funding for development won’t be as readily available as in past years. Banks and funders generally will be more cautious and new funding methods will have to be seriously considered as Savills Research has recently pointed out. This is why I believe public/private partnerships will be the most appropriate way for development programmes to be enhanced in the future.
The key constraint
Funding for homebuyers continues to be the most major constraint in selling homes. Many people who want to buy simply can’t. Hopefully the strict lending criteria will ease a little, but it will not return to the sort of free and easy mortgage funding that has caused some of our recent problems.
Meeting the vision
The Thames Gateway will no doubt make a significant contribution to housing supply in London and the South East of England and where it not to happen it would bring about much greater pressure for development in these regions. We must therefore work with renewed vigour to ensure the vision and the objectives for the Gateway are met.
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1 October 2009
Improving housing supply and housing markets - does mortgage finance need to be thoroughly reconsidered?
Recently we would appear to have seen the first signs of a long-awaited revival in the economy. However, the short-term outlook must be viewed with caution. It’s simply too early to say that a sustainable recovery is now underway, but the early signs are encouraging. However, there are uncertainties arising from the country entering a pre-election phase and from unemployment continuing to rise.
When the recovery does get underway it will show even more starkly that there is a significant shortage of housing in Britain. In better times we have not been producing enough new homes to meet the demand, let alone now when production levels are at historic lows. This is widely recognised by many people and government too, and therefore it must be of considerable concern. It’s important therefore that every effort is made to increase the supply of new housing and a broader, more competitive market for home loans would be an important aspect of this.
Reconsidering mortgage finance
Properly functioning housing markets rely very much on the availability of finance for home loans and yet it does not look likely that the supply of funds will increase dramatically for some time yet. This will put a break on house prices recovering. Does the whole issue of finance for house purchase therefore need to be thoroughly reconsidered? Is the reliance on the banks and building societies as the principal suppliers the only answer for the future?
The volatility of finance from these institutions during this recession has had serious consequences for the housing market. Government needs to address how home buyers will be financed in the future. Are there for example other financial institutions likely to be interested in some form of public / private partnership that specialises in finance for home loans? Lord Turner has considered the way that banks operate with a view to more competition and it would be advantageous for the stability of the housing market going forward if something similar would happen to the home loan market.
Planning and localism
As I’ve noted in my blog previously, planning is a significant restriction on housing supply. The system has been criticised by the development industry for years and is generally slow and cumbersome. It is an issue that a future Government is going to have to address.
The Conservative’s localism agenda is laudable in a number of ways as community led initiatives can make a real impact on people's lives and they are rarely dependent on large amounts of grant funding. However, localism without local economic development targets could well mean no development activity whatsoever for the foreseeable future. To ensure a decent level of housing supply in the future surely what we need is localism in response to national housing policy.
Affordable housing
The need for more affordable housing has significantly increased as there are so many more people at present who can’t afford to buy a home or pay market rent. Housing associations and local authorities are their only real option at present. However, new affordable housing has been significantly curtailed due to the reliance on cross subsidy from homes for sale and many regeneration and affordable housing projects have subsequently stalled during this recession.
Government through the HCA has introduced schemes to help stimulate new private and affordable housebuilding but these initiatives, as well intentioned as they are, are of limited scope and therefore impact.
Design quality and sustainability
Whatever initiatives come about to improve the supply of new housing it is very important that high design standards are achieved. CABE’s recent research shows how important this issue is to the public. There has been an improvement in design standards by many developers in recent years, but sadly this has not applied across the board as much as it should have.
There’s also the important issue of sustainability – environmentally, socially and economically and these issues will have to be addressed in any programme designed to increase the supply of new housing. Whatever action is taken we must ensure that we produce better quality homes that are sustainable and improve people’s quality of life.
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25 August 2009
Is the housing market recovery sustainable?
We are beginning to see signs of stabilisation in the housing market, which is encouraging, but can this be sustained? The availability of finance for mortgages and development is key, but it is unknown when the supply of funds will improve.
As the Bank of England has stated earlier this month, “It will take time for banks to repair their balance sheets and they face considerable challenges in replacing those sources of funding that dried up in the financial crisis.”
Housing demand gets ever greater, but additions to housing stock levels are negligible at present which will have significant social and economic consequences in the future. Therefore if we don’t increase housing supply the need and demand will only ever increase for those seeking a home.
Caution required
The modest signs of improvement in terms of housing starts and prices are welcome not least to housebuilders and developers who have endured a very difficult period in the last 18 months or so.
However, I would still remain cautious with respect to the housing market. Housing starts remain 53% lower than their peak three years ago and lending is still 36% below a year ago. Indeed it is still the lowest July lending figure since 2001.
The positive news in the housing market comes from an unprecedented low earlier this year. Furthermore, there are three key risks to recovery in housing. With unemployment continuing its rise towards three million, this could result in a fall in demand for house purchases and an increase in supply from those forced to sell.
Secondly, recovery in the housing market is heavily dependent upon the availability of finance rising further and while it has increased over the course of this year, this has been from unprecedented lows. It will need to continue rising to meet the pent-up demand for housing in this country.
Finally, there are concerns that even when demand does pick up, then the industry has lost much of its capacity to deliver due to this recession.
Affordable housing
The supply of affordable housing has been nearly as hard hit as private housing due to the fact that much of it today is delivered through Section 106 agreements and cross subsidy from homes for sale. The upshot is that housing associations have been as badly affected by the recession as housebuilders have.
The latest thing that will add to the difficulties of the associations is rental levels being reduced by 2% next year which will affect their incomes further. It is predicted that this could lead to a reduction of 4,000 new affordable homes being built each year.
Dealing with the housing crisis
I don’t believe the Government is addressing the issues with anything like the vigour that they should be. What is the plan for the future? The nation has a housing crisis and we need a robust plan to deal with it.
The Government has introduced a number of short-term measures but whilst these have been welcome, many of them have been robbing Peter to pay Paul. The effect so far has been of increasing the uncertainty around such worthwhile programmes as the Decent Homes standard and the removal of funding to assist some new developments to move forward.
The Government also needs to address continuing shortages of permissioned land, and the impact of regulation and policy on development viability, both of which are major barriers to a sustained recovery in house building.
The time taken to receive planning consent is still not nearly as good as it needs to be. If everything else was right in the housing market, which of course we are a long way from at present, we are not going to be able to improve supply if planning remains as it is now.
The supply of new housing ought to recognise the demands for sustainability not least the Code for Sustainable Homes and the requirements to comply with it. This means we need increasing numbers of homes that are suitably efficient to meet the Code. This increases development costs significantly thereby reducing viability at time when increasing supply is a priority for the nation.
So, in summary, recent news in the housing sector has been positive, but there are downside risks and, as a consequence, I believe we need to be cautiously optimistic about a sustained recovery at this point.
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10 July 2009
Why we’re in denial over housing supply
I’ve been reading with great interest the National Housing and Planning Advice Unit’s (NHPAU) report and research into the public's attitudes to housing, and the affordability problem in England. They highlight the imperative of having sufficient homes to meet demand.
The NHPAU states quite rightly that attitudes to new housing development need to change as a matter of urgency. In their research 51 per cent of homeowners would oppose more homes being built in their area, compared with 31 per cent of non-homeowners! So we’re in denial at a time when 6 million young people will not be able to get on the housing ladder until prices fall to more affordable levels and they have realistic access to a mortgage.
As I‘ve said in recent blog posts recessions do not impact on the number of people wanting a home, but they do cause a sharp drop in the number being built. All this serves to exacerbate a growing problem of the mismatch between supply and demand.
The NHPAU’s report states that, “the evidence is clear: we need to take some major steps to close the gap between supply and demand or the consequences for individuals and families will become increasingly severe, with wider economic and social impacts. We need to move the debate on from whether there is a problem… to how we can plan for the homes we clearly need in a way that will benefit existing communities and protect the environment."
What are the consequences of not enough housing being built? More people will be homeless or live in overcrowded conditions, more young people will be forced to continue living with their parents, and the aspirations of millions to live in the type of homes they want, where they want, will be frustrated. This lack of people mobility will impact upon the wider economy.
In some respects the whole issue of housing is being buried underneath the recession, but the housing problem will be here long after the recession has passed. Therefore, current and future Governments need to create robust policies that will improve Britain’s housing supply. This is of course not as simple as it sounds.
What we don’t need however is knee jerk responses that will create mono-tenure estates of affordable and council housing that have no regard for creating sustainable communities and which would, if built, create a legacy of social problems.
As I said in my last blog we have got to address the issue of development finance if we are going to be able to increase housing supply. Bank loans may not be as readily available in the future as they have been in the past. So how the development industry is going to be financed in the future has got to be addressed.
I also can’t help but to think of the planning situation. It is very slow to respond and the process takes an incredible length of time compared with the past. Government has tried to improve it without much success, but the Conservative’s proposals are going to make the situation worse by delaying the system further.
I welcome the Government’s additional funding for housing that was announced recently and particularly the additional £500m of Kickstart support that will enable more developments to move forward. However, the funding is still relatively modest when considered against the size of the problem.
Shared equity schemes, such as the HCA’s HomeBuy Direct and the First Time Buyer’s Initiative, are helpful in enabling more people to be able to buy a home they want. Hundreds of people are now enjoying a new Countryside Properties’ home as a result, but more needs to be done on a grander scale and we need to make these schemes easier to access and understand.
We have recently launched a new video which highlights our unique approach to development. I hope you enjoy it.
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19 June 2009
Where is finance for property development going to come from?
In my blog post of 21 May I noted that the effective rationing of mortgages and finance for development are still the critical issues in getting the industry moving again. In this post I’m going to look at finance for development in more detail and why it is so important for future housing production levels.
In normal market conditions finance for development comes from three principle sources:
• private finance (most of which is provided by the banks)
• grant funding from the Homes & Communities Agency (HCA)
• cross subsidy from the receipt of homes for sale to fund affordable housing
The banks are suffering from a shortage of funds and are keen to rebuild their balance sheets. They have also been concerned with the state of the housing market and are very unlikely to fund projects if there is any doubt regarding the saleability of the new homes. Finance for development from the banks has therefore become increasingly difficult to obtain and where it has been available the costs have often been prohibitive. This will not improve until housing markets show real signs of recovery and the banks can be confident that projects are financially viable.
In recent years cross subsidy had become an increasingly important part of funding affordable housing, particularly with the year-on-year reduction in grant funding levels. Prior to the economic downturn average cross subsidy was around £25,000 per open market dwelling (up from around £10,000 only a few years prior to that). With reduced price levels and sales rates, cross subsidy has almost completely ceased to work as a funding method. That leaves project viability almost entirely contingent on the level of HCA grant and the possibility of ‘Kickstart Housing Delivery’ funding.
Developers are therefore looking at where finance is going to come from for new projects. Even when the markets recover, will the banks be the main funders as in the past? Will the increasing regulatory burden, that was starting to make many developments financially unviable even before the downturn, mean that they could lose their appetite for the sector? At present I am concerned that we could see lower levels of bank funding in the years ahead.
The answer therefore lies very much in partnerships between the private and the public sectors. During this downturn the public sector has been increasingly interested in taking equity stakes in projects and that is a positive step. However, I hear that some of them want to take an equity position without taking any risk. This is an unrealistic position on which to try to base an equity stake, as risk and development proceeds should be shared amongst the partners. We have to work together if we are going to get housing production levels moving forward again.
The British Property Federation (BPF) has some interesting financing ideas in their newly launched ‘Regeneration Manifesto’. These include using innovative new funding streams such as Tax Increment Financing which allows infrastructure investment to be financed by the increased property taxes that they generate. They also suggest that central and local government use publicly owned assets to leverage in private funding through the expansion of equity sharing and public sector guarantees. It is certainly the case that the public sector needs to shoulder more of the risk if we are going to stop housing and regeneration from seizing up.
I'm pleased to hear that the HCA has just announced that they have set up a new advisory group with a wide ranging remit to look at future sources of private finance for housing. I hope they look seriously at the BPF's manifesto.
My company has extensive expertise in partnerships and joint ventures with many public agencies, including the HCA and SEEDA, and has experience of different funding models. We would welcome the opportunity to work in partnership to develop new ways and means of finance for development.
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Information correct as at 22/06/2010