Guest Blog: Alongside uncertainty, there is also opportunity
When the leader of the free world tweets “Yes, Arnold Schwarzenegger did a really bad job as Governor of California and even worse on the Apprentice...but at least he tried hard!” you know without question you’re living in unprecedented times. With the UK government now implementing the Brexit vote and working towards triggering Article 50, market forecasting is more perilous than ever. Positively or negatively, and highly likely a combination of both, Brexit will certainly shape the property and construction market over the next few years.
This uncertainty did not deter, however, the Bank of England in early February who made another dramatic rise in its growth forecast for this year. It expects the UK economy to grow 2% in 2017, up from a November forecast of 1.4%, which was itself an upgrade from the 0.8% forecast made in August.
House price growth over recent months, however, has slowed substantially - most noticeably in London and the South East. Add in Britain’s negotiations to leave the EU and buyers across all sectors of the market are likely to continue to feel fragile. But one area’s weakness is another’s opportunity. Commenting in the Residential Property Focus 2016 Q4, Lawrence Bowles, Savills Research wrote “High housing and office costs in London make regional cities look increasingly attractive. The prospects for Bristol, Birmingham and Manchester are particularly strong”.
Although not ideal for the market that the publication of the government’s housing white paper has been delayed, the initial signs are that Theresa May’s new government are open to a much broader approach to house building. Speaking at RESI 2016 last September, Housing Minister, Gavin Barwell signaled a firm shift away from the focus on homeownership. In his first major speech as housing minister, Barwell declared to delegates “we need to build more homes of every single type and not focus on one single tenure”.
To achieve the greater supply of housing heralded by the government, it needs to bring their influence to bear on the residential market through policies that supports diversifying tenure, increases land supply and encourages a wider range of developers into affordable housing. The long-awaited white paper – with the tagline ‘Fixing our broken housing market’ - claims to set out ‘new measures to ensure the housing market works for everyone, including people on lower incomes, renters, disabled and older people’. Starter homes and affordable housing will be re-prioritised, with government saying starter homes will be targeted at first time buyers who would otherwise be priced out of the market.
Whilst publicly listed housebuilders have been more selective recently in their land buying activities, regional and larger private housebuilders have been able to take advantage of available land supply. Housing Associations too have increased their land buying activity, for example according to Savills Research, L&Q owned three times as much permissioned land in 2016 than in 2015. So while there may be uncertainty for the leading housebuilders, there are opportunities for Housing Associations to invest in land and start to build up a pipeline for future development.
Commenting on L&Q’s recent acquisition of Gallagher Estates, one of the largest strategic land companies in the UK, David Montague, Chief Executive of L&Q said: “Our acquisition of Gallagher Estates is a defining moment for L&Q and shows commitment to our vision of creating 100,000 new homes in our capacity as lead developer and as an enabler working with key delivery partners. Through this deal, L&Q will unlock land for development across a wider range of tenures, and speed up the delivery of new homes through our ability to invest over the long term.” This acquisition places L&Q as one of the leading enablers of new homes across the UK.
The future expansion of the housing industry is, however, going to be constrained unless various notable factors are tackled. The recent Farmer Review of the UK Construction Labour Model titled ‘Modernise or Die’, supports the call for industry to be more innovative, looking at both manufacture and also training and development of the workforce. The review highlights the industry’s dysfunctional training model, its lack of innovation and collaboration as well as its non-existent research and development culture. Farmer noted “The construction industry is in dire need of change. What is clear to me following the nine months spent conducting this review is that carrying on as we are is simply not an option. With digital technology advancements pushing ahead in almost every other industry and with the construction labour pool coming under serious pressure, the time has come for action. The construction industry doesn’t have the impetus needed for this change, it requires external action to initiate change”.
With an ever growing need for new housing, the industry now, not tomorrow, needs to fully realize the benefits of innovation including the use of MMC and also the need for training and development. Greater collaboration within the sector is key. We must recognise uncertainty, but also seize opportunities.
Paul Belfield, Director BSc (Hons) MRICS
Rund Partnership Limited
Rund Partnership Limited is a specialist surveying and construction consultancy, providing services in London and the south of England, with vast experience in all sectors of the construction industry.
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