Want to solve the housing crisis? Then recognise the vital role of private developers

By Bridging Loan Directory 21st June 2019

Predictably, the ongoing Tory leadership contest has been narrowly focused around how the candidates intend to resolve Brexit. But while Brexit should be considered as a defining issue that will shape the future of the UK at large, it’s ubiquity still does a disservice to the many other policy challenges awaiting the next prime minister.

Arguably one of most significant of these is the housing crisis. And yet, even current housing minister Kit Malthouse MP failed to make any prominent mention of housing during his brief leadership bid.

For years, low housing stocks have been a drag on the British housing market as demand continues to soar. A generation of Brits now find themselves confined to the rental market, with the prospect of saving for a deposit and getting a foot on the property ladder an increasingly distant reality.

The government has primarily demonstrated its commitment to addressing the problem by pledging to increase the construction of new-builds. At the moment, it is chasing to add 300,000 new properties to the market each year by the mid-2020s – nearly 100,000 over what it is currently delivering. Ultimately, the scale of the problem is so great that neither the public or the private sector have the ability to address the housing crisis alone. Collaboration and creative thinking are warranted at this critical time.

What is being done

Already, the government is attempting to increase the construction output of SME developers, particularly in London where the housing crisis is most acute. To this end, lifting the Housing Revenue Account borrowing cap was a significant measure. Now, local authorities are once again able to borrow in order to finance new developments or renovate old ones. However, while an important and timely reform, this only legislates for more social housing which is neither available nor suitable for everyone.

In addition, the government began heeding the industry’s calls for more strategic partnerships when it announced in the 2018 Autumn Budget £653 million for Homes England to facilitate strategic partnerships between housing associations and private enterprise. The move is undoubtedly a step in the right direction, but this only amounts to funding for 13,000 homes which comes nowhere near close meeting the government’s own annual target.

What can be done

Alleviating the housing crisis means incentivising developers to build more housing in those areas where demand is high, and supply is low. This means diversifying the industry and empowering SME developers to play a more expansive role.

Simply put, this requires more public sector bodies to make finance available to SME developers. In a recent survey, 57% of SME developers said that access to finance was their biggest obstacle. This can mean that viable projects are abandoned before they even begin because the developers lack the initial required to purchase the site.

Homes England have made £1 billion available to this end via The British Business Bank. Again, while a welcoming step forward, small firms still need more in the way of short-term financing to get developments off the ground.

I believe the benefits of public-private partnerships are not simply financial. Short-term credit can be issued on the condition that firms meet the specific requirements of the local authority or housing association providing loans. For instance, areas with ageing populations might require more sheltered housing.

Another point worth bearing in mind is that new property developments have to be accompanied by public infrastructure as attracting buyers is always difficult if houses or apartments are located in an area that is not well connected or lacks basic facilities. That’s why places like Luton are becoming extremely popular amongst investors and developers. By coordinating with local authorities, developers can allay some of these risks by ensuring that new developments won’t place unrealistic demands on local infrastructure.

What now?

Key to understanding the housing crisis is recognising that it’s not simply a question of building more homes. Rather, a long-term solution means a strategy that incentivises developers to build different types of housing across a range of different price points and geographic locations. Ultimately, this is too difficult a task for local authorities to take on without bringing developers on board. A good start would be for the UK government to institute a clear framework by which local authorities can identify and finance local developments in order to quickly meet demand.

By sharing the burden of construction costs, the public sector can help raise housing stocks as well as play an active role in ensuring that developments are delivered on time and under budget. Ultimately, if the government wants the property industry to start working in the public interest then it has to partner with the private sector. We are ready and eager to help.

Jerald Solis, Business Development and Acquisitions Director, Experience Invest

Jerald Solis, pictured above, is the Business Development and Acquisitions Director at Experience Invest, a company that provides property investors in the UK and overseas access to exclusive investments across a variety of asset classes. He is also a Director at Opto Property Group; a construction firm committed to creating developments that have a long-term, positive impact.