Were we too harsh on Boris? No. Here’s why.

We respond to some of the debate yesterday's blog stirred up.

Businesses must get more vocal over lockdown

Winston Churchill once said: “Those who fail to learn from history are condemned to repeat it.”
ilke Homes - Modular Housing

Innovation will be key to getting Britain building again

Covid-19 is an opportunity to bring UK housebuilding into the 21st century.

What will Keir mean for Kier?

Attention may be aimed elsewhere at the moment, but understanding new Labour leader Keir Starmer is vital for the housing industry.

The Leasehold Debate: will we see commonhold?

A PropCast with Mary-Anne Bowring of Ringley Group and Sebastian O'Kelly of the Leasehold Partnership

Budget 2020: what’s the outlook for real estate?

Blackstock Consulting's clients' share their analysis of what the new budget means for the property industry.

Making planning more inclusive

To solve the housing crisis, the property industry must start speaking and engaging more effectively with more people than it currently does.

First Homes plan may put first-time buyers on a property ladder to nowhere

A whole generation has been failed by the UK’s ongoing housing crisis. What will the next "solution" be?

It’s the loneliest time of the year: How emerging housing sectors are fostering community spirit and reducing loneliness

With Christmas just around the corner, many of us will be looking forward to spending time with family, friends and loved ones. Unfortunately, not everyone is so lucky.

The Big Brexit Distraction

Brexit has been a big distraction that has taken the focus off other pressing domestic issues. What needs to change?

Tackling the Housing Crisis

How do you solve a problem like the UK’s housing crisis? Blackstock Consulting sat down with a host of industry experts to discuss exactly that.

Modular housing has the potential to play a crucial role in delivering the homes needed to meet the government’s ambitious 300,000 homes a year target.

Speeding up delivery will be essential to meeting these targets, and given that offsite manufacturing, on average, delivers homes twice as fast as traditional construction, many in the sector believe it will have a major role to play in tackling the housing crisis.

But if modular is going to deliver on its promise and secure the necessary investment and gain public trust, educating investors, policy-makers, local authorities and consumers will be crucial.

Tackling the negative connotations attached to prefabs which continue to tarnish modular’s reputation will be a crucial first step, both from both an investor and consumer perspective. A unified message from the sector will be fundamental to achieving this.

“We need a feedback programme to build demand for the modular product, and I think that in itself will generate capacity and give businesses the confidence to build new factories across the country,” says Val Bagnall, managing director of Apex Airspace, a modular housing provider.

Consumer confidence in modular homes will be based on its build and design quality, according to Michela Hancock, managing director of construction and development at property developer, investor and manager Greystar UK.

“People don’t necessarily know, nor do they care if their home is a modular product. What they do care about is the quality of the product and if it’s sustainable and well-run,” she said.

Dave Sheridan, executive chairman of off-site manufacturer ilke Homes, believes this flexibility does not negatively impact design quality.

“Modular doesn’t just have to be for the entry-point house, it can be designed to be aesthetically pleasing. You can dress a modular product to be extremely attractive.”

However, more support will need to be seen at the local level according to Andrew Prickett, UK Head of Residential at Faithful+Gould and Tony Dicarlo, Developer and Investor at innerspace Homes if modular is to achieve its full potential.

The last housing minister Kit Malthouse and housing secretary James Brokenshire both backed offsite construction during their tenures. Indeed Malthouse said of the 750 home deal between ilke Homes and Places for People that it showed the UK blazing “a trail in the modern methods of construction that are transforming home building.”

However, convincing local authorities to embrace modern methods of construction is proving more difficult.

“At the central government level, offfsite and modular is hugely supported – they are really backing it, but that’s not filtering down to local government and definitely not the planning system where it is not even in the National Planning Policy Framework” Tony DiCarlo, founder of modular house builder Innerspace says.

Andrew Prickett, director, UK head of residential at project and programme management consultancy Faithful and Gould, suggests that access to land and scaling up pilot schemes would be a step towards accelerating the widespread adoption of modular and offsite.

“Let’s back SMEs, new thinkers and innovation and let’s scale up. Instead of smaller pilot schemes, we should think more ambitiously and consider 200 to 300 homes developments,” he says.

“We could have a pre-assumption that new council houses are built using this technology unless there is a watertight business case for not doing it,” he adds.

In her first speech as Housing Minister at RESI 2019, Esther McVey made it clear that encouraging home-ownership was a clear priority. But how will first time buyers be helped onto the housing ladder now that Help to Buy is being scrapped? 

The harsh reality is that is not a one size fits all solution to the problem.

“Help to Buy was born out of the post-recession world and has since gone from being a safety net to a jetpack for profits at some of Britain’s biggest housebuilders. Rescuing firms was the number one aim of the scheme with little thought being given to when the market eventually stabilises,” says Adam Challis, head of living research and strategy at JLL. 

Vanessa Hale, director of research at BNP Paribas Real Estate and chair of Urban Land Institute (ULI), agrees with Challis, but praises some companies who are actively seeking to diversify.

“HTB certainly has a political slant that we’re going to have a hard time getting away from, but housebuilders, such as Telford, who have been moving towards increasing their proportion of build-to-rent homes, are looking towards solutions.”

Telford Homes, which recently entered two build-to-rent partnerships with asset manager M&G Real Estate and Invesco, accelerated its shift towards the build-to-rent sector last year, accounting for 70 per cent of the company’s development pipeline.

During the discussion, panel experts shared the consensus that there isn’t going to be a ‘one size fits all’ solution to life after HTB.

“A one size fits all approach will fail. What the market needs going forward is a range of products such as build-to-rent and shared ownership”, says Challis.

Mergers, modernisation and a focus on expanding shared ownership are helping housing associations take centre stage in fighting Britain’s housing crisis. There is a huge opportunity for joint ventures and collaboration with the private sector.  Yet according to two leading G15 members and the head of the sector’s trade body, there is still a huge shortfall in grant funding needed to provide adequate quantities of social housing.

Tackling this will require  more funding, strategic partnerships, and a cohesive, long-term investment strategy from the government. 

According to the National Housing Federation (NHF) , housing associations are receiving roughly just a tenth of the grant funding needed, with the government spending just £1.27bn on affordable housing, making housing one of the smallest government budgets

“What we need is a long term investment package from the Government. We were asking for £12.8 billion a year. It’s a lot of money, but it means we could deliver 145,000 affordable homes each year which we know we need over the next decade,” says  Kate Henderson, CEO of the NHF.

“Our research shows we need around 90,000 social rented homes each year. Last year we built 6,000. We are an incredibly wealthy nation but some people’s housing needs simply won’t be met by the market alone,” she adds.

Alan Strickland, director of external affairs and resident involvement at Optivo, agrees that more government support will be crucial.

“The government needs to continue investing in social rent, and it’s absolutely critical that people can continue to have a home they can afford. Fundamentally, both on affordable homes for rent and for sale, housing associations totally stand ready to help, to invest, to build and to work with communities.”

Shared ownership is one crucial tool that housing associations can promote to boost home-ownership. Fundamentally, this method means that even with increasing property prices, people on an average salary will have a chance to be able to afford a home. 

“We have a big development pipeline with shared ownership and we’ve been doing it since the 80s. It’s a hugely resilient product, it is the most affordable way that people can get onto the housing ladder.If you’ve got a £500,000 property, then £125,000 is the equity share that you can buy. All in all, you’ve got people who are on about £35,000, and they can afford to buy there. So it is affordable – it’s the only way a lot of people can live in London”, Geeta Nanda, chief executive of Metropolitan Thames Valley, explains. 

To listen to more of PropCast, Blackstock Consulting’s podcast series which focuses on relevant industry topics with top professionals in the space, subscribe to our podcast via Apple Podcasts, Spotify or SoundCloud.

Planet Property’s need to be green

A man dressed as a broccoli arrested on the streets of London and people glueing themselves to tube trains before getting a good shoeing in Canning Town can only mean that the Extinction Rebellion are back in town.

The merits of these protests can be debated endlessly.

But it is becoming increasingly accepted by both business and politicians that climate change must be taken seriously.

Clearly, property must play its part given that the built environment is responsible for roughly 40 percent of the UK’s total carbon footprint, according to the UK Green Building Council.

However, while property may often be maligned for being an old fashioned club of chaps in blue suits, real estate is increasingly becoming aware of its responsibility as an industry to implement changes to tackle climate change.

In September, 23 property companies with a total of over £300bn of assets under management signed up to a climate change commitment, launched by the Better Buildings Partnership, requiring them to pledge that their portfolios will be net zero carbon by 2050, and that they reveal how they intend to reach that target.

 There are business reasons for investors and developers to look towards backing green projects. One, it reduces the risk of being exposed to stranded assets as the UK and global economy shifts towards this being the norm.

And, two, increasing numbers of investors are making it clear they will not put their money into vehicles that back projects that are harmful to our environment. This is becoming more than just a fashion for a small minority. It’s a clear and swelling trend.

Less polluting buildings, whether homes or offices or factories, will improve our air. Recent studies have shown that air pollution is killing as many Brits as smoking does a year. And of course, these pollutants in the air exacerbate conditions like asthma, adding stress to our already under pressure NHS with research showing 1,000 London hospital admissions a year due to asthma and other lung conditions caused by poor air, for example.

The benefits of a greener built environment are not just restricted to our health. More efficient homes will cut household bills, which in turn will increase their spending capacity. That’s good news for our economy.

But it’s not only in new builds where we need to see a push for green. Many of our older buildings are gas guzzlers, and an immediate and sensible step the government could take would be to eradicate VAT charges on refurbishment, much like the French have.

This would encourage investment appetite for refurbishment and help us start to fully decarbonise our building stock.

Design must also play its part.

Leading voices in the architectural world have acknowledged this fact, with Assael Architecture becoming the UK’s first practice to adopt the UN’s Climate Neutral Now Initiative. Through the initiative, Assael must now calculate and disclose its current carbon footprint, including international air travel, showing a clear pathway to reducing it year-on-year.

Architecture can also be a powerful tool towards building a sustainable future. Through the use of natural materials like timber and cork, as well as the use of greenery in developments, new buildings can absorb much of the greenhouse gasses that we produce, radically reducing our emissions and helping us to live healthier lives. Greener architecture has also proved itself to be a future proof investment, with green homes becoming quite the status symbol.

It’s clear that the property industry has in fact made a number of significant strides in the right direction. We have the means and motivation to transform the built environment in the UK and the way it operates, but now has to be the time to seize this opportunity.

Later Living: teaching an old sector new tricks

If there’s one thing for certain, it’s that we’re not getting any younger. By 2024, one in five of Brits will be 65 or over according to the ONS.

As well as having huge implications for the £121 billion of social security spending going towards pensioners, this wrinkly eventuality also means needing to rethink how we deliver housing.

Investors are already waking up to this fact and so we are beginning to see the emergence of a dedicated Later Living sector, which promises to shake up our retirement living in much the same way as Build to Rent (BTR) has done to the wider rental market.

Whilst retirement homes have historically been more last resort than holiday resort, this nascent sector aims to offer an aspirational community solution to housing older people who are still young at heart but who recognise that their needs are starting to shift.

This means something different to different providers, which range from McCarthy & Stone’s varied, yet traditional village homes, to the likes of Legal and General with its urban-focused Guild Living brand and suburban community-focused Inspired Villages Group.

Over-65s currently own 6.5 million homes in England. If Later Living schemes resulted in even 5 percent of these re-entering the market, it would result in more available housing stock than every new development achieved in the past year, and free up homes for families and first-time buyers.

Proof of the Later Living concept can be found in the United States, Australia, and New Zealand, all of which see over 5% of over-65s choose purpose-built senior housing. Only 0.5% of the same demographic do so in the UK, indicating scope for enormous growth.

In fact, a 137% uplift in investment for Later Living is predicted over the next five years according to global property consultants Knight Frank. This growth will likely be spread across all price points – just as we’ve seen in BTR – as well as a move away from being a predominantly leasehold model to include more rental options as well.

However, if the Later Living sector is to realise its true potential, then a number of issues need overcoming.

First, is the current perception of retirement housing. Right now, there are two extremes: hospital-style care homes for those hanging around the pearly gates or five-star luxury living accessible only to the super-rich. Given that almost £3 trillion of housing wealth stored up by the over 50s, there’s clearly a growing market for platinum pensioners. But any mass market for product will need to be inclusive.

Second, are our tax and planning regimes. Currently downsizers have to pay stamp duty on any new property they purchase, which is a massive financial disincentive. While many are likely to reap a significant windfall from decades of high house price inflation, the idea of stumping up tens of thousands of pounds to move somewhere smaller – even if more convenient and better suited to your living needs – is understandably unappealing.

Our new prime minister Boris Johnson has made positive noises about stamp duty reform in the past, however this week chancellor Sajid Javid has been flip-flopping around the issue. Let’s hope to see some follow through and some actual legislation to encourage downsizing.

One potential solution would be to announce a new planning use class, which differentiates Later Living housing from both care homes and traditional residential. Views differ on whether this may be needed, but it could help offer investors greater certainty.

Of course, the benefits of an established Later Living sector wouldn’t be enjoyed just by investors, first-time buyers or families but the elderly themselves, who would get modern, purpose-built accommodation designed to suit their needs and lifestyles.

This should be a welcome change to the wellbeing of retirees, particularly considering the forecast £1 billion NHS bill that will be caused solely by inappropriate housing for people over the age of 55 by 2041. This stat from the Royal Institute of British Architects should be a reminder of the real purpose of Later Living: better health for our elderly, and more time to enjoy with friends, family, and community.


If you would like to hear more about the emergence of Later Living in the UK from some of the top thought-leaders in the industry, listen to our recent PropCast where Andrew Teacher from Blackstock Consulting is joined by Richard Jackson, MD & co-founder at Apache Capital Partners, Rory O’Hagan, director at Assael Architecture and Eugene Marchese, director of innovation & design at Guild Living. You can listen on iTunes, Spotify or SoundCloud.

Primark: A Lesson for the High Street?

Primark’s founder Arthur Ryan died at the age of 83 this month, but his stores will long outlive him. This is in stark contrast to its slightly more upmarket high street competitors like Topshop, part of Philip Green’s troubled Arcadia empire.

Britain’s traditional retailers have been under pressure for many years now. The rise of online shopping, with its convenience of buying at a click, is often said to be the main driver behind the high street’s woes.

Yet Primark, which doesn’t offer online shopping, is thriving. The retailer’s sales saw a 4 per cent increase in the 40 weeks up to 22 June, while its enormous Birmingham store, costing £70 million, opened in April.

Indeed, Primark has even turned its cheaper clothing into a desirable brand encapsulated by the hoards of people tweeting #Primani. It may be more expensive to dry-clean than to buy, as one customer tweeted, but it’s still runway-style fashion to be flaunted.

But the fact is that today’s consumer visiting the high street demands a whole physical experience that online just doesn’t offer. Primark is certainly tapping into this desire.

Between the Disney café for children inside the Birmingham store and the One with the Friends’ theme in the Manchester chain, millennial nostalgia must be having a field day. Primark’s Birmingham store even offer its visitors a nail bar, hair and beauty salon, and a barbers.

Sadly, Primark is proving so far an anomaly. Over 2018, the UK saw a net loss of 2,481 stores. That’s an awful lot of empty space to be taking advantage of in creative and inspired ways.

Mixed-use developments combining residential with retail and office space are a sensible way to do this. As well as the greater footfall for retailers through having residents and office workers right on the doorstep, a variety of asset classes means developments are more attractive for investors as they are not exposed to a weakened traditional retail sector.

Placemaking also has a vital role to play. We should be redesigning our high streets to create community and cultural hubs to draw in the crowds. For example, turning streets into pedestrian areas with market squares fosters sociability and community, bringing life back to areas that looked likely to be on the decline,

Expanding this approach across our cities and high streets could revitalise our cities to become prime destinations for tourists and locals seeking a fun day out. They might even do a little bit of shopping in between.


Feature image credit: Alex McGregor 

VAT on Homes Built to Rent

Yes tax is boring, but it’s important too, and despite what you may think it’s extremely important for the Build to Rent sector.

While we may be banging the drum on separate use classes or affordable housing methodology, perhaps we should turn more attention to how VAT is applied on homes for rent.

Homes sold on the open market are ‘zero rated’ and so pay no VAT. But If I rent you the flat, because it is an investment, I have to charge you VAT at 20% on the rent.

But you are not going to pay that, so I would have to make it VAT exempt, meaning I am unable to claim back my own VAT charges.

Given the majority of BTR developers are building new homes – rather than digesting those built for sale as buy-to-let investors do – Build to Rent investors should be treated differently, as far as VAT is concerned.

You can offset it through capital gains, but you cannot avoid it and it is a needless drag and a disincentive that may reduce likely investment into the sector.

As I said – it may not set the front pages alight or be the top recommendation of any white paper, but it’s important none the less.

Paying for the long term BTR model

One of the biggest advantages yet biggest barriers of Build to Rent (BTR) is that developers and operators take the long-term view.

They don’t build and walk away, like a traditional house builder, and as a result there are a lot more happy tenants, and happy local authorities.

But this structure has a massive impact on business practice and it’s a lot more expensive up front. While other investors look to trade at different stages of the asset’s life cycle, a BTR fund aims to hold for long-term income.

That means, from day one, income needs to maximised and costs streamlined, because it’s so much more expensive to build.

Traditionally, to make returns stack up, operators have had to take on development risk, which has in turn led to problems around finance. Typically banks will only lend on permitted schemes and are increasingly being discouraged from risk by regulators. Likewise many institutions will only touch stabilised assets.

But buoyed by the fundamentals of the market and by the positive political support, the signs are more positive right now.

And appropriate explanation, planning and development of that long-term development model can also go a long way to encouraging lenders: essentially by showing a greater focus on what happens post development.

This means, practically, ensuring the scheme is in the right location and has the right attributes for the rental market. It also means focusing on the operator is and what the gross-to-net margins look like. There will be considerations around amenity and layout, but also the building materials used and their longevity.

It also means more focus on the assumptions of development: assumed rents and how they compare to the local market average, and gross to net leakage, which is generally considered to be at least 30% – are the most important.

For management, it means seeing if a sinking fund has already been set up, to ensure buildings remain as good as they are on day one, and how the operation of the building has been planned, whether with an in house or external agent.

The more a developer operator can show it has been thinking about this now, and importantly making realistic assumptions, the easier it will be for a lender to stump up the cash.

It’s a long-term investment, which means we should already have long term plans. Simple, no?

Why pension funds are looking at UK BTR, or multifamily, housing

Until recently pension funds had been unable to enter the Build to Rent (BTR) market.

By their nature they look for secure, long-term returns and tend to favour low-volatile, less-risky opportunities compared with private investors.

This is the principal reason why they have not been able to compete with buy-to-let investors, who have been able to take on personal risk and leverage themselves often past 90%.

Pension funds cannot leverage and therefore any fund manager would struggle to make the returns. This, coupled with a tightly regulated sector has made the private rented sector a challenging sub-sector to place money.

But over recent years, traditional institutional investments such as sovereign bonds have hit record lows and there has been a growing trend of institutions increasing their exposures to real estate. Within the property divisions of the major institutions, there has been a growth in the desire to allocate to so-called alternative assets, such as Build to Rent.

This charge has been led in a large part from abroad and huge chunks of money are now supporting the sector, particularly from North America, where the asset class, known as multifamily, is mature and well understood.

A look at the Canadian Pension Plan Board’s arrangement with Lendlease or Oxford Properties deal with Delancey shows the levels of investment that North American investors think UK BTR justifies.

Not so long ago, Build to Rent’s estimated return of an average 4% net yield would have been considered too low for some investors. Less so now.

The major benefits are reduced volatility relative to other sectors and the obvious imbalance between supply and demand. Whereas other investments are driven by how the economy is fairing, people will always need a place to live.

It means this type of investment is less affected by the macro-economic environment that other asset classes are more tightly linked to.

As with any type of property investment, there will be hurdles to overcome, but they are less than the advantages.

And Although Britain is decades behind North America – which boasts a sizeable listed multifamily sector – there is every opportunity for such a shift to occur here as institutions seek to find a new home for their funds.

Designing operations into BTR design is crucial

It’s a sad fact that beautiful buildings are not always the best performing, especially when we are looking at Build to Rent (BTR).

While design is important in attracting customers we should build from the operational side first, and then add design in later. This is how they build in the multifamily housing sector in the United States.

For build to rent the practicality of how a building runs defines whether a building will ‘stack up’ from an investment point of view.

While we should be excited about the role BTR can play in shifting people’s perceptions of renting, as far as driving yield is concerned, it’s the little things that will make the biggest difference.

The more practical it is, the less spent on maintenance. That lowers costs and increases customer satisfaction.

Small but significant operational costs will add up and make a big impact.

For example, square skirting boards are dust traps. But if you install smooth edges they do not trap dust, so cleaning time and thus cost is reduced.

The same can apply to light bulbs. Spending more on a longer-lasting bulb, which reduces replacement costs and wear-and-tear, adds up to a huge difference across a portfolio of properties.

Hundreds of incremental changes like that means your capital outlay over a period of time is less.

In the USA, they build from an operational view first, and then add the design in. For example, some hotels in the States use oil-based paint for the corridors that has a dotty pattern. So if a wall gets scuffed, instead of having to repaint the entire wall, they just have to touch the affected area up.

It is called ‘life cycle costing’.

The other side of operations is branding.

You only have to look at the market place developing in the Build to Rent sector to see that it will be highly competitive in years to come.

Hence why we need to start to start developing brands and setting out uniform standards now that will govern developments and operations.

People like brands because they are benchmarks. If you buy a Mercedes or stay in a Hilton Hotel, you know what you’re getting. This is especially important as we’re moving into a sector like the PRS that has traditionally been associated with low standards and poor service.

Design is great – who doesn’t love a beautiful building? But so should a building be a pleasure to live in and dream to operate. It’s not a case of one or the other.