The political fallout from Brexit continues. The resignation of two high-profile ministers this week has brought into question Theresa May’s ability to effectively manage the UK’s withdrawal from the EU, which is scheduled to happen in March 2019. Moreover, a cabinet reshuffle has also resulted in the appointment of a new Housing Minister – Kit Malthouse. As the 17th person to hold this position since 2000, Malthouse’s appointment comes at a critical time for the UK property market, particularly in terms of addressing the barriers to home ownership.
The lack of supply is making it increasingly difficult for first-time buyers to jump onto the property ladder. Research from the Building Societies Association found that 70% of people between 24 and 34 consider getting on the property ladder the biggest problem facing young people today. As a result, more and more people are finding themselves stuck in Generation Rent – the amount of rent paid in Britain was £50 billion in 2017, more than double the level paid a decade ago.
The limited supply of housing has made the rental and buying market incredibly competitive. And while Brexit is currently dominating the political discussion, there is a real need to address the underlying challenges facing the real estate industry at present. So, with Kit Malthouse now at the helm of the property market, how should he help address the prevailing imbalance between housing supply and demand?
Enable SME developers to build more homes
Despite the so-called ‘merry-go-round’ of housing ministers in recent years, one policy commitment has remained consistent: the drive to construct more new-build properties. Increasing the number of homes on the market will help alleviate demand, in turn making homes more affordable for a greater number of people. The Government has set out to build 300,000 new homes a year; however, the majority of UK developers do not think this target is achievable.
To increase housing output, it is necessary to support SME developers – not just large firms – so they can quickly construct new homes. However, there are a range of factors inhibiting SME developers from effectively contributing to the existing housing stock, extending from planning permission and regulations to competition from larger firms. With the number of small developers declining, it has been suggested that increasing the total number of small construction firms in operation back to 2007’s levels could boost housing supply by as much as 25,000 homes per year.
Of all the barriers holding back construction firms from reaching their full potential, access to finance from mainstream lenders has been cited as a key issue – a survey revealed that over half (57%) of small developers have identified access to finance as the biggest obstacle they currently face. For this reason, it is important for the Government to encourage and promote SME developers to access finance from alternative sources they may not be aware of, such as specialist bridging loans.
Encourage landlords to extend their properties
When it comes to thriving cities with high demand for property, such as London, Manchester and Birmingham, one way of effectively increasing the number of properties available is by building upwards. This practice is common in European cities and gives people the opportunity to buy in popular precincts instead of relocating to a new area which may not be as well-connected. At a time when existing property owners can be deterred from pursuing extension projects due to the amount of regulation and paperwork involved, more should be done to encourage this type of development.
Importantly, house planning law reforms is something that was first touted by the Government at the beginning of the year. To ensure consistency and commitment in policy, the new Housing Minister must continue down this path of reform, which will help alleviate some of the market demand for inner city houses and flats in the UK.
Renovate and refurbish derelict homes
Finally, Kit Malthouse needs to consider how the Government can encourage the refurbishment of derelict and rundown properties that are currently spread across the country. The latest figures show that there are 216,000 homes across the UK that have been empty for the past six months, with more than 10,000 of these sitting abandoned for more than ten years.
Local councils must do more to return these empty houses to the property market, and part of the solution lies with property investors and developers. By incentivising them to refurbish homes that are in a poor condition and no longer habitable, these properties can be quickly listed back on the property market at a fraction of the time it would take to complete the construction of a new-build home. One such incentive, for example, could be to reduce the stamp duty paid on properties that have been derelict for an extended period of time.
The UK has a challenging time ahead, and while Brexit might dominate current discourse, equal attention ought to be placed on the current imbalance between housing demand and supply. After all, in the two years since the EU referendum, the country has demonstrated an on-going desire to invest in bricks and mortar – this must be nurtured.
The high-rotation of housing ministers threatens to undermine any consistency in policy, and should no concrete reforms be implemented that incorporates the proposed measures listed above, the housing crisis is likely to affect a growing number of people.
Paresh Raja, CEO of Market Financial Solutions