One of the principal concerns for the residential development sector, as well as other property sectors and indeed the country at large, is undoubtedly Brexit. The ramifications from a period of prolonged political uncertainty are already being felt, writes James Mannix, head of residential development at Knight Frank.
However, while the economic and political effects of the UK’s eventual position within the EU will be long-term, the uncertainty is a shorter-term affair and is dominating the news and headlines. We have looked “through” Brexit to an extent, and focused on five of the biggest trends that will emerge or gain significant momentum over the next five years.
Affordability
The search for affordable housing, whether in terms of house price to income ratios or the proportion of net income spent on housing costs, will continue to shape new housing delivery.
The growth in the private rented sector over the last decade has, in part, been fuelled by the dramatic shift in home loan requirements after the financial crisis, including the requirement for a large deposit. As ultra-low interest rates begin to normalise, the cost of servicing a mortgage will also rise, prompting further growth in the PRS, which is starting to offer an increased range of cost-effective, affordable housing.
In the sales market, design and use of space will become paramount as capital values are increasingly more important than price per square foot.
The rise of second cities
The rise of second cities is also linked to affordability, with the lower residential capital values in some of the UK’s largest cities, relative to London, fuelling demand. This trend is not happening in isolation, however – businesses are also being lured to cities, including but not limited to Leeds, Birmingham, Cardiff, Manchester and Edinburgh, by lower office rents, large pools of talented workers and the lower cost of living.
In many cases, this pick-up in economic activity has also been boosted by transport upgrades or large-scale regeneration driven by national and local government.
Age-targeted living
We are already seeing increased specialisation of housing, from student to retirement, via co-living and build-to-rent. Expect these trends to become more prevalent as developers target specific age groups by catering more closely to their needs and aspirations. This will be especially true when it comes to older people.
It is well understood that many of the family houses built over the last century are not designed for older people who might need additional support. Housing which encourages active living but offers flexible levels of extra care will become an established residential asset class in the years ahead, underpinned by the UK’s ageing population.
We anticipate a rise in institutional investment, with investors looking for long-term stable income.
Placemaking
The importance of public realm has long been understood by developers. In future, placemaking and the experience of buildings, to better connect people to their homes and to each other, will grow in importance on a more macro level.
For developers, this may mean working, not only on the detail of their own scheme, but also in conjunction with local planners and councils as increasing attention is paid to how lifestyle can be improved by the urban environment.
Modular construction
Developers are increasingly looking at ways to streamline residential construction, not only to mitigate rising construction and material costs but also to ameliorate the challenges around a lack of labour availability.
There is also pressure to deliver housing, especially affordable homes, much more quickly, resulting in a concerted move to modular construction over the next five years.
This will speed up the development pipeline across the UK, especially in urban areas. Developers who are flexible in their operations will be primed to benefit from this shift.
