A sharp reduction in demand for new-build flats in London. Urgent calls for us all to change our attitude to housing. As Churchill might have said of the residential market in 2016: “Never let a good crisis go to waste.”
In that sense, Lord Bob Kerslake, who delivered last week’s Estates Gazette/Peter Wilson lecture, could hardly have been more Churchillian. He named those responsible for causing the housing crisis and, determined not to see it wasted, offered some solutions. More is to follow: the “radical and challenging” proposals of his London Housing Commission report will land next week.
Then on Wednesday Morgan Stanley published a research note on CapCo, downgrading the developer of Earl’s Court to underweight after it had revealed a lack of progress on sales of its Lillie Square scheme in west London.
The downgrade had little to do with CapCo itself and everything to do with issues way beyond this industry’s control that are currently affecting the more salubrious corners of the London residential market. “We are concerned about the potential impact of political and macro events abroad (eg, China) and domestically (eg, a Brexit referendum), which could affect demand and pricing for London residential,” said the note.
And the upshot? “We are assuming a 10-20% fall in new-build high-end residential pricing in 2016,” said the analysts. Ouch.
It is a big enough figure to beg all sorts of questions. Are the analysts right? What will be the knock-on effect through the London market and beyond? And if government fiscal policy has been so effective in curbing the buy-to-let market so quickly, might ministers now take their foot off the brake?
For some, last August’s news that a glass “sky pool” would be suspended between apartment blocks at Embassy Gardens in London’s new Nine Elms quarter marked the market’s, ahem, high-water mark. For others, it may be last month’s announcement that developer Guildhouse has plans for a Croydon skyscraper with a glass-bottomed, public pool on the 14th floor.
Wherever your line in the sand, it is clear the market is at least pausing. That pause may become a lasting shift, which is certainly something happening with the debate itself.
The government may be putting owner-occupation at the heart of its plans for boosting supply, but others see demand and supply moving in a different direction. PwC expects three in five Londoners to be renting within a decade. Yorkshire and Humberside, Northern Ireland and the North West will also drive a decline in home ownership from 69% of the population in 2000 to 60% by 2025.
Manchester will be one of the hottest markets, says PwC, and is already more active than most. Just last month Ares Management moved forward on a £200m PRS scheme.
Even Barratt, a company never too interested in PRS historically, is looking to capitalise. It is selling a prime portfolio of more than 300 flats in London as the housebuilder looks to take advantage of the wall of money looking to enter the UK’s private rented sector.
Over in east London, a grand experiment is set to begin at Canada Water, where British Land’s Roger Madelin is working up plans for 3,500 homes. He may well reveal how heavily PRS will feature when he speaks next month at Estates Gazette’s residential summit – to sign up go to www.estatesgazette.com/eg-conferences.
“Great long-term story, significant concerns medium-term,” says Morgan Stanley of CapCo. The analysts might extend that assessment to the entire mid to high-end London resi market.
When it comes to delivering lasting residential solutions, 2016 is very much a time to ensure a good crisis doesn’t go to waste.
