New homes cannot be coaxed from the earth like mushrooms by somehow creating the right soil conditions for house builders. Yet groupthink dictates the answer to what is billed as the “housing crisis”: wave a magic wand over the planning system and 70,000 extra units a year will pop up. Unenlightened rubbish.
On Monday the RICS produced a thoughtful set of ideas. Sadly, all were based on fixing “the system”, rather than banging together the heads of those who actually build homes. A solution was suggested here in a rant two weeks ago (11 April, p40). A final rant on the topic, using the weak excuse of the 7 May election, lies below.
On Tuesday Sir Stuart Lipton attacked house builders in the FT, accusing some of building “slums of the future”. The knight planning to build 3,000 homes in the East End of London at Silvertown is right. Tour the area and weep. Sir Stuart’s more substantive point is that commercial developers may have to step up: “The government has supported house builders as the prime source of new housing, but they have built a maximum of 150,000 a year and it’s quite clear that they can’t produce any more.” Well, actually, they could, given the top 10 have 393,000 extant permissions – 4.7 years’ supply. Plus equal reserve capacity on unpermissioned land.
That said, the argument that commercial developers can help with the “housing crisis” holds water. Many large commercial developers have substantial housing pipelines, in London at least. Aside from Berkeley and Barratt, traditional house builders are notable for their absence on big regeneration schemes.
But that does not mean the likes of Lend Lease and St Modwen (er… or even the developer of Silvertown) can be relied upon to ride in as a white knight and push up completions from 130,000 this year to 200,000 by 2020. Of course not. If they can’t sell, they don’t build – a statement obvious to all but those who think “the system” is to blame.
Final rant: home completions are dictated by the free market. Prices are pitched to attract a small but steady stream of buyers. If demand increases, supply is choked, as developers release homes in smaller and smaller phases to pick up on rising prices. Guess what? Government Help to Buy subsidies are now allowing sellers to push up prices.
IPD calls top of the market
The Investment Property Databank, now owned by MSCI, is not known for scaremongering. Yet last week global head of research Peter Hobbs said some pretty scary things. “Most global markets are at or close to historic low yields,” he said, warning of “spiralling” prices, and raising “concerns over sustainability”. Here is the news: IPD has called the top of the market.
It’s not all bad news
Three snippets from three interesting characters at the Bank of America Merrill Lynch real estate conference last month. I played a small role as Jeremiah, the weeping prophet, lamenting at the blindness of others to the coming apocalypse, suggesting now might be a really good time to sell REIT shares. Sorry, that just slipped out. Let’s move on to those with more balanced minds.
Grainger director Nick Jopling spoke of how the residential lettings giant works out tenant affordability: “Multiply the rent by 30 – and the tenant should be earning at least that in salary.” Good maths.
Mary Ricks, chief executive of Kennedy Wilson, seems (to us Jeremiahs) to have been buying a worrying amount of stock in the past year. “We hope to realise a lot of assets in 2015,” she said, reassuringly.
Finally, Mark Allan. The deep-thinking boss of Unite made some interesting off-platform comments about the future of the highly successful student housing company he has run since 2006. “We have two futures: to go on and become a bigger builder of student bedrooms or to move into the hotel world and become a brand, like Intercontinental (hotels).”
An examination of company branding shows Unite displays itself as “Unite Students” rather than what is also the name of a trade union. Make of this what you will.
