COMMENT The Oxford-Cambridge Arc is one of the most innovative and productive regions in the world and was placed firmly in the global spotlight following the development of the AstraZeneca and University of Oxford Covid-19 vaccine.
The Arc could be doing even more for the UK economy in terms of job, wealth and knowledge creation with the right investment and government support – as noted by Radical Capital, a recent report that Present Made contributed to alongside UK Vaccine Taskforce chair Sir John Bell, Santander UK chief executive Nathan Bostock and AstraZeneca’s strategy lead Dr Andy Williams.
Even without additional investment and support, the Arc, as the UK’s capital of core knowledge-intensive industries, will continue to grow. Therefore, it is essential to learn from the constraints experienced by competing clusters of growth, knowledge and innovation.
No longer alternative
Silicon Valley is the intuitive place to start: undoubtedly the world-leading hotbed of innovation, a key take-home from that slice of California is the importance of housing to attracting and retaining talent. Cities such as San Francisco have some of the highest housing costs not just in the US but the world. So, unsurprisingly, when the pandemic struck and remote working became the norm, many chose to relocate to cheaper states and cities with just as good quality of life.
Oxford and Cambridge have their own issues with housing affordability, although not as extreme. House prices in both cities far exceed average local incomes and private rents are some of the highest in the country outside London.
Like some industrialists in 19th century Britain, some US tech giants are making a direct foray into housing to provide for their employees and others. In January, Microsoft allocated $583m (£440m) towards 9,200 homes in Puget Sound, Seattle, while Apple committed to a $1bn affordable housing investment fund with the state of California in 2019. But property development and management comes with risks – from planning through to construction and operation – that many companies outside real estate would be uncomfortable with.
In order to avoid Silicon Valley levels of housing affordability, rather than hoping businesses in the Arc get involved in housing delivery, the government should harness the growing weight of institutional capital looking to enter UK residential.
The underperformance of traditional investments such as sovereign bonds combined with the disruption of commercial property types such as shops and offices has led to pension funds and insurers looking to grow their exposure to the living sectors.
Attractive demand/supply dynamics combined with the promise of long-term liability-matching income streams with defensive counter-cyclical qualities has seen institutional investment surge in sectors such as UK student accommodation and build-to-rent. Once seen as alternatives, they are fast becoming mainstream and staples of investors’ real estate portfolios.
Patient capital
Investment into European living real estate topped €100bn (£83bn) in 2021, making it the most invested property type and exceeding offices for the first time.
Higher inflation has only strengthened the appeal of asset classes like BTR and student housing as shorter leases mean they are better placed to capture rental growth compared with retail and offices.
To ensure the Ox-Cam Arc isn’t locking out potential talent as a result of high housing costs, the UK government should be tapping into the growing pool of patient capital looking to invest in UK rental housing. Institutionally funded rental housing can deliver higher-quality homes that are flexible yet secure in tenure. Without them, the Arc could well soon be facing a housing crisis of Silicon Valley proportions.
Richard Jackson is chief executive of Present Made and co-founder of Apache Capital
