Property Development Opportunities And Risks In The UK
Hi Everyone,
Happy St David´s Day, 1st March 2023!
I have spent the last 3 days on a concentrated Property Developers Bootcamp course in Essex in the UK, focussing on property development opportunities for small and medium sized enterprises (SME´s).
A serious housing crisis has evolved over many years in the UK, as a result of the country not building enough houses to accommodate a rising population. Now houses and flats are in extremely short supply in many parts of the country and the cost of accommodation for purchase or for rental is at an all time high.
The Government knows about this crisis but does little to solve the problem decisively.
Part of the problem is that the Planning Approval system in the UK is broken, meaning that it can take a very long time for decisions to be made by the Local Planning Authorities who are responsible for particular areas of the country. Sometimes Local Authorities may take months to review and decided on planning applications.
There is also a lot of NIMBYISM (Not In My Back Yard), so that although everyone recognises that there is a housing crisis, and there is a pressing need for development of new houses and flats to meet the existing shortfall, no one wants big new housing developments undertaken near them, so the crisis keeps getting worse.
There are understandable issues to do with the adequacy of the existing infrastructure in all areas of he UK, such as transport links, buses, schools, hospitals and universities.
It is recognised that there needs to be a national output of around 200k new dwellings (houses and flats) built every year. However the industry as a whole consistently fails to deliver such high numbers of dwellings into use. Hence the number of houses that actually needs to be built must by now be in excess of 2 million homes, since there has consistently been a shortfall of the actual numbers of dwellings built, hence the unfulfilled requirement keeps increasing year on year.
Social housing deficit
More people than ever are struggling to afford a secure place to live. Yet, not enough social homes are being built.
Over 1 million households are waiting for social homes. Last year, 29,000 social homes were sold or demolished, and less than 7,000 were built.
In England, there are now 1.4 million fewer households in social housing than there were in 1980.
As a result, millions of households have been pushed into the private rented sector, which has more than doubled in this time.
The facts and figures explain the issue.
These graphs demonstrate the stark realty of life if you are in this category of not having the ability to pay for and buy your own home.
The cost of living crisis has also put a lot of pressure on the economic system, and people who don´t have the means to earn high salaries are currently struggling to even feed themselves and their families and keep themselves warm enough in winter.
A Big Opportunity
All this bad news means that there is an opportunity available for those brave enough to take it. Local Authorities largely do not undertake social housing developments, so there is pressure on those sponsoring organisations to set and meet big output targets.
Registered Providers of Social Housing in the UK generally undertake social affordable housing developments.
There is the opportunity for small and medium sized property development companies to offer their services to registered providers in order to help them to fulfil their affordable housing targets.
Additionally, SME´s can undertake their own private developments in order to produce housing for sale on the open market.
The challenges are to find the right suitable sites for development on a feasible basis, ie profitably.
Generally the price to purchase land that is suitable for building residential development is in short supply and therefore expensive. When looking at the formula to complete property development successfully, you generally need all the resources to be available at the right time in order to achieve that success.
Apart from shortage of some building materials and escalation in costs owing to the war in Ukraine, there has been a massive increase in materials costs of around 59% over the last year alone, and the previous year also saw big rises in matierals costs. As a result of this price escalation, many building contractors have lost money on at least some of their contracts during the last year.
There is also a shortage of skilled labour to carry out construction works, especially since BREXIT and the departure of many foreign workers back to their own countries.
As if that were not challenging enough, the cost of finance is rising at the moment, so if projects take longer owing to the planning system delays, then there may be further material price increases and extra labour costs, and even higher finance costs as well.
It seems like a perfect storm for anyone considering to jump into this space and take the opportunity to try to increase the number of affordable homes available or homes for sale
It certainly brings it home that there is no reward without risk and there is no shortage of risk in such a scenario.
No wonder there is not a flood of new candidates jumping into the market place. Also the large established housebuilders are also scaling back on their property development aspirations while the recession is in progess, so the number of houses for sale will fall during the coming year.
You certainly need to pay a lot of attention to mitigating the high risks involved in some of the forgoing scenarios.
I wish you all a great weekend ahead and a successful March, bringing us to the finish of the first quarter of 2023.
Cheers
AlanJE
Recent Comments
3
Very interesting stuff to read about indeed Alan!
Thanks for the share my friend and have a fantastic start to the weekend!
Indeed you are right, there is no reward without risk! Isn’t is true everytime?
The higher the risk, the greater the reward!!!
Cheers,
Maria 🌹