What is wrong with the housing supply in London? Green-building in 2023 and towers on hold!

Better house prices? Yes but how?

Prices, rates & competition are changing blazingly fast

Not a well-kept secret, the housing market in the UK is going through turbulent times. It is now understood how the mass-exodus of London workers?during the?pandemic and?the subsequent re-entering of?renters after the lockdowns,?are affecting housing prices and causing insane?fluctuations. However, this exogenous renters' mobility has not?yet?settled and its impact is not yet full blown. Add on top of that the war in Ukraine, the subsequent?energy crisis and?inflation and you have a mixture of unpredictable factors that inevitably manifest in the real estate market too.??

Unpredictable might be an understatement; in reality the market is going bananas: as?The Times reports ?one in every thirty homes (that is, more than 11,000 homes)?are being downvalued. To fully grasp this,?imagine that you extend an offer for a house at ￡400K and selling is agreed. However, before the completion of the exchange (that can last from weeks to months) a new valuation of the same property says it's now ￡300K! This is how crazy it has become.?

What fuels this irrationality in the market is however and to some reasonable?extent,?the lack of housing stock. The supply that cannot meet the demand.?And the latter, of course, cannot be forecasted because ...pandemic and crisis, right? Well, not so. The?housing demand has been steadily increasing?well before the pandemic?in London and the UK (see the first figure below). The supply, on the other hand, has been remaining constant or even declined. In the entire UK, the number of planning applications granted has been slowly but constantly dropping already since 2016! A research from TwentyCi paints a more dramatic picture:?the?available properties for sale are down by a?whooping 36%, compared to 2020. Surely, one has to weigh in?the repeating lockdowns and supply chain failures that hindered the delivery of new housing during 2021. On the other hand, there is a 25% increase in new home registration, as?reported by NHBC . However, this is?largely attributed to a growth in detached and semi-detached houses and, hence, mostly outside central London. In the capital,?new home registration, even if it has increased in the first months of 2022, it?is still lagging behind pre-pandemic levels.?The most recent planning data by the?government ?do not seem to upend the trend: residential applications in England?were down 7% in the last quarter of 2021 as compared to the same period in?2020.?

Demand has been constantly growing - supply hasn't

In London,?the available flats for sale?recorded?a noticeable increase, between January 2020 and January 2022.?The number of houses -?according to TwentyCi - listed for sale has gone up, from 71,850 to 75,470. However, again, the number of residential applications submitted reveals a shocking 5% drop in London, for the last quarter of 2021, compared to this of 2020. For reference, the only time that the number of applications for residential units in London?dipped as much was at the time of the first lockdown (-6%).

As if the above picture were not grim enough,?flocks of renters?returning to the UK add up to?the?explosive mixture of supply-demand mismatch.?As Hamptons recently reported, more than?30%?of homes let in London are to London?first-timers.?In 2020 this was 12%. London's?social life is catching up ?very quickly and the capital shows the familiar ultra-dense pre-pandemic behaviour.?Funnily enough, in late 2021?Hamptons?was expecting that London rents would recover to pre-pandemic level by mid-2022. In actuality, we have already exceeded them.?By far .?

Given the still tight supply backdrop coupled with modest growth in demand, house prices continue to be driven higher across the country (...) As a result, there is little evidence of an easing in the recent strong pace of house price growth coming through at this point in time.

UK Residential Market Survey April 2022, RICS

There is not doubt; the rate at which we 'consume' housing far exceeds the available ones and the gap is ever-increasing which, in turn,?drives house price growth . What is the response? The government initially?projected?300,000 new houses per year, however we now know that this milestone?will most likely not be reached .

What?adjoin?offers is a rent-to-own model where one rents and?lives in?a?house that is currently for sale. Progressively, and?as the renter builds wealth, the house will be bought by the renter ?- but only if she wants! In this sense, adjoin taps into the pool?of 'for-sale' houses in order to normalise?- to some degree - the tumultuous rental market.?

Did you know we are on Twitter too? ??

?? Can we build green in 2022? Or ...2023?

From 2023, planning permission will only be granted to?developments?in England and Wales that achieve?10% biodiversity net gain,?Property Week reports . Of course the question is why 2023??And what does a 10% biodiversity gain means? How do you even measure biodiversity?

There is no clear-cut way to determine this. In the UK, the?Department for Environment, Food & Rural Affairs (DEFRA) and Natural England?define?Biodiversity Units as metrics "calculated using the size of the habitat, its quality and location". The way the scoring system works is not exactly simple (good luck reading this?100-page long document )?but the main idea is?that certain habitats?in the country are scored based on its quality, condition and?size. Then, the?Biodiversity Units?of a habitat are calculated?before and after a proposed development?(see this informative?example here ).

It's not much to claim that?almost any new construction site or development will inevitably alter or damage?their natural habitat.?Now, under the new rules, each development should leave the habitat 10%?better than it was before!?This is how this happens:

-?improve the habitat?of the site of the development?by 10%

- do not improve the habitat on-site but do so on a different site (i.e. outsource the gain) or

- do neither of the above and?pay for the damage.

So, now the question becomes: how much does damaging a hectare of habitat cost? DEFRA estimates this to a bit under ￡20K, while CBRE finds 12 times this amount! A sharp contrast indeed and?several disagreements should be?expected.

Note that ESG goals and net gain are not important to investors or developers alone, but will impact the mortgage market too. As?MFG?says , "the government is working with mortgage lenders to support homeowners in improving the energy performance of their properties". Essentially, a green mortgage, whereby?a lender offers a house buyer favourable terms if the?property to be bought meets some criteria (i.e. high EPC rating).

Are ESG goals finally becoming real in construction? Or will it end up being simply a new tax, because of the?impracticality of quantifying the net habitat gain of each individual project?

?? New tower approved in Southwark. Now who builds it?

Transport for London (TfL) was granted permission to build a?tower right above the Southwark tube station, to be used as offices.?

Now TfL?is lacking the?developer to deliver the construction!

Moreover, local residents' complaints have surfaced in Twitter since the decision was made public. The reason: it's purely offices and not residential! Southwark (like the rest of the capital) is in desperate need of?new houses?and the present project will not make the situation any better.

However, Southwark has already plans for three tower blocks that could provide hundreds of new homes, as part of the council to?transform the Old Kent Road .

With?adjoin, one can rent and live in a house that is for sale!?So, who wants to live in a Southwark tower?

Are you enjoying the newsletter? If not, then we 'd like to hear from you! If yes, then again we 'd like to hear from you :)

--> [email protected]