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Is “ready To Build” Land Available To Meet The Uk’s Critical Supply-demand Housing Equation?

By Expert Author: Chris Westerman

As land investors and homebuilders have split their tasks in the development process, it may actually speed up housing construction. To be sure, the opportunity exists.

By the close of the first quarter 2013, housing prices in London were higher than their 2007 peak, reports the Nationwide Building Society. So does that mean the rising tide will buoy all boats? How will this increasing demand impact development on “ready to build” land in the UK?

To be sure, there remains a great deal of uncertainty about the British and Eurozone economies, as well as questions about how the government is acting to restore growth. Many argue the move to austerity by the coalition Cameron government is holding back the entire economy – and yet the Bank of England’s Funding for Lending Scheme is being credited for helping move things along – as intended.

Fixed mortgage rates as of late March 2013 were as low as 2.78 per cent on five-year deals, says HSBC.

Each of these factors intersect with the country’s housing crisis, of course. A reported 7 per cent growth in the British population between 2001 and 2011 went unmatched by building, particularly after the financial crisis of 2008. The factors stunting housing development include lending stringency and an inability for homebuyers to accumulate a sufficient deposit.

This pent-up demand fosters a clear business opportunity for land investors and building developers. While in the past, these functions were one and the same, a split has allowed one group to acquire sites that are appropriate for development, while homebuilders then buy those sites from the investors – in tracts or lot by lot – to develop into actual homes.

This bifurcation in the development process makes sense, enabling specialists to focus on what they do best. For example, the land investor must identify sites that will work optimally in the supply-demand equation of housing in the UK. Typically working with an investor group headed by strategic land development specialists, the investor must first study economic factors of a town or borough to determine where demand will be in three to five years. They consider what land is available for purchase at a price that fits the business model; this includes achieving a zoning change, where necessary, from the local planning authorities. From there, the infrastructure is designed and built to accommodate the needs of the anticipated buyers.

The homebuilder then acquires the land on which to develop market-appropriate properties. A trend in the recession has been to shift to rental housing, providing what is most in demand even while residents cannot get financing to purchase their homes.

The task, then, for the investor is to identify where those demand factors are strongest, after which they will build the infrastructure – streets and utilities – to accommodate those needs in the near future. “Ready to build” largely depends on how far along in this process a developer may be. As investors find more incentive to get involved in land development, the supply-demand curve might reach a point where housing is affordable again.

Investors in land should identify the risks of this type of real asset investment relative to the allocation of other assets in their portfolio. Consult with an independent financial advisor to discuss where you think raw land might be an opportunity.

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