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To What Degree Do The Housing Shortage, Home Prices And Rising Rents Extend Beyond London?
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Birmingham, Manchester, Glasgow and Leeds are now some of the most expensive cities in which to rent in Europe. Can investors and the Government rein that in?
The year-upon-year of double digit housing price increases in London makes for newspaper headlines around the globe - in part because London has so many non-dom owners of palatial homes and flats who treat these properties as financial instruments. This phenomenon has the unfortunate effect of pushing up home prices and apartment rental rates for middle class people who work in the Capital City.
This is not restricted to London. The shortage of housing exists throughout much of the UK, as recent statistics prove. Home Let, the UK’s largest tenant referencing specialist, identified in the spring of 2015 that UK rental prices in the first quarter of the year rose an annualised rate of 10 per cent nationwide. While London will always skew the national numbers (rent in Greater London averages £1,436), what perhaps is most surprising is that rental rate growth is higher elsewhere. As it turns out, the 2014-2015 rate of rental increases is higher in West Midlands (7.9%), East Anglia (8.4%) and South West (15.5%) as compared to London (7.5%). Close behind London are Scotland (6.2%), Northern Ireland (5.2%) and Yorks & Humber (4.3%). Home Let also emphasizes that rents have risen in all 12 UK regions in the three months to May 2015 compared to 2014.
Why the across-the-boards hikes? The shortage of housing in the UK is no secret. Despite the efforts of strategic land developers - private investors and developers who endeavour to convert unused land to residential development - the country is easily short of one million homes that younger people need to establish families. The charity Shelter advocates for freeing up more land for more development at all price levels as a means to alleviate housing costs at the bottom level. And yet the number of homes built in 2014 was roughly half of the 250,000 dwellings thought to be needed.
What’s new is that the price increases, due to the homes shortages, are being felt in cities north, west and south of the Capital. UK rents are the highest in Western Europe. London is more expensive than everywhere, including Paris, Milan, Nice and Rome. But ranking 6th and 7th in the European list compiled by Easyroommate.co.uk are Birmingham and Manchester, with Glasgow at #9 and Leeds at #11. That’s five UK cities ranked among the Continent’s top dozen.
As a spokesperson for the Association of Residential Letting Agents told the website Property Wire, “It is worrying to see so many agents reporting an increase in the cost of rent over the last six months, especially considering so many people rent as a way to bridge the gap whilst they save to get onto the property ladder.”
To those who engage in real asset portfolio investing, this spells a clear opportunity. With housing so pressing a need it makes sense to buy UK land, get planning authority approvals and then go to work on constructing infrastructure and the dwellings (real asset investors typically transact the land and achieve planning permission, then subsequently sell lots to homebuilders). The stumbling block is planning approvals as local authorities sometimes have to balance development against local citizen sentiments that resist development.
Chancellor George Osborne has stated that opposition to housing effectively means opposition to national economic growth. “Planning freedoms and more houses to buy” is a lynchpin in his blueprint for building a growth economy (“Fixing the foundations: creating a more prosperous nation,” July 2015). He places the importance of affordable housing in the context of enabling workers to adapt to change, and that an effective land and housing market “helps firms to locate where they can be most efficient and create jobs ... enabling people to live and own homes close to where they work,” he writes.
Osborne points out that recent approval process streamlining (e.g., the Localism Act of 2011 and the National Planning Policy Framework) has housing starts now at a seven-year high and that first-time buyers rose by 20 per cent in 2014. Also, the Help to Buy program has enabled 100,000 households to get on the property ladder.
Even with that, however, rental rates continue a rise. It appears as if more must be done and that for investors, the opportunities to build and sell homes and provide rental housing continue to be rich.
Would-be housing investors still need to go about all investing with caution. Whether engaging in strategic land investment or other real asset portfolios, investors are urged to discuss strategies and specific UK property funds with an independent financial advisor.
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