Challenges and opportunities
During the Covid-19 pandemic, the housing market has undergone significant changes both positively and negatively. These provide threats and opportunities for the supported housing sector to develop new opportunities.
There are four main trends developing that would be beneficial for investors within the market.
First, during the pandemic there has been a hiatus on evictions. Current thinking suggests that this will, unfortunately, lead to a backlog of landlord action against tenants.
Second, as more developers fail to bounce-back after furlough and the economic downturn, more development sites will need to be completed.
Third, with new hybrid modes of working becoming more popular, so the move away from large office blocks is leaving many spaces available for adaption into residential settings.
Finally, as the increase in house prices steadies, the opportunity for private market entrants decreases, leaving many properties without an owner. This paper will begin with a brief overview of the housing market as it currently stands.
Current situation
During the covid pandemic, and the initial lockdown in the UK, the housing market ground to a holt with the opportunity for housing viewings suspended. With lockdown restrictions eased, the Government bought in a suspension of the stamp duty paid on houses to increase demand. This increase in demand saw house prices increase by 13% during the period in which the stamp duty holiday was in place. After the re-introduction of the stamp duty, house prices continued to increase slightly whereas demand has fallen away. This has lead to a market with high value properties, but falling demand. At the same time the Government suspended evictions for those in private and social housing.
Evictions
During the pandemic there has been a generic ban on evictions from any form of property in England, as the rising number of those furloughed or made redundant increased.
The report goes on to estimate that during the first year post eviction ban, courts could be facing normal caseloads of 25,000 possession claims per quarter, in addition to 15,000 possession claims as ‘backlog’ and 25,000 claims linked to Covid-19. While bailiff-enforced evictions ended in May 2021, there still remains a slight change in the rules of s21 notices, with the current notification period being extended to four months. From the 1st October, the period of notice will return to the standard 2-month period. Given this, it can be anticipated that, unfortunately, large numbers of individuals will be evicted from their current residence over the next 12-months. While this will mean many individuals are displaced, it may result in a number of properties entering the market after landlords wish to dispose of them.
Office Buildings
There is an estimated 165,000 privately-owned commercial and business premises that are empty.
The economic impact of the pandemic, and the changing nature of the work environment, has meant that a number of offices and shops have closed or have reduced in size to accommodate differing modes of working.
Research by the London School of Economics has estimated that around 15% of UK business are at risk of permanently closing. As a result, and with increasing levels of empty properties, the Government announced that developers would be allowed to convert offices into residential properties without planning permission, providing that the building had been vacant for 3 months or more. According to Habitat for Humanity, there is an estimated 165,000 privately-owned commercial and business premises that are empty that could be transferred to residential accommodation under the above scheme. Given the large number of office properties that could potentially be left vacant and open to refurbishment, there exists an opportunity to deliver conversion projects utilising existing office and retail spaces in central locations to provide a variety of housing solutions to those who need it the most.
Interest rates and supply shifts
A shift of individuals away from living in urban areas, to suburban and rural conurbations
Forbes has predicted that current rises in house prices will flatten when mortgage interest rates begin to rise, suggesting this will happen in 2022 or early 2023. These low mortgage rates have allowed buyers who would have otherwise been frozen out of the market to secure properties. Combined with this has been a shift of individuals away from living in urban areas, to suburban and rural conurbations. Savills have noted a 4% increase in suburban areas within easy commuting distance of London. A trend that has been noted around many commuter area six. This provides two opportunities – first as interest rates rise, so the number of new buyers will begin to fall away especially for first-time buyers. This will result in a number of properties going unpurchased and available for acquisition into specialist and supported housing. Second, as more individuals begin to move from away from urban areas, more centrally located properties will become available for purchase.
Conclusion
While the current news around the housing market in the United Kingdom displays a negative outlook, the prevailing trends present several opportunities for investors. The themes listed above suggest that over the coming months there will be multiple opportunities to invest into the property market sector in the United Kingdom to deliver specialist and supported housing to those who need it the most, and to offer support to those who have, unfortunately, been caught up in the economic downturn this country has faced.
Without appropriate institutional investment many of the properties that have been identified above will be left vacant and under-utilised.
- https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/june2021
- https://www.resolutionfoundation.org/app/uploads/2021/02/Getting-ahead-on-falling-behind.pdf?utm_source=HOC+Library+-+Current+awareness+b ulletins&utm_campaign=e128bbda8b-Current_Awareness_Social_Policy_I_16-02-2021&utm_medium=email&utm_term=0_f325cdbfdc-e128bbda8b-103780058&mc_cid=e128bbda8b&mc_eid=cd2f1adce4
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- https://www.habitatforhumanity.org.uk/blog/2021/05/repurposing-empty-spaces-research/
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- https://www.savills.co.uk/blog/article/308264/residential-property/the-rise-of-suburban-living.aspx
- https://www.ft.com/content/72e12347-89f1-4ccc-9b58-92a99f5dcf7f