By Charles Ferguson-Davie, Co-CEO and CIO, Moorfield Group
The latest ONS projections predict the UK’s population will reach 73.7m by 2036, largely driven by international migration. Clearly this will add demand-side pressure to our already chronically under-supplied housing market.
The Centre for Policy Studies think-tank estimates this population growth will require 5.7m new homes to be built between now and 2036. Putting aside the logistical challenges to accelerating housing delivery, from an under-resourced and conflicted planning system, to a shrinking pool of construction workers, it is worth thinking about where the money to fund these new homes might come from.
The public purse: Housing delivery rates have never really recovered since local authorities stopped building in the 1980s, which many argue shows the private sector cannot alone drive sufficient new supply. Given the UK’s well-documented affordability issues, the political case for more social housing is clear, but there are big question marks over the ability of local authorities to build homes at scale, and whether housing will take priority over other areas of government spending e.g., health, education and, increasingly, defence.
House-builders: The national volume house-builders play an important role but they are also held back by planning issues and will be buffeted by the cyclical for-sale market environment. They have also become more dependent on government support, such as Help to Buy, and are affected by increasing environmental requirements, and other inflationary pressures, which have pushed up build costs. Modular housing was thought to be a solution but has struggled to take off and SME builders are also in decline.
Self-build: In many European countries, self- and custom-build forms a key part of new housing supply. There is potential for this activity to increase but planning and financing issues are obstacles to it taking off at scale here in the UK.
Private Capital: Institutional interest, either through direct investment or managed funds, in UK residential is growing. Real estate investors are increasingly focused on the living sectors (multi-family/BTR, single-family, co-living, student accommodation, senior housing etc). This seems to be an opportunity to focus on but it requires the government to embrace rental as a tenure to be supported as a viable and positive alternative to home ownership.
At the turn of the 20th century, institutional investors such as pension funds and insurers were some of the largest residential landlords in the UK. So, in this sense, institutional ownership of housing is not ‘new’. What is ‘new’ however is the specialisation of residential into different categories aimed at specific demographics e.g., students, graduates, young families and downsizers, as well as a focus on technology, branding and operations that are needed to sustain the amenity and service offering that is expected nowadays.
Crucially, institutional investors can also fund the much-needed environmental improvements required to decarbonise the existing housing stock.
At Moorfield, we have long believed in the potential for residential to become an institutional asset class, and the wider economic and societal benefits that will come in the form of better quality and more plentiful homes.
We’ve been investing in student accommodation since 1997, retirement living since 2008 and build-to-rent since 2012. Last year we also launched what we believe to be the UK’s first private REIT to invest in single-family housing for rent and student HMOs (MREIT). We see the ONS’s latest population figures to be supportive of our long-held conviction in residential – in all its forms.