What are the typical concerns we hear from investors?
1. Assuming 260 working days in a year, the government target implies 1,153 houses need to be delivered every day for the next 10 years. This year we have lost at least 50 working days so far through lockdown, equating to a shortfall of 50,000 new homes this year alone.
2. Private house builders are the main source of housing delivery in the UK. Facing falling sales rates mostly due to affordability and obligated to achieve best price, supply will slow impacting the delivery of all tenures. Even where house prices fall, availability of mortgages and volume of savings can prevent home ownership.
Traditional Real Estate Risk
1. Income risk – Housing is essential. Households will forgo other lifestyle choices before they default on their rent. This can be further mitigated by focus on delivering housing at the correct price point and focusing delivery on the deepest occupier market (the mass market and low to middle income households). New household creation continues and there is a growing requirement for long term rental accommodation to meet this need. This is illustrated by the growing number of overcrowded homes where people cannot afford to move out. It is estimated that there are currently 3.6m people affected by overcrowding alone.
2. Construction Risk – New housing supply must be built, and this provides further opportunity to mitigate future building resilience risks. Management of this risk can be addressed by working with well-funded counterparties fully aligned to the success of your product and agreeing fixed price build contracts with Contractors. Modern methods of construction can mitigate workforce shortages and supply chains can be localised to support local employment and reduce further supply chain risk.
Use our handy glossary to look up any technical jargon you are unfamiliar with.
No investor wants to be associated with being a bad actor within the residential sector. However, investment into responsible long-term rental can present the opportunity to create many more positive outcomes for stakeholders – residents, operational partners, Local Authorities and the local community.
1. Evictions – the institutional private rented sector has historically had very low eviction rates. Landlords value the assets from income and are therefore incentivised to retain renters. Institutional Funds are well capitalised and structured to cover larger forecast capital expenditure. This stands in contrast to the behaviours seen in the unregulated private rented sector where buy-to-let landlords capitalise house price growth or avoid large repair costs by using section 21 notices (no fault eviction).