Predictions in an unpredictable world

Firstly, I think demand will still outweigh supply for house buyers. If we believe what we are reading, then interest rates will rise, so money will become more expensive to borrow, which will lead to a drop in demand in the latter part of the year where house prices will stall slightly due to affordability.

However, as construction plays catch up, this will help us meet our new homes targets and boost supply. You take from one hand and give with the other, so all in all I think it would be surprising if things were markedly different than where they are now.

Affordability will be one to watch over the next 18 months. I don’t think the First Homes scheme that is replacing Help to Buy will work in the south east because its capping peoples prospects to sell on, putting them at a disadvantage to become second steppers.

Construction

We will see a levelling off in material shortages and construction prices as we recover from the pandemic. As logistics recover from their position of furloughed staff and closed factories, the tap will be turned back on. We saw the effects of this in the early part of the year, where a ripple became a wave – and we’re dealing with the wave now, but this will flatten again.

Industry and politics

There will large numbers of acquisitions of SMEs by much larger companies and institutional investors, as they struggle to bear the burden of the past 18 months coupled with rising costs and an end of Help to Buy. I wouldn’t be surprised if we saw a new housing minister: history is instructive and tells us that we will.

Gove is assessing his position politically more than producing real change. Boris doesn’t look like he is wielding huge amounts of power at the moment. If current trends continue, it wouldn’t be outlandish to predict a leadership challenge for the Conservatives, but we’re still waiting for the effective opposition both internally and from the opposition benches.

I think we’ll see a lot of changing of the guard at the back end of next year, as a new generation of leaders in the property industry comes forward after a year of Covid and assessing lifestyle changes. We will see a huge shift of power towards the ESG movement [Environmental, Social & Governance] where businesses will need to prove a minimal level of requirements to access investor funds and progress. We are already seeing that now, but it will certainly become more prevalent next year.

The developers tax was a soundbite and although it will raise some money, it will likely be brushed under the carpet next year. The tax will be absorbed and premiums will be hidden amidst rising house prices. It will be part of the appraisal when choosing land, but won’t bear a huge amount of economic significance.

Land values

We will continue to see pressure on land values, however many will hesitate to push much further; it will simply be too hot for them. If we see a stagnation or reduction in house prices then land values will follow in the same trajectory.

A significant proportion of brownfield land won’t come to the fore next year as intended. The finite amount of land that is available is often not suitable to build on; it’s not always old factories.

Planning

Unfortunately, there isn’t the political appetite for any real changes to happen in planning next year. Section 106 will continue to be a sticky point – what we need to see really is more education around what the 106 and CIL money is being used for, rather than rewriting the script.

Covid

In almost every developer contract when purchasing land you have a Force majeure clause, in essence an act of God type event. It’s a bit of a catch-all type clause to cover unexpected and unavoidable events. But now outside of that clause we are seeing reference specifically to a pandemic. No one could have predicted this pandemic, but now it is actively dictating the way forward. Housebuilders have been forced to ask, ‘what happens if we can never leave our homes again’, and ‘how do we cater for that within property design?’.

Location

We’ve all had that moment of realisation when working from home on the dining table, with a toddler on your back and the dog barking, just isn’t viable anymore. Working from home is now being taken more seriously, however this won’t ever replace the value of face to face working. We’re a service led country now more than a manufacturing one, so the value of face to face will never go away.

Covid has also heighted our need for community and connection, as well as flexibility. When someone takes being able to see your friends, family and colleagues away from you, you then cherish it a whole lot more. People are actually actively looking for those connections – particularly when it comes to building properties and places to live. Although migratory trends to jump over the M25 have been sped up over lockdown, every location remains anchored by infrastructure and transport, for people to stay connected to city hubs.

Infrastructure projects are key to opening up more geographical locations and realising this dream. The new communities of the future might be 15 minutes further out, with developers incorporating more meetings hubs and co-working spaces over retail.

BTR market

There are more institutional funds available now to purchase land under the Build-to-Rent tenure, more so than we have seen historically. This is an active market and one that may make more noise in 2022. However, that being said, making the transaction stack from an appraisal perspective is proving harder due to house prices increasing and rental values remaining relatively stable. This means BTR (PRS) operators are having to be very selective about where they purchase land which means it can be a slower process to get a foothold in the market.

Simon Cox is managing director and founder of independent land agency, Walter Cooper

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