Three Developer Trends That Could Fuel Future Growth
Despite the number of new homes being registered in 2019 hitting a 13-year high, the UK is still nowhere near hitting the government’s target to build 300,000 homes a year. According to the National House-Building Council, the total of 161,022 homes registered in 2019 was 81% higher than a decade previously, but only 1% higher than in 2018.
So what new methods and techniques are the UK’s property developers looking to adopt to bridge supply and demand? As with all sectors, developers are facing a range of challenges due to both COVID-19 and the current economic climate; grappling with new development methods while facing a skills shortage is just one. However, certain trends are emerging that could increase, or at least support, new developments.
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Build To Hold
To create the number of new homes required in the UK, one alternative strategy for developers could be to tap into the growing rental sector. According to UK bank Aldermore, more and more developers are getting involved in ‘build to hold’, or PRS as it is widely known on a larger scale, retaining some or all of the completed units.
“We’re increasingly funding developers looking to construct blocks of residential properties and then to hold the assets, rather than immediately sell,” said John Carter, Aldermore’s commercial director for commercial real estate. “This has been the case for some time in areas such as student accommodation, where developers have looked to season the income before selling on to an investor.”
The UK’s rental sector is steadily growing, due to both societal evolution and rising house prices. According to Nationwide, house price monthly growth hit its highest level in 16 years in August. Although the residential market is going through turbulence, the COVID-19 crisis might actually increase the number of people looking to rent.
“Even if the pandemic creates a fall in mortgages, that won’t change the number of people who need to live in certain areas,” Carter said. “Demand for housing will remain. In some areas, we are hearing about rapidly growing demand for rental properties.”
Modern Methods Of Construction
Another trend that could increase speed of development while reducing cost is to embrace modern methods of construction. Techniques such as modular construction have been increasing in popularity for several years and are now becoming commonplace.
“Modular construction is happening; it’s not tomorrow’s world,” Carter said. “Companies in the sector are growing significant businesses and portfolios focusing on modular construction in both private and social housing.”
As the majority of modular construction happens off-site, construction can be quicker and more cost-effective than when using traditional construction methods. A second striking benefit of this technique is that it could help the sector tackle its growing skills shortage as fewer hands are required for off-site development. One of the key reasons for a skills shortage is the number of workers reaching retirement age in the construction sector; according to a 2011 government census, more than 20% of workers were aged over 55.
“There has been anticipation of a skills shortage for some time due to reducing numbers of available labour, for example, but COVID-19 has exacerbated the problem,” Carter said. “Some housebuilders have resorted to creating their own academies to train apprentices as they weren’t getting enough young people going through courses.”
According to the Royal Institute of Chartered Surveyors, the shortfall in skilled construction workers is at its highest point since 2007 and a further 200,000 workers need to be recruited by the end of the year. Training young people is therefore key, particularly if a developer is using modern construction methods that require a new or specialist set of skills and knowledge.
The Green Agenda
A third trend is the growing importance placed on climate change and the UK's pledge to be carbon zero by 2050. The construction sector is one of the most high-profile industries when it comes to sustainability. Modern methods of construction will go some way to upping the green credentials of the sector as construction off-site can boast reduced waste and energy costs. Even if housebuilders aren’t driven by a desire to reduce their environmental impact, they are likely to be facing pressure from others and recognise that those who do go green will grow faster.
“There is a strong drive from investment funds to ask for a project’s environmental, social and governance credentials and this will drive behaviour further,” Carter said. “Government regulations are multiplying and the built environment plays a pivotal role in meeting targets to reduce UK emissions.”
As part of the UK’s drive to achieve net-zero by 2050, £26M has been allocated to advance new building techniques. Though not a monumental figure, this does demonstrate the government’s interest in helping UK housebuilders to improve their operations and developments. The developer that gets it right could get real fuel for growth.
No one can predict the shape of the industry in a year’s time, as COVID-19 and Brexit will continue to reshape the entire economy. However, the UK’s demand for housing is certainly not going to diminish. For developers looking to grow sustainably, considering these trends will put them in excellent stead to meet the current and future requirements of buyers, funders and wider society.
This feature was produced by the Bisnow Branded Content Studio in collaboration with Aldermore. Bisnow news staff was not involved in the production of this content.