In this week's blog, as a first in a series, we look back on some of the predictions and "educated guesses" we have made over the last 12 months of weekly blogs and what evidence we see of any of our musings coming to fruition. First up, we are looking at issues with the distribution of public money into housing development; secondly, the influx of private capital into the housing and development market and how that may or may not be stabilising pricing; and finally, everyone's favourite subject, house prices.
To start with, at the time of writing, The Guardian newspaper has just broken a story outlining the fact that Michael Gove's department has handed 1.9bil back to the Treasury in the last accounting year, simply because they couldn't find projects to spend it on, the paper outlined that the "Department for Levelling Up, Housing and Communities (DLUHC) has surrendered hundreds of millions of pounds budgeted for 2022-23, including £255m meant to fund new affordable housing and £245m meant to improve building safety". On the surface, when the goal is to build more homes, without considering the full picture, this seems bewildering, but the reasoning behind these touches on some of the points we have discussed over the last 12 months in these blogs; the issues are the broken mechanics of a system that needs overhauling, rather than a liquidity crunch. Getting the cash to the people on the ground who need it, cutting through the red tape and planning backlogs, legislating to cut through local bureaucracy, combined with pressure from rising interest rates, all these issues are creating a "we can't even give this money away" situation unless the investment is made in a much more targeted and nuanced way. Perhaps that is where the private sector steps back in, in a big way.
According to Knight Franks' 2023 wealth report, private investors have now significantly outpaced institutions as the biggest buyers and investors in real estate. The report states that, on average, Private clients "typically invest anywhere from £5 million to £25 million. In the long term, cash-rich private investors have taken advantage of repricing, currency benefits and less competition from larger institutions to target the UK". Six months ago, we made some assumptions and wagers that the bargain hunters would be stepping in, which would underpin some of the value in the market. This report certainly suggests that's the case. Distressed assets in order of desirability, commercial real estate with its challenges in the post covid world, student, and university accommodation, with its opportunity for large yields, and in residential housing, the rental market is the main draw. One of the touchpoints we referenced in a previous blog was that the smart money is betting on generation rent, which is highlighted in the Knight Frank report, stating they expect the market to grow significantly in 2023/2024, believing that these conditions "present an opportunity for investors acquiring residential assets this year, who can expect to see a significant reversion in their headline rents". This investment positively affects our asset class by stabilising house pricing in the wider market.
This leads us to the final set of predictions, house prices. In place of the next lot of ONS data due, we are looking at the Halifax Monthly index, which reports a 0.1% drop in June, and a decline in value of 2.6% year on year, with the average property price sitting at £285,932. This is on track to where we expected to be, having called for around a 6%+ retracement worst-case scenario by the close of 2023 at the start of the year and a V-shaped recovery into 2024. We certainly don't buy into the narrative of a cliff-edge house price collapse based on the single factor of retail mortgage rates when a dozen factors create set pricing in the market. To finish with some positive news, the Halifax data also suggested some resilience in the new build property market, with annual price growth up by 1.9%, this is some small mercies, but it shows that supply and demand will trump headlines and clickbait when looking for the real picture.
We see a great opportunity here for the people looking to expand their portfolios to include p2p backed by residential property development; with solid, stable returns on offer now, it's a great time to have a conversation with Invest & Fund.
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