Mountain

This week's blog examines the conflicting narratives waging war in the press around the UK housing challenge. Once again, we will refine and substantiate our ongoing argument that fintech platforms in our space are poised to present an enticing investment opportunity, with the UK property market offering a unique confluence of conditions ripe for investment!

The UK government's ambitious plan to construct 1.5 million homes by 2029 has sparked significant debate, almost open to attracting derision due to the challenge's overly ambitious nature. They say that Everest is littered with the souls of the ambitious, but it doesn't mean that we shouldn't endeavour to try. Proponents argue that planning reforms and investments will catalyse a housing boom, while critics question the feasibility of achieving such a target given the current market dynamic. The government's introduction of the Planning and Infrastructure Bill aims to streamline the building process and is the marquee policy for the bull case; the plan to find a route to the top begins there. By reintroducing mandatory housing targets and permitting development on certain 'grey belt' lands, these reforms are specifically designed to accelerate housing construction. The Office for Budget Responsibility (OBR) supports this approach, forecasting that these changes will lead to housebuilding reaching its highest level in over 40 years, with an estimated 1.3 million homes built by 2029/30. The bullish case doesn't end there; beyond addressing housing shortages, the plan is projected to boost the economy. The OBR estimates a 0.2% increase in GDP by 2029/30, translating to approximately £6.8 billion in today's terms. Additionally, the government has allocated £600 million to train up to 60,000 new construction workers, aiming to mitigate labour shortages and stimulate employment.

This all sounds solid, but the bear case must always be observed here, as nobody wants to be on the wrong side of history if the lofty goals are not quite reached. To get a final squeeze of juice out of the mountain climbing analogies, if you set off in the wrong direction from base camp, it could be all over from the start. Vocal critics argue that the plan completely overlooks the critical issue of housing affordability. Savills, a leading estate agency, for instance, highlights that without addressing affordability barriers and restrictive mortgage regulations, building rates cannot substantially increase. They note that new housing delivery has averaged just 230,000 homes annually over the last three years, falling short of the 300,000 annual target. They maintain the plan heavily relies on private developers, who may hesitate to increase output without guaranteed demand. They suggest that builders are more interested in controlling supply to maintain high prices, which could hamper large-scale construction efforts. We have recognised this in our vocal championing of SME entities in our space, as we believe that growth of that sector is the key to moving forward, but it's a point we have laboured and not to digress further; we move on away from the two arguments, to... the opportunity.

Firstly, regardless of the outcome of demand-side targets, no matter who is right or if it's bold optimism versus tempered pragmatism, whether we make it up the mountain or have to save it for another year, it's not a binary win or lose outcome, the UK housing market's underlying fundamentals still remain incredibly strong despite recent economic uncertainties, inflationary pressures, and fluctuating interest rates. Demand for residential properties consistently exceeds supply, primarily due to our limited land availability, restrictive planning regulations, and growing population. The shortage of quality housing, coupled with ongoing urbanisation, has ensured sustained upward pressure on property prices, particularly in metropolitan areas and commuter towns. All of these factors that are busy hampering national efforts are inadvertently underscoring the UK's historical record of property price appreciation and market resilience, insulting the market from the extreme volatility we have seen across other asset classes. Additionally, the recent stabilisation of mortgage rates and increased credit availability is slowly fostering a more accessible borrowing environment for potential buyers and investors alike.

That solid foundation, coupled with the size and scale of the demand, creates the size and scale of the returns, and you rarely achieve a confluence of factors in both the public and private sector interest that can be taken advantage of holistically. The role of our sector extends beyond financial returns to include broader economic benefits, notably increased housing supply and regeneration projects. By pooling investment capital in this way, investors facilitate the completion of property developments and refurbishments that might otherwise remain unfunded or delayed. Consequently, investors contribute directly to local economic growth, housing availability, and urban renewal efforts, fostering community development while achieving their own financial objectives. We may not make it up the mountain this time out, but the opportunity is in the journey, not the headlines.

Invest & Fund has returned over £300 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

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