As the hangovers subside after the festive period, we hit the start button not only on a new year; but also a new decade. Perhaps many are wondering how much change we are likely to see in the UK Housing Market and the residential property industry over the coming decade? Many will think of change in terms of capital values or of pockets of growth.
The UK Housing Market – 2020 and Beyond
My personal view is that changes in the housing market will be far broader than changes in capital values. The 20’s are likely to be a period of significant change in the residential property industry as whole and the pace at which change takes place may surprise many. There are 5 key themes which are likely to dominate the next decade:
PropTech
PropTech will be one of the biggest changes to the property industry over the coming decade. Innovation is not a word typically associated with the property industry, but is that about to alter? Notorious for being an industry resistant to new ideas and modernising technology, the emergence of residential real estate as an asset class has put owner occupiers, governments, developers and investors on a collision course with change. In the same way that FinTech has transformed the finance industry, PropTech will fundamentally transform inefficiencies in the real estate market; democratising information, improving outcomes for owners, developers, investors and tenants.
ESG
ESG (Environmental Social and Governance) are not terms traditionally discussed in real estate investment circles, albeit are likely to play a much broader role in thinking. BREEAM, LEED and Greenstar are schemes which have all made an impact in mainstream commercial investment decisions over the past decades, and similar issues will permeate into the residential markets.
Driven initially by large institutional owners, such as Build to Rent investors, private investors will have a far greater reference to these factors and associated considerations moving forward. Whilst this will be driven in some part by the social inequality of housing, more realistically the financial implications of not being able to respond quickly enough to government taxes and initiatives and therefore necessitating significant retrofitting to housing will become a major consideration.
Emergence of the Savvy Investor. We are likely to see further prolonged periods of economic and political instability as America, Britain, China and Europe all negotiate their respective trade deals. Governments continue to deal with housing inequality and flash periods of instability for example with Iran, a potential Scottish referendum or periods of European instability together with continued record low interest rates. The bi-product of this instability will be a maturing of private investors who are far more global in their investment thinking, chasing truly net returns considering the true costs associated with ownership in different markets around the world. PropTech will play a role in this change as access to information will assist investors to make truly informed decisions.
Emergence of new Investment Markets. In the 20’s we will witness the emergence of new investment markets, this is likely to be the combination of the return of traditional Asian investment markets, such as Thailand, Japan and Malaysia. Together with the emergence of new investment locations such as New Zealand, Europe and perhaps the US as investors seek enhanced returns. The speed at which these markets grow will in some part be driven by the pace at which CORE investment markets recover and how ownership costs evolve in those markets.
Recovery of CORE Investment Markets, finally, we are likely to see traditional markets in London, Australia and North American begin to recover. However, new taxes and FX rates will drive the speed of the recovery as rapid movements in either could erode potential returns for investors. In this new environment, governments will continue to struggle to respond to changing demands; constrained by outdated and inefficient planning regimes and the inability to unlock the supply side of the housing equation. The winners will be those markets who can strike the right balance between relevant taxes and attracting foreign capital to deliver new housing supply.
My predictions may turn out to be spot on or simply miles from reality; however, whatever the case the 20’s is likely to be an interesting space for all. Happy New Year!
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