If there was one debate that raged throughout 2015, it was housing. How do we build more homes? And whose responsibility is it to provide enough affordable units?
The speed and suddenness with which the debate swings and the scare stories that expose our industry’s obsession with boom and bust mask the real issue - which is how, in 2016, we can build inspiring places for people to live that also provide a reliable return for investors and shareholders over the long term.
The private rented sector is where I believe many of the answers lie. The most significant feature of the PRS model is that the money currently in the market seeking a home is patient capital. This is compatible with the need to build long-term, sustainable places designed to ride out market fluctuations.
We need to understand that the young people of ‘generation rent’, who make up a large part of the PRS market, are making an elective choice to buy into a product rather than being forced into a distress purchase because they can’t afford what they really want - a home to buy. That gives us an audience eager for a product that delivers a long-term, high-quality lifestyle.
It is beyond me why we haven’t worked out that if people make their buying decisions for mobile phones based on quality branded service models, we haven’t been able to build a similar model for rental property - the product that takes up the largest proportion of people’s monthly incomes and that is driven largely by emotion, comfort and safety.
Where we are going to build these places is also key to the debate. In a sector of the resi market where land price is the make-or-break issue and where the customers are predominantly young people excluded from city-centre home ownership, PRS development is driven to brownfield sites in lower-value locations that need a lot more in response than a well-designed apartment block. But here is where the opportunity lies.
Of course, this is only possible if the numbers stack up. Right now, times are good for property developers, which means land values are high, and in a market where build-to-sell resi property can command a 30%-40% premium over build to rent, the market for PRS is tricky. But this will change. As the market enters a new phase of its cycle and land values fall, PRS will explode. Costs will fall, but the demand will still be there. The higher costs and lower returns associated with less efficient net-to-gross ratios and non-rent-producing common facilities will be offset by lower land values, making PRS an altogether different proposition.
So while we make our plans at the beginning of the new year, what we must not forget is that at the heart of our industry are people, their lives and their happiness, hopes and dreams. Understand this, and how we can leverage it to do our work, and this will be a good year for us all.
Richard Upton is deputy chief executive at U+I