“Yesterday may have been the beginning of a slow, and doubtless bumpy, recovery,” said former Knight Frank senior partner Alistair Elliott over breakfast on 15 November.
The day before, Landsec boss Mark Allan had produced a solid set of half-year results and winked at distressed sellers: “We are well placed to take advantage of opportunities that will no doubt arise.”
The day before that, British Land’s Simon Carter bravely called the turn after producing equally solid results: “We are approaching the peak in UK base rates. We expect the strong occupational fundamentals of our submarkets to reassert themselves.”
On 16 November, it was the turn of GPE. Chief executive Toby Courtauld suggested it was already off the recovery blocks: “The past six months has been the first time we’ve been a net investor in a very long time. Exactly where and when we hit the trough of the market is always going to be moot. More relevant is that we are finding value. Next year, we are likely to buy more than we sell.”
So, the year ends with the blue-chip companies on a surprisingly high note. Or perhaps not surprising. In 2007-08, their loan-to-value ratios were double the current 30% to 40%. Lessons were learned.
Elliott is chairman of LondonMetric and sits on the UK board of Grosvenor and the councils of the duchies of Cornwall and Lancaster. His “doubtless bumpy” remark refers to the mountain of debt likely to double or treble in height as low-interest loans expire and need refinancing. The Bayes lending survey shows 45% of the £180bn of UK commercial real estate loans will expire in the next two years.
Happily, UK bank exposure is far less than it was in 2008-09 (see graph). As Elliott concluded: “Debt refinance and further falls in pricing will force more, attractively priced assets to the market. Those with cash and/or well financed will strike.”
To be fair to forecasters – step forward CBRE – 2023 has turned out much as expected, with valuations shrinking, rents steady and deals down, the latter leading to pain and the misery of dealmaker redundancies.
There is a feeling the worst is over. Blackstone’s Jon Gray called it an “inflection point” last week. Up or down? AEW has taken an each-way bet holding out for “a prospect of revival in 2024 – however, the conflict in the Middle East has heightened geopolitical uncertainty and increased the need to consider a possible downside scenario”. Fingers crossed.
Kill the mutant algorithm
Each local planning authority (LPA) must zone land enough to grow the existing stock by a fixed percentage each year, the Home Builders Federation suggested last month. A sensible idea the Conservatives should adopt before Labour cottons on. Forget the ‘standard method’ formula introduced in 2018. A mutant algorithm, based on ‘need’, perched on a guess by the Office for National Statistics (ONS) of how many households will ‘form’, given population trends. The ONS guesses 167,000 a year will form until 2032. Why is need 300,000? Anyone’s guess, literally – that’s the problem.
Dickering over the housing need between central and local government will only get worse in spring 2025 when updated ONS figures are likely to show even fewer than 167,000 households a year will form. The rickety standard method needs demolishing. Irreparable damage has already been done by the Tory backbench rebellion late last year. Prime minister Rishi Sunak was forced to soften the need targets from compulsory to advisory. For advisory, read ignore, if you don’t like the number. Result: stasis in the south.
There are 25 million homes in England. Give each LPA a target of adding 1.2% a year to their stock. Bingo, you get 300,000. No, it’s not that easy. The affordability crisis in the south is real and needs a political solution. High-price areas could be asked to add, say, 1.5% or 2% to their stock. How would that work without causing need arguments to resurface?
Barratt’s group land and planning director Philip Barnes suggested a simple formula over breakfast. If the average house price in the area is more than X times the average wage – say six to eight – then the percentage of new homes built each year must rise by 1.2% plus X. “We need a simpler, more equitable way of determining housing need. Asking councils to add a fixed percentage to their existing stock will be more easily understood,” he said.
PS: More – but less: from 8 January my column will be published weekly instead of monthly. You may be pleased to learn it will be shorter.
Peter Bill is a journalist and the author of Planet Property and Broken Homes
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