How to get ahead of a renewed focus on property development

The focus is back on property development is back on the agenda ahead of 2024’s general election. It’s clear housing will be a key focus for all the parties involved over the coming months.

Both the Conservatives and Labour have recently unveiled proposals, or promised to open up planning rules, to support expanding developers across the UK.

Michael Gove has set aside billions to build across various cities, while also laying out plans to reform the planning system. He aims to “put power in the hands of local communities to build their own homes, and unlock planning decisions”.

Meanwhile, Keir Starmer has vowed to back “the builders, not the blockers” if Labour wins next year, which is looking likely. Also, he has vowed to allow more building on Green Belt land.

It remains to be seen how these proposals will pan out. But what’s clear is that the state is keen for more development to address our housing issues. The government has struggled to hit the infamous 300,000 new homes per year target. In fact, over the past five years, the majority of councils failed to build a single social home, according to the Independent.

With the public sector struggling, the coming months may prove to be a prime time for private property developers and investors to step up. There are incentives to act at the moment too, with there being plenty of routes of entry for the market. For brokers, anticipating some of these routes may prove crucial.

What options are available?

Ground-up development could be attractive to budding developers. Especially given the pricing trends we’ve seen. New-build price premiums rose by 20% over the last year. They're now, on average, 52% higher than the average value of an existing home, according to analysis from Sourced Franchise.

While it’s true that rising costs have dented construction output in recent months, building a home from scratch can still be cheaper than buying an existing property. Property developers willing to do the work could be rewarded with lower entry costs, and premium prices.

There are also options for developers who would rather work on existing properties. Mr. Gove wants to make it easier to convert commercial premises, such as shops or restaurants, into residential homes. Fortunately, there is plenty of supply out there for property investors who want to embrace a conversion strategy.

Analysis from Searchland showed there are almost 28,000 MA sites (commercial buildings that have permitted development rights to be converted into residential property) spread across England – with an estimated market value of over £1.5bn.

For landlords, the build-to-rent market also holds a lot of promise. Currently, the total number of build-to-rent homes completed, under construction, or in the planning pipeline stands at just over 250,000. This is up 12% over the last year or so.

With the current rental crisis afflicting tenants, any efforts to increase supply should be welcomed. A lack of suitable accommodation is pushing rents up across the UK, often unsustainably. This is especially acute in large cities such as London. Foxtons, for example, had 97,000 tenants chasing just 2,000 available properties in April.

While there are many development options out there for property investors, they’ll want to make sure they stick the landing. You won’t want to put all your effort and resources into getting a property built, just to trip up at the final hurdles. Especially with the sentiment surrounding developers in the current market.

How to avoid being the face of “new build nightmares”

Large, corporate developers and housebuilders have come under fire in recent months. Some of the UK's biggest players have been accused of “land banking” after investigations from the i found many were hoarding over a million plots, rather than building on them.

Where new homes have been built by these companies, they’re often outed for completing builds with a shoddy finish – there are tiktok creators whose entire content bank comes from showing poor quality work on new build houses. Many firms have been accused of rushing their work to meet targets, and lock in profits. In 2021, Buildscan found the average new build property came to market with as many as 157 defects. In 2005, the average sat at 80 - we've seen a 96% increase.

“New build nightmares” regularly feature in the press. As it stands, it tends to be homebuilding companies behind the headline. But you don’t want to start the trend of private, individual developers being demonised in the media.

The temptation may be there to rush the final details of a project as deadlines loom. But, it’s possible to find breathing space, and complete plans as efficiently as possible with support from bespoke lenders.

Specialist development exit finance is available for property investors who need to cover their original development loans, and find time to wrap everything up.

This can include finishing off any final refurbishments, avoiding selling-off individual units at a loss just to make a deadline, or bridging the gap between the completion of the project and securing long-term finance.

Ultimately, our supply and demand imbalance can only truly be addressed with more stock. Those who plan to help with this need to make sure they do so correctly.