Residential Development Market

Whilst the residential development market has been fairly resilient to the political environment, driven by a fundamental shortage of housing and the house builders’ need to keep the machine moving, there has clearly been uncertainty. A number of landowners have awaited the outcome of the election and this arguably stalled a sector of the market towards the end of last year.

However 2019 saw a significant increase in institutional investor appetite in the residential sector as an asset class. This has led to both house builders and landowners considering their options in further detail, assessing the cashflow benefits of bulk disposals and forward funding deals. An increase in developers agreeing bulk sales to institutional investors to reduce risk, could itself be seen as evidence of the uncertainty that was present in the 2019 market.

2019 saw a significant increase in institutional investor appetite in the residential sector as an asset class

London has seen limited growth over the past 5 years and therefore, with renewed confidence in the market, it is looking increasingly attractive to many investors both private and institutional. With Boris’s recent political focus on the regions, there is also continued confidence in the northern towns and cities from investors, a market that has thrived in recent years as investors and developers sought alternatives to the London and South East.

Housing associations continue to play a key role in housing delivery and the fact that the number of completed new homes in London is reportedly down on the year whilst the number of affordable homes has reportedly increased for a third consecutive year, is evidence of the role they play. It has been a lengthy process but with political pressure and S106 review mechanisms, developers and landowners alike have had to accept the reality that they need to allow for affordable housing within their figures.

In December 2019 the Mayor conceded a reduction in the London Plan target of 65,000 new homes a year to 52,000 following a review by independent experts suggesting unreasonable targets. Fundamentally, this supply / demand dynamic will continue to help pricing going forward into 2020 potentially assisted by a ‘Boris bounce’ in the first quarter, whilst the land market could be assisted by an increased confidence in a future sales environment that will benefit from a degree of political stability.

With continued calls from the industry to diversify to enable demands to be met, combined with a new Government, increased institutional demand, and private investment in modern construction methodology, the housebuilding industry has an exciting year ahead.

Anthony Dixon

DL +44 (0)113 243 7955