In the transformative landscape of the 2023 housing market, the convergence of high-interest rates, build cost inflation, and an escalating cost of living crisis created a complex environment. This shift has not only affected the development market but also sent ripples through existing housing stock, leading to a notable slowdown in the affordable housing and later living sectors.
As the market grapples with these challenges, developers are recalibrating their approaches, keeping a watchful eye on land prices. There are signs of stabilisation and adjustment, providing optimism for a housing market that continues to evolve amidst continued economic uncertainty.
Affordable Housing:
The challenge to deliver affordable housing has intensified, with Registered Providers (RPs) contending with market conditions that demand a focus on their existing stock and adherence to health and safety protocols. The absence of a Help to Buy (HTB) scheme compounds the affordability challenge for first time buyers. With the London market facing additional hurdles such as second stair cores and escalating costs, we are seeing an increase in partnerships between housebuilders and HAs to improve delivery.
Later Living:
The housing market’s challenges have created a ripple effect on the later living sector, where demand for retirement units has stalled due to a lack of enabling house sales. Construction costs are proving to be particularly challenging, especially for schemes that offer additional facilities. This cost increase, coupled with potential value decreases in some areas, is further impacting the deliverability of later living schemes. Despite these hurdles, there is growing interest from village operators and developers for sites in the Home Counties, particularly those around 10 acres. Urban-focused later living developers are also eyeing sites in town and city centres in the South due to higher sales values needed to make the schemes economically viable.
Market resilience:
As the new year unfolds and an election looms, there are signs that the market is adapting to the challenges. Interest rates show glimpses of stabilisation, and even decrease, offering a glimmer of hope. Build cost inflation seems to be subsiding, with a noticeable adjustment in land values. However, developers still face challenges such as building safety requirements (e.g. secondary stair cores) and environmental standards like Biodiversity Net Gain, coming into force in February 2024. While further easing in build costs is anticipated, it may come too late for some schemes and companies, especially those facing time constraints on planning permissions. Our Planning team is seeing an increase in collaboration with Receivership teams to explore options for distressed sites.
Developer strategies:
In response to the evolving market conditions, developers are strategically navigating the aftermath of the challenges faced in 2023. They are adopting measures to secure stock and position themselves favorably, particularly on larger schemes where the new norm in land prices has already been factored in.
But there are bright spots:
Despite the overarching challenges, the Build to Rent (BTR) and Purpose-Built Student Accommodation (PBSA) sectors remain resilient. Developers in these segments are forging ahead, adapting to the outcomes of the previous tumultuous year. The demand for rental properties and student accommodations appears to be withstanding the broader market turbulence, providing glimmers of hope in an otherwise challenging landscape.
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