"To truly ‘get Britain building’ off the back of their planning reforms, the government must promote investment in the market"
- Jatin Ondhia - Shojin
A month into Keir Starmer’s reign as Prime Minister and much debate has already been had around the new government’s legislation on house building and planning. This has been off the back of announced planning reform, mandatory local housing targets, a review of green belt land and changes to the Right to Buy scheme.
The Labour Party has made its intentions clear and is keen to address the UK's acute housing shortage, which presents one of the country's biggest challenges. According to the National Housing Federation, 340,000 new homes are needed in England, including 145,000 affordable homes, by 2031 to meet current demand.
Decades of underdelivering have left Britain lagging behind other nations, with estimates indicating a shortfall of 4.3 million homes. Unsurprisingly, Labour's pledge to build 1.5 million new homes was a key focus of their campaign.
It’s an ambitious target. Building 300,000 houses a year isn’t something this country has achieved in nearly 60 years. The King’s Speech on 17th July set out a key priority in achieving this – overhauling the planning system.
However, although a streamlined process covering housing, new towns, and infrastructure has been promised, the specifics are still unclear. There is speculation about Labour reclassifying low-value Green Belt land for development, but details are yet to be seen.
Announcing planning reforms and encouraging investment was necessary, and Labour’s supermajority should give them the strength to stand up to NIMBYs in the planning battles that will come next. But concrete plans are now required to meet housebuilding targets.
The real estate market is complex. Yet, with economic conditions improving, alternative finance options will be essential in bridging the funding gaps and supporting the housing targets set by the new government.
Providing developers with the funds
The Labour Party has clearly banked on the ambitiousness of its policies in encouraging economic growth – and the importance of building in achieving this cannot be understated. The economic effects are obvious: jobs are created both directly in construction and indirectly by improving local economies, and there are benefits from greater consumer spending and improved tax-raising powers for local authorities.
Considering this, it’s absolutely vital that the government explore all avenues to unlock the necessary financial resources to turn these plans into reality.
As any demand grows, it inevitably needs access to more capital. This is especially true of developers, where capital requirements can rise more than proportionally as the physical scale of projects increases. This can be thought of as a ‘funding gap’ that effectively prevents some developers from scaling up their projects.
Recent research from Shawbrook revealed that four in five (77%) developers say that finding funding was the most complicated aspect of their business, with three quarters (75%) saying there are limited funding options for developers.
Reaching any sort of housing target will require a change of tack. This is where alternative finance can play a significant role.
Alternative financing options like peer-to-peer lending, mezzanine finance, and senior debt provide a means for individuals or businesses to secure funds from investors seeking high returns.
In the property market, these methods have been particularly attractive as they offer new sources of capital, enabling builders to obtain funds that have traditionally been reserved for large-scale developers.
Additionally, as projects grow in scope, developers often encounter costs that exceed their initial budgets, making it difficult for smaller players to scale up their proposals. Peer-to-peer lending offers an effective solution for housebuilders to raise necessary capital during such times. Furthermore, it allows everyday investors to participate in high-quality real estate investment opportunities that were once accessible only to institutional investors.
Working with the private sector
To truly ‘get Britain building’ off the back of their planning reforms, the government must promote investment in the market. With the appeal of buy-to-let (BTL) investing waning over recent years, opportunities emerge for other forms of real estate investment. Debt-based real estate investment – such as peer-to-peer, crowdfunding, and co-investing platforms – could attract interest from private investors.
Indeed, the use of technology in real estate investing will continue to enhance efficiency and accessibility. Fractional investment, for example, allows investors to put their money into an asset without needing enough capital to purchase it outright. This method has opened development opportunities to a wider pool of investors, allowing participation in large-scale projects at a fraction of the total cost.
Further, fractional investment broadens the spectrum of investment options to accommodate varying risk appetites. More cautious investors or those with smaller capital can still access lucrative opportunities, while those with more capital can achieve higher returns due to their larger stake. This approach also aligns investors' interests with professionals who possess the expertise to perform thorough due diligence and provide oversight.
Labour’s planning reforms and the beginning of base rate cuts are the shot in the arm that the property sector needed. But now is the time to go further.
Stakeholders from across the world of real estate will be watching how the first few months of this new government play out with interest; if there is a notable commitment to property developments, we could see an influx of private investment, both from domestic and international investors, into the UK property sector.
