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Print article2024 predictions: Living sector outlook
January, 2024 - Shoosmiths LLP
The Levelling-Up and Regeneration Act 2023 (LURA) is set to reshape the planning system and wider residential landscape in 2024.
The Act introduces significant changes to the planning system, hinting at a shift toward centralised decision-making in the planning process – impacting all areas of the UK’s living sector.
Notably, alterations to the Development Plan's status and the incorporation of National Development Management Policies signify a departure from the current 'plan-led system'.
The bringing forward of the LURA - additional secondary legislation will be needed before its provisions can be implemented - coupled with the revised National Planning Policy Framework (NPPF) could lead to further uncertainty in the sector, especially around short-term housing delivery.
With legal clarity still needed, some developers may resort to planning by appeal, bypassing potential delays in determination of planning applications, as local authorities grasp local plan adoption.
The revised NPPF maintains setting housing targets based on local needs but makes them advisory rather than mandatory. There is also a re-focusing of the delivery of new homes in 20 key cities, while also removing the need for local planning authorities to regularly review Green Belt boundaries.
Despite the government’s commitment to delivering 300,000 new homes annually, some industry groups are predicting that fewer houses will be built under the proposed changes, with greater scope for local authorities to not support new residential development in their area.
The politicisation of housing shows no sign of stopping either as we approach the next general election. It is already shaping up to be a key battleground for parties and could decide the election.
With Labour ahead in opinion polling, the party’s rhetoric on housing and planning is growing stronger, with party leader Sir Keir Starmer vowing to “choose the builders, not the blockers”.
Meanwhile, the real estate industry continues to navigate difficult operating conditions and elevated borrowing costs. While a level of consolidation is to be expected, many real estate businesses are utilising partnerships to continue bringing homes forward while the for-sale market is impacted.
The partnerships model and diverse types of working together – risk sharing, collaborating on new developments or through forward funding deals - should not be seen as a temporary or quick fix to current challenges. Rather, this collaborative approach, as discussed in Shoosmiths’ recent roundtable, will continue to shape the strategies of real estate businesses in 2024 and beyond.
Build to rent
Despite a general housing slowdown also affecting build to rent (BTR), the market remains resilient.
Data from Savills showed a record 59,043 BTR homes under construction during Q3 2023 and completed homes surging by 11%. The single family housing sector is a key growth area, with Savills also revealing over 28,000 homes in the planning pipeline - representing 11% of all BTR homes.
Co-living is also one to watch in 2024. This follows the market gaining increased recognition, driven by its appeal to investors and tenants.
Most co-living development activity has been concentrated in London so far, with Cushman & Wakefield ranking the capital as having the biggest growth potential for co-living. Manchester, Edinburgh and Bristol do, however, follow closely in the rankings, with room for growth.
Expanding co-living across the UK is key to the model’s long-term success. However, one of the main obstacles currently limiting new development is planning.
Co-living remains a relatively new concept in planning terms, and, as can be expected, market trends continue to move considerably faster than the planning system. Vagaries and regional policy differences are posing difficulties for developers when bringing projects forward.
More clarity and flexibility will, therefore, be necessary to enable these types of schemes to be delivered in a way that remains safe and viable. As recently outlined by Matt Nixon, legal director and planning specialist at Shoosmiths, the planning system must support co-living, not stifle it.
Purpose-built student accommodation
The availability and cost of student accommodation in the UK is a serious challenge for many students that aspire to pursue higher education.
This is leading to some students having to compromise on their preferred choice of institution or location, settling for less desirable options. This can also have a negative impact on their academic performance, with students often having to work alongside their studies or worrying about living costs.
Increasing the supply of purpose-built student accommodation (PBSA) must be a priority for 2024.
This is not an easy task. It involves several factors such as planning approvals and construction costs, while also delivering on environmental, social, and corporate governance considerations (ESG), and investor expectations - factors that can hinder the development of student schemes.
A more efficient and streamlined planning process that can facilitate the delivery of more student accommodation would make a massive difference in this respect. This can benefit students, investors and developers, while creating a more balanced competitive market, with greater choice.
Later living
The Older People’s Housing Taskforce is expected to give its final recommendations in 2024.
The Taskforce, which was set up in May 2023 by the Department for Levelling Up, Housing and Communities, is working with the Department for Health and Social Care to focus on ensuring the government is offering a range of housing options for older people.
A call for evidence closed on 18 September 2023 and it is hoped that the Taskforce’s final recommendations will be issued in late Spring 2024. No date has been set, however, and is likely to depend upon the impact of an upcoming election. Potential recommendations could include Stamp Duty Land Tax changes, as envisaged by the Mayhew Report in a bid to boost the sector.
Strategic land
The outlook for completions remains sluggish, with prevailing concerns about the lack of clarity in planning and wider economy. This ambiguity, compounded by uncertainties surrounding Future Homes Standards, could hamper progress in the housing sector and strategic land specifically.
The prospect of entering a purdah period in 2024 – as early as Q2 - where even the most basic of schemes may struggle to be granted consent, raises the spectre of even longer ‘stasis’ in the strategic land sector. The anticipation that few major schemes will be permitted in this politically charged environment underscores the pressing need for a clear planning outlook, alongside a political will to deliver increased housing numbers and propel industry forward.
Amid these challenges, nitrate neutrality and biodiversity net gain (BNG) issues emerge as persistent stumbling blocks and will be key talking points at Shoosmiths’ upcoming event, held in partnership with the Land, Planning and Development Federation (LPDF), on delivering sustainable housing.
A concerted effort is required to address these issues and create a more stable and conducive environment for development. The land and housebuilding sector needs to see evidence that the politicians understand these concerns and will be acting on them.
Housebuilding
Planning, affordability and housing provision will be key areas of focus for housebuilding in 2024.One factor that could impact the industry is the CMA’s housebuilding market study, which many of Shoosmiths’ clients have invested significant time into. The land banking and planning working papers and summaries were published in November 2023, with the study still ongoing.
2024 will also likely see an increasing demand for environmental sustainability and biodiversity in the planning and development process. For example, BNG provisions finally came into effect on 1 January 2024. While the real estate industry has had time to plan for BNG, the regime may impact the viability of certain developments, something that the government must also monitor closely.
Partnering with BTR providers continues to be of interest to many housebuilders. Deals are being structured accordingly, with an emphasis on block sales of single family housing. A number of high profile deals completed in 2023 and this trend is likely to continue gathering pace in 2024.
Affordable housing
The challenges and opportunities for the affordable housing in 2024 are in the fundamentals – money, land and regulations – and that is without thinking about the impact of any general election.
The need for widespread homelessness support, alongside the cost of living challenges for providers and their customers are being compounded by development pipeline and affordability constraints, and stock condition. This is as well as decarbonisation and retrofitting challenges, and the impact of tenant satisfaction measures creating additional administrative and service provision overheads.
ESG continues to be an overarching sector theme. This will inform routes to investment, approaches to asset management and delivery of value for money obligations. There also remains the challenge of social housing tenancy fraud to get to grips with, alongside the prospect of tenancy default and repossessions increasing, and growing concerns that shared ownership as a tenure offering may not be viable for all registered providers (RPs) under the new grant funding structure.
That said, there are the early signs of an improving macroeconomic landscape, with the prospect of softening interest rates and the increasing inflow of institutional money into the sector through the increased participation of For-Profit RPs that can drive development and investment in the sector.
Making partnerships work is increasingly becoming the order of the day, as housebuilders align business models around these volume end users, and RPs come to the market prepared to consider joint ventures, additionality-led deals, and outright land promotion as routes to deliver their development and community building mandates. It would not be surprising to see some of the larger infrastructure funders also trying to enter the sector at scale by opening up additional funding routes for existing RPs grappling with the rising costs and limited central funding for retrofitting and carbon zero work, as wholesale estate regeneration to bring historic stock up to grade will not always be a viable option.
2024 will also undeniably become the year of ‘big data’ for the affordable housing sector.
Already operating in a data-rich environment as institutional-scale landlords, RPs will be dealing further with managing – and evidencing to the Regulator – that they are collecting and providing information to support effective scrutiny by tenants of their performance in managing homes and neighbourhoods. How providers rise to that challenge, measuring, managing and monitoring those data requirements, will be one of the key governance themes for the sector in 2024 and beyond.
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