Long Read  

Property sector needs restructuring

Property sector needs restructuring

There has been a huge amount of change and uncertainty, from Brexit and Covid-19 to the war now happening in Ukraine. The agenda for politicians, businesses and investors is more customer focused than ever.

This might be because of a resurgence in the desire to care for one another, or simply because news travels at the click of a button, and nobody wants the reputational risk associated with disgruntled clients.

The economy is increasingly segmented into those who are thriving, those who are not doing well and those who are just getting by. We are in a wildly inflationary environment, the by-product of disruption in labour markets, supply/distribution systems and increased money supply has added fuel to the fire and it is affecting everyone.

Construction material prices grew by more than 20 per cent in the past year. Average house prices are almost £50,000 higher than at the onset of the pandemic, meaning that houses earned about as much as an average person (circa £25,000 a year) over those two years.

Meanwhile, asking rents grew by 11 per cent over the past year according to Rightmove, and we all know what is happening with gas prices.

The shortage of available housing is being compounded by inflationary pressures. It means that prices are likely to remain strong and continue to rise. This is unlikely to change anytime soon due to higher costs of materials and labour, a backlog of planning applications and a growing burden of rules and regulations for property developers to contend with.

The good news is real estate tends to perform well in an inflationary environment, and it is certainly better than putting your money in a savings account where the best you can expect for a five-year fix is 2.4 per cent per year – the best offers available mean locking in a five-year loss.

Social changes

Socially, it is difficult to neatly summarise the complex social trends and changes in a post-Covid or mid-Covid world. Long-term urbanisation was followed by an exodus from cities.

Rising loneliness and health trends also play a part alongside longer term, more evident population and generation-wide shifts. We have an aging population and people settling down later, if at all.

Affordability constraints are mixed with long-term rising living standards. The end result is growing demand for rental housing. People living longer also increases the need for yield-focused investments from pension funds and individuals planning for retirement.

There is a growing generational divide in ideals and resources; boomers, millennials and generation Z seem divided both in their attitudes to the world’s problems, what resources they have at their disposal, and how they want to or are able to access real estate. 

Technological advances, innovation and data are opening up access in the property market, as well as increasing efficiency and quality for cost, often at little or no cost to the user.