Whilst the number of new-build homes delivered is at its highest in over two decades, we’re still far from reaching 350,000 each year – the number England is estimated to require in order to keep pace with demand, “accounting for new household formation and a backlog of existing need for suitable housing”.
Even the Government-set target of 300,000 new houses per year by the mid-2020s – which was set out in the 2017 Autumn Budget – is predicted to be missed by close to a decade.
A strong first three months of 2021 saw the housebuilding sector showcase its resilience amidst the Coronavirus pandemic, as 49,470 new-build properties were delivered.
But in 2019/20, just 244,000 homes were supplied in total, and this was, at the time, a 33-year high. It was also only a 1% increase on the previous year.
It’s clear that in order to truly tackle the UK’s chronic shortage of housing, much more must be done and the pace of housing delivery must continue to pick-up.
This is particularly evident as Covid-19 brought rise to unprecedented pent-up demand, with Zoopla’s latest House Price Index finding current demand is higher than usual for this time of year and is further outstripping supply, as the total stock of homes for sale is down 26% on 2020.
A 2017 hite paper titled Fixing our Broken Housing Market – which set out “a comprehensive package of reform to increase housing supply” – identified that among other issues, a significant problem facing the market is “a construction industry that is too reliant on a small number of big players”.
Whilst over 12,000 small and medium-sized housebuilders accounted for 40% of new homes in the 1980s, there was a sharp decrease in SME lending from mainstream banks in the aftermath of the global financial crisis. As a result, the number of small builders has dwindled to circa 2,500 responsible for just 12% of new homes in recent years.
But through vehicles such as a property-backed Innovative Finance ISA (IFISA), experienced investors have an important role to play in helping to reverse this decline and aiding in stimulating housing supply.
Using a property-backed IFISA to stimulate housing delivery and target attractive potential returns
One of investors’ favoured assets in the UK, there are multiple methods of property investment, including buy-to-let and purchasing housebuilder shares.
However, for experienced investors interested in an impact-driven investment that facilitates the provision of high-quality residential developments at a time they’re needed most, property bonds held in an IFISA – rendering returns tax-free – are a key consideration.
The property-backed IFISA is able to provide small and medium-sized housebuilders with the alternative finance they require to re-establish themselves within the market and once again ramp-up housing delivery.
In return, experienced investors can expect to target tax-free potential returns often between 4% and 8%, whilst also witnessing their investment produce tangible results.
And these tangible results aren’t just in the form of houses, but also local jobs that help to boost the economy and the regeneration of local communities.
The 2017 UK Housing Review Briefing argued that “while supply is of critical importance, so is the rather more neglected issue of affordability”, as the prospect of home ownership has become unattainable for many in recent times as the cost of buying a house has risen faster than wages.
This observation highlights that we can not just simply build more houses, we must deliver homes of a mixed-tenure that are able to cater to the needs of an area. This requirement was reaffirmed in the Government’s August 2020 white paper Planning for the Future, which reiterated the importance of SME housebuilders who are “looking to build a diverse range of types and tenure of housing [...] using innovative modern methods of construction”.
Like their national counterparts, small and medium-sized housebuilders are often able to build strong relationships with housing associations to bring to market developments that offer homes both to purchase and to rent, alongside schemes such as shared ownership and rent-to-buy.
But SME housebuilders can boast an advanced knowledge of a local area – an advantage that comes with being a regional builder – providing the ability to deliver the right kind of houses, from high-end luxury and family homes through to affordable and starter homes, in the places they’re needed most and at the times they’re needed most.
In addition, small and medium-sized builders often build their developments in a manner that benefits both the environment and the surrounding communities, utilising brownfield land – that typically does not offer the size and scope that most national housebuilders look for – and preserving the UK’s much-loved countryside.
Investing into a property-backed IFISA
It’s clear that the property-backed IFISA can offer an impact-driven investment opportunity, through which experienced investors can not only help to provide much-needed housing, but also support local jobs and aid in the UK’s post-pandemic economic recovery.
However, as well as this, the target returns on offer – often in excess of 7% – alongside the tax-free wrapper can provide experienced investors with a method of investment into the ever-popular property sector that could maximise potential returns and beat the current soaring pace of inflation.