Property BondsMarch 11, 2022by NewCapitallink0The housing market’s gap between supply and demand and how property investors can help

It should come as no surprise that demand for homes in the United Kingdom significantly outstrips supply – as it has for decades. However, with demand up 49% in January, according to Zoopla’s latest House Price Index, the highest New Year gain in five years, it’s obvious that housebuilding must ramp up the pace to narrow the gap.

The impact of the Coronavirus pandemic on the housing market is well documented by now. With 1.5 million house sales projected, 2021 is expected to be the market’s busiest year since pre-financial crisis over a decade ago, thanks to a post-lockdown need for greenery and more space to support increasing home working.

House prices have also continued to rise steadily over the past 12 months, with the average price of a property in the UK increasing by £16,000 to £240,800 in 2021.

Though analysts believe that growth will drop in 2022, the picture remains positive, with Savills projecting 3.5 percent growth across the UK and as high as 4 percent and 4.5 percent in the North East and North West, respectively.

property bonds

While the increase in demand and overall remarkable performance of the market has been beneficial in many ways – especially given the importance of the housing market to the UK economy – it has also worsened the previously existing supply-demand mismatch.

This discrepancy has sparked a lot of debate throughout the years. Fixing Our Broken Housing Market, a white paper published by the Ministry of Housing, Communities and Local Government in 2017, claimed that “the housing market in this country is broken, and the cause is very simple: we haven’t built enough homes for far too long.”

In 2017, the government established a goal of 300,000 new homes per year by the mid-2020s, although it’s expected that this goal would be missed by nearly a decade.

Furthermore, it has been reported that even this amount of 300,000 would be insufficient. Instead, it would need to be around 340,000 to begin to meet the demand for new housing following years of scarcity.

According to NHBC, the number of new home completions in Q3 2021 was 31,908, down from 33,600 in Q3 2020 — a figure that is remarkable given that the housebuilding sector was hampered by Coronavirus restrictions for much of 2020, although they had been greatly alleviated by 2021.

On the other hand, the number of new home registrations increased by 14% in Q3 2021 compared to Q3 2020, from 29,566 to 33,779, demonstrating that the market is still thriving in the aftermath of Covid-19’s disruption.

“A construction industry that is too reliant on a limited number of huge businesses,” according to the Fixing Our Broken Housing Market report, is one of the market’s difficulties.

The 2020 Planning for the Future white paper reiterated the need for small and medium-sized builders “seeking to develop a varied variety of types and tenures of housing, and those using innovative modern methods of building” to enter – or rather re-enter – the market.

SME house builders are being aided by property bonds

property bonds

Following the financial crisis of 2008/09, the number of SME housebuilders began to decline as banks significantly reduced SME lending.

As a result, while over 12,000 smaller house builders were responsible for 40% of new housing in the 1980s, this number has decreased to roughly 2,500 in recent years, accounting for only 12%.

However, when regional builders collaborate with national counterparts, it’s evident how important regional builders are in addressing the UK’s chronic housing shortage. Property investors can also play a role in the solution by providing alternative financing to SME builders in the form of property bonds.

This has the potential to be an impact-driven investment for experienced investors, as well as providing exposure to the ever-popular asset of property, not only because it helps deliver much-needed housing, but also because small and medium-sized housebuilders can have a profound impact on local communities in many other ways.

From reviving areas by developing on brownfield land to producing local jobs in the construction industry and the entire supply chain – such as architects, interior designers, and others.

Furthermore, regional homebuilders, who often have an unrivalled awareness of the local housing demands, are able to deliver the right sort of home in the right location at the right time.

This includes collaborating with housing associations to create mixed-tenure developments with houses for sale, rent, and rent-to-buy and shared ownership options.

property bonds

This is especially important right now, because, in addition to increased buyer demand, Capital Economics estimates that the UK will require 230,000 new rental homes per year to avert a gap.

Importantly, at a time when inflation is at a three-decade high of 5.5 percent, experienced investors will be looking for investment possibilities that can aim inflation-beating returns while also having a beneficial impact.

Property bonds can do this, with prospective yields often exceeding 7% – and in certain cases being Innovative Finance ISA (IFISA)-eligible, making them totally tax-free – making them a potentially beneficial addition to an experienced investor’s portfolio.

Investing with the goal of making a positive impact and achieving favorable returns

property bonds

With the urgent need for more housing in the UK and the resulting need for an increase in SME housebuilders to help accelerate delivery, property bonds represent an important source of alternative finance.

Experienced investors can gain access to an asset that has proven resilient throughout the pandemic – and had shown consistent demand even before the emergence of the post-lockdown housing boom – as well as an impact-driven investment opportunity with the potential to generate attractive returns by investing in property bonds.

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