Penfold Associates

Ian Perry and Kim Penfold

The following paper is based on a presentation by Ian Perry at a World in Property conference held in Manchester on 7 November 2012

The problems we still face
There is no denying that things have been bad.  The housing market peaked in 2007 and then collapsed.  Recovery has been limited and unsteady with the current average price in Greater Manchester of £104,357 (Land Registry report for August 2012) being 1.4% down on twelve months ago.  There is a low level of activity (monthly sales are less than half those at peak) and most commentators expect prices to be broadly static into 2013.

New construction has been hit badly.  Nationally, completions are the lowest since the 1920s.  In Greater Manchester, new house completions reached 14,000 per annum at market peak.  Now, they are only 3,000 a year.  The conurbation has lost 25% of its construction jobs since 2007.  Work on many sites was abandoned and has not yet restarted.

We all know the causes.  First of all there was a credit crunch and it was followed by a recession.  In the UK’s case matters were exacerbated by lax mortgage lending practices which matched the US “sub-prime” lending.  Like most of the developed world, the UK economy existed on high levels of public, private and personal debt.  The UK economy was also very unbalanced with over-reliance on the financial services sector.  The banks were bailed out and some are still largely in public ownership.  They have not yet been reconstructed and we wait to see how far the Chancellor will go with his promise to implement the Vickers report and separate retail banks from investment banks.  All this has contributed to low consumer confidence (fuelled by people’s uncertainty about their employment prospects) and tighter restrictions on mortgage lending which are probably sensible and necessary.  Prospects for first-time buyers have been hit and young people are part of “generation rent” while they struggle to save for a much larger deposit than they would have needed in the years before 2007.

Economic uncertainty and recovery
The economic situation is still uncertain.  The UK has suffered a “double-dip” recession and the best that can be expected is a slow recovery.  We still do not know whether the Government’s austerity policy is really working but do know that the pace of fiscal readjustment is slower than was originally intended.

External factors are relevant.  The global recovery has been slow and growth has fallen back even in the star emerging economies.  There is the continuing crisis in the Eurozone with no sign that the authorities will actually implement any of the solutions they periodically agree.  In the US, political divisions have meant indecision on economic and fiscal matters.

Having said all this, things will eventually get better.  Despite what Gordon Brown said about an “end to boom and bust”, the economy works on a cyclical basis and recessions are followed by recovery.  A 2011 report by Oxford Economics for Jones Lang Lasalle predicts a generally positive medium/long term future for England’s three northern regions.  It noted that their 2010 growth of 1.8% was actually above the UK 1.6% average and went on to forecast 2.5% average growth per annum for 2011-16.  Oxford Economics said the three regions stood to lose 110,000 jobs in the public sector but there would be a net jobs increase of 200,000 with private sector jobs replacing public sector job losses.

Against this background, the Greater Manchester economy is the key driver for the North West with the potential to kick-start the whole region.  Greater Manchester has the regional centre, a major international airport with enterprise zone attached, the strength of its knowledge economy, and has strong representation in growth sectors.  So there is every reason to expect a strong recovery when it comes.

Housing demand and land supply in Greater Manchester
The Oxford Economics report also predicts a “looming” housing shortage across the three northern regions.  It forecasts that an average of 57,000 new households will form per annum from 2013 to 2033.  Only 23,000 new homes were completed across the three regions in 2010.  Even at the peak, maximum output was only 50,000 completions per annum.  Household growth will present a challenge for local authorities and the development industry.  Oxford Economics points to “hot spots” already in the lettings market.

Greater Manchester will certainly share in this demand growth.  The Greater Manchester Combined Authority forecasts a need for between 9,000 and 10,000 completions per annum.  This contrasts with current annual production of 3,000 new homes.  GMCA blames both shortage of mortgage finance and shortage of development finance for the shortfall in output.  The Combined Authority also says that the “generation rent” phenomenon represents a long term reduction in demand for owner-occupation.  Similarly, GMCA forecasts long term reduced need for new social housing.  By contrast, demand for market rent housing will continue to grow.  GMCA forecasts growth in smaller households of both young and older people.

Ideally, GMCA would want to accommodate the forecast household growth within Greater Manchester.  The Combined Authority links housing development and population growth closely to economic growth generally and in particular points to the role of housing in delivering regeneration.  GMCA prioritizes brownfield development but recognizes that greenfield sites will be necessary.  However, it will not be easy to achieve the required level of land release as controversy across the country over the National Planning Policy Framework (NPPF) shows.  More locally, a planning inspector has suspended examination of Salford’s core strategy because of inadequate housing land allocations (actually 19% lower than the level required by the old Regional Spatial Strategy).

It is by no means certain that any significant amount of Greater Manchester’s growth would be accommodated in neighbouring areas – despite the “duty to co-operate” introduced by the NPPF.  For instance, Cheshire West & Chester is consulting on housing land allocations below the old RSS requirement and is still encountering opposition to any incursions into the Chester Green Belt.  Similarly, while George Osborne as Chancellor has hit out at opponents of housing growth, as MP for Tatton he has expressed support for constituents in Wilmslow opposed to Green Belt development in Cheshire East.

GMCA has recognized the potential land availability block to housing growth.  The Combined Authority is bringing forward sites in public ownership and has authorised a review of long term housing land availability – including examination of potential housing sites in the Green Belt.

The town centre opportunity
One possible area of opportunity is land and buildings in shopping centres.  The high street has received a triple “whammy” from reduced consumer spending in the recession, out of town competition, and the internet retailing revolution.  This has resulted in empty shops, vacant sites and stalled development proposals across the country.  Realistically, these are long term changes and many centres need to reduce the quantity of land dedicated to retail use.  This means there is land potentially available for residential development in city, town and suburban centres.  Past schemes in town and city centres have focused on the young professional market.  But attractive schemes could be provided for a wider range of markets, including older people down-sizing from the family home.  Residential development in these centres brings extra advantages in terms of residents’ footfall boosting retail sales, other activity bringing life to these areas, and reduced demand for greenfield land.

The potential attraction of housing development in town and suburban centres has been highlighted by research conducted by Nationwide Building Society on the Greater Manchester housing market.  This found that home-buyers already pay a 7.3% price premium for homes 500 metres from a Metrolink stop or commuter railway station compared with homes 1500 metres from such transport facilities.  The report suggests that locations along the planned Metrolink extensions will benefit from a similar premium.

The crisis affecting shopping centres is one of the most significant land use changes in the UK over the last 50 years.  Bringing more housing of different types into centres – alongside or upstairs from retail, other commercial and community uses – will be a positive response to the crisis.  British shopping centres have become sterile environments with small resident populations.  In recent years Manchester City Centre has reversed this trend and the City’s population is growing again.  The opportunity exists to make similar changes in all the Greater Manchester town and suburban centres – real place making.

Changing tenure patterns
Future tenure patterns will follow demand.   The balance is shifting away from owner-occupation and it is likely that a higher proportion of new homes in this tenure will be houses for families than has been the case in recent years.  There will be relatively less new social housing but some will be needed to replace obsolete stock and some to meet niche needs.  Investment is also needed to upgrade existing stock.  There will be substantial growth in both the market rent and intermediate rent tenures.

A gap that needs to be filled is for a flexible tenure model.  This would allow a tenure move from rent to shared ownership or outright ownership in the same property.  It would also provide a safety net in the reverse direction.  Flexible tenure needs flexible funding and a universal model is not available yet although a prototype is being tested by three housing associations in the South East.

The types of housing needed
The sort of housing to be built should also be more varied.  More family housing is needed across all tenures and it needs to have suitable space standards, infrastructure and amenities.  More housing is needed for younger, small households and more housing is needed for older people.  Higher densities will be appropriate in town and suburban centres and near transport hubs.  There is scope for high-rise in such locations.  All of it needs to be energy efficient and to have high quality design standards.

Older people’s housing will be a major growth sector.  It is a suitable use for many town and suburban centre sites and will release housing for families elsewhere.  A wider range of choice is needed than in the past.  Useful case studies of good practice from the UK and Europe were set out in the 2009 HAPPI report (Housing our Ageing Population: Panel for Innovation).  The report covered schemes of different tenures, for different levels in the market, and for people with differing needs for care and support.  As a local example, Your Housing Group is working with Manchester City Council to develop a programme of extra care villages based on their “Ormskirk” model with self-contained flats, mixed tenure, a range of facilities and activities, and an integrated approach to delivering care.

Conclusion
A lot is going to happen.  The economy will improve … even if we don’t know when.  Potentially, there is strong housing demand in Greater Manchester and opportunities exist to bring sites forward.  A wide range of housing types and tenures is needed.  Also, we should not forget that increasing house building is a quick and effective way to boost economic growth.

Progress can be made now.  It is not necessary to wait for more general economic recovery or for a change in Government policy after the 2015 General Election.  Full use should be made of the Government’s recent housing and planning package although it does not amount to a panacea.  The same applies where opportunities exist to bring forward land in public ownership for early development and to the use of HRA “headroom” where it exists and the ability of housing associations to access private funding whether through bonds or traditional lending.  Access to institutional finance and mechanisms such as REITs should also be exploited to the full.  Finally, the Greater Manchester Housing Investment Model being developed by GMCA, GMPF, the HCA and their contractors should be rolled out across the whole Greater Manchester area to deliver as many new homes as possible.

November 2012