For a variety of reasons, there are many unoccupied residences in the UK. This is deeply ironic, given the housing shortage, but offers insight for housing investors.
A number that is hard to swallow in homes-deficient England is 610,000. That’s the number of residences that sit empty in the country. Some are unliveable and need to be either renovated or demolished. Some are quite ready for occupation and should be brought to market as soon as possible. The reasons there are so many of them are complex and somewhat bureaucratic – and serve as a good lesson for investors who are interested in the overall high demand for housing throughout the UK.
The Empty Homes Agency, a campaigning charity, conducts surveys and advocates for programmes and policies that encourage putting unoccupied residences to work. From research they conducted in 2014, in cooperation with mortgage lender Halifax, we know the following:
The problem is underestimated – Surveyed adults think the number of empty homes is 377,000 when in fact it is almost double that.
Many notice that empty homes blight their neighbourhoods – More than one-third (37 per cent) say that unoccupied residences are an eyesore or reduce local property values.
This should be prioritised by the Government – A wide majority (74+ per cent) think the Government and local authorities should be addressing this problem.
That there are bottlenecks in the system that could and should be overcome. Whether it is about bringing empty homes onto the market or converting raw land to residential construction, obstacles need to be overcome. The local planning authorities have a large role to play in all of this.
Investors also should look at the variety of ways in which this problem can be tackled. Incrementally, the Empty Homes Agency has advocated for several things. One is that homes sitting empty now are subject to imposition of a 5 per cent tax after two years (previously, it was three years). Empty Dwelling Management Orders can also be applied in two years by local authorities (previously it was three years). In 2011, the Government allocated £235 million to allow registered housing providers to renovate and repair empty properties and be repurposed for affordable housing. The Council Tax can be increased to 150 per cent on properties that are unoccupied and unfurnished for two or more years, which can be levied on high-value homes held by foreign and domestic individuals as land-banked investments only.
What does this mean to anyone involved in new homes development? First, the housing shortage is to be addressed on multiple fronts. Build affordable flats and luxury homes – the more the better, as the basic problem is one of (low) supply and (high) demand.
Second, that Government policies and programmes play a critical role. Local councils have discretion on imposing Council Taxes. They also can, through local planning authorities (LPAs), choose where to build new. Developers working through alternative investment funds can astutely propose where adding homes will have the best impact on the local economy and least burden on existing infrastructure (or add to that infrastructure at the developer’s expense). But that can only happen with those LPAs on board, properly informed of the benefits of building new as well as refurbishing existing homes. Recently instituted national programmes such as those in the National Planning Policy Framework (NPPF) strongly encourage pro-development practices on the local level. But it very often takes investors and builders to lead the charge.
Investors have many things to consider when choosing projects and instruments. The high demand for housing in all forms and at all prices is certainly attractive, but consulting with an independent financial advisor on all such investment decisions is strongly recommended.