Why house prices will never grow again, what affordability really means, and the sky-high running costs of skyscrapers
Who would swap the leafy streets of London’s West End, with their prime and super-prime stuccoed properties, for the shiny new buildings, eerily empty boulevards, green spaces and construction sites of east London’s Queen Elizabeth Park? Yolande Barnes made this move last September, leaving property consultant Savills – where she was director of world research – after almost 30 years at the firm.
Barnes headed east to chair the new Bartlett Real Estate Institute (BREI), which is part of UCL’s faculty of the built environment. BREI is based at UCL Here East, the university’s new campus in Stratford, which is also home to the Bartlett School of Architecture, Civil, Environmental and Geomatic Engineering. The move seemed, she says, “a completely natural thing to do”, particularly as Barnes was already a visiting professor at the Bartlett, and housing’s big issues, above all affordability, remain very much on her and BREI’s agenda.
What is BREI’s focus and what are its objectives?
Our hashtag is #RethinkRealEstate. We want a better understanding of what creates value, in environmental, economic and social terms and at all levels of the global built environment, from the city through to the building.
There is a huge amount of knowledge in the industry, so this is about forming links between academic research and practice, and then communicating it in a way that people can understand.
We’re already offering new MSc courses around healthcare facilities and learning environments, and have a range of short courses in development. These relate to two of our eight themes, with the others being around resilience, the infrastructure interface, housing affordability, community inclusion, looking beyond placemaking and digital disruption.
Community inclusion was the theme for our first agenda-setting workshop, which took place last month. It looked at the nature of engagement and how new approaches, involving the co-creation of places, will be increasingly important.
Community inclusion was the theme for our first agenda-setting workshop
You listed housing affordability as a theme – do you have any particular research in progress in that area?
I’ve been working with the Urban Land Institute on a pilot study looking at a number of European cities, which has developed a methodology for assessing affordability.
The common measure is house price to income ratio, but that is too narrow to show the full range of affordability issues and it isn’t comparable between countries and cities because definitions in use vary. Even using consistent measures of prices and incomes doesn’t tell the full story, because there are many different ways that affordability problems show up, like work commuting times and costs, rental costs, deposits and fees, or how many people occupy a home. For example, in Barcelona a single young person earning low wages may have to live 50km outside the city, while in London they may be living in the city but sharing quite a crowded home, and while Berlin has housing that looks cheap to a Londoner, it isn’t to a local, because Berlin income levels are lower.
Affordability is a nuanced and layered pattern that is far more complex than you might think
Affordability is a nuanced and layered pattern that is far more complex than you might think. Every government wants to have a single silver bullet when it comes to policy to address affordability, but you have to understand the whole machinery. If you don’t understand the full nature of the problem, you can’t solve it.
The study will be outlined in a paper, and we are hoping to roll out the methodology globally.
Where is the housing market heading?
There is a huge amount of uncertainty in the UK with Brexit, but it’s hard to talk about its impact because we don’t have a no-Brexit UK to compare it with. We are seeing the sale of some new-build stock in London at the moment to housing associations. That shows there is a certain amount of concern among developers – and highlights the purchasing capability of housing associations, because the strength of their income streams means they have access to finance.
I’m writing a book on why your house price won’t grow again
But we’re now in a very different global environment. I’m writing a book on why your house price won’t grow again. It will tell ordinary homeowners that twentieth-century price inflation is over, because there is no more yield shift – in other words, interest rates have nowhere further to fall and so won’t drive price growth. A home still has value, not least the money saved in paying rent, but now it can’t be relied on as a cash cow of automatic capital growth.
This is why the big picture, which we focus on here at the institute, is important. If there can be no capital appreciation without rental growth, then the fundamental drivers of that value, the occupiers, become more important. Understanding what people want and need becomes critical, as land has no value if it doesn’t have people on it.
In many of our discussions here, the issue of land ownership becomes central as land ownership norms and mechanisms can be instruments that perpetuate or exaggerate inequalities. The answers to some social imbalances, not just affordability, might be to enfranchise people, by the state giving land back to people, through new communal land ownership models or to individuals through rent-to-buy models, for example.
We need to try some new and radical thinking if we are to solve the wicked problems of the twenty-first century
It’s a bit ironic that I have spent much of my career talking about the need for more rented housing, and now I’m arguing for new forms of home ownership as well. But we need to try some new and radical thinking if we are to solve the wicked problems of the twenty-first century.
What is the biggest concern about the homes we’re building at the moment?
There is increasing concern among long-term landlords about the physical running costs of some tall and ”massive” buildings – particularly those surrounded by extensive but little-used landscaping and parkland or lots of roads lined with blank facades.
Some of my recent research found that the new buildings being constructed on regenerated housing estates are likely to cost more to maintain in 30 years than the ones they are replacing. Elements like cladding, lifts, communal parts, lots of corridors and gardens can be very costly to maintain and renew. Terraced houses and simple, mid-rise modern mansion blocks on streets and squares are a lot cheaper to run and maintain.
We may find that we have been building some big problems over the last few decades
This means we may find that we have been building some big problems over the last few decades, and as a result, we will see declining values for certain types of buildings in the future. Registered social landlords, as well as private rented sector (PRS) investor landlords should be concerned about this, and it threatens to impoverish certain owners as well as impair net rental streams. Once again, people need to be centre stage. If you have bought into a development with a sense of community, you’ll find a way to maintain it – perhaps local volunteers will keep the landscaping looking good, for example – but without community, landscaping can become scrubland.
Many 21st-century real estate problems are a product of the short-term nature of the industry. Everyone thinks of regulations, but not of performance. In real estate, problems are always multi-faceted.