If you were to go back ten years and tell people that come 2016, young professionals such as accountants and lawyers would not only be unable to afford to buy a property, but would also be priced out of the rental market, they would have thought you were mad.
But in the UK’s overheated property market – nowhere hotter than London, where many of the major accountants and law firms have their head offices – the failure of wages to keep pace with prices (and rents) has created something of a ‘perfect storm’ for young people, even those earning decent salaries.
Big Four accountancy and consulting practice Deloitte announced in autumn 2015 that it was going to help its new recruits in the capital with subsidised rental accommodation, but took the market entirely by surprise in January 2016 by revealing that it was looking at going a step further, and working with developers to secure houses and flats in new developments for its people, from apprentices to existing senior staff. Other accountants and some major law firms are known to be looking at similar ideas.
Andy Barnard, private rented sector and regeneration specialist partner at Trowers & Hamlins, says it is unsurprising that large professional services organisations are taking exceptional measures to secure accommodation for their staff.
“We don’t know the details of the scheme yet, but on the face of it this looks like an enterprising move by Deloitte to mitigate the impact of high property prices, and rents, on recruitment,” he says.
"While the media was keen to bill this as ‘Deloitte builds worker housing’, I don’t imagine they want to start being property developers or landlords,” he adds. “We’re not going to see ‘Deloitteville’ popping up in central London.
“What’s much more likely is that they will negotiate a certain number of nominations in new developments. But this could be very attractive from a developer point of view, especially if Deloitte or a similar blue-chip organisation, is going to offer a covenant too. That kind of thing could make funding a development more attractive to an investor, rather like the effect an anchor tenant has for a shopping centre.”
“This is one of a number of changes we’re seeing in the residential market in response to continuing high prices,” notes Ian Doolittle, public sector housing specialist and partner at the firm.
"Quite a number of local authorities have decided to be proactive in the market, using local housing companies to provide not just key worker and social housing, but also affordable units up and down the value chain. They have moved away from the old idea of mono-tenure, large estates towards mixed developments, recognising that attracting economically active people is key to regeneration.”
Some local authorities outside of major cities are taking creative approaches, such as Cherwell District Council in North Oxfordshire. Here they are creating the largest self-build scheme in Europe as a way of engaging previously disengaged members of the community, encouraging working families to the area whilst generating revenue for the authority.
Whereas London is the centre of the housing ‘storm’, the attractive, regenerated centres of some of the UK’s major cities, such as Bristol, Manchester and Leeds, have also seen hikes in property prices, with local salaries struggling to keep up. PRS (Private Rented Sector) is the obvious solution to getting large numbers of affordable units into the market quickly, but the UK’s complex property market inveighs against easy solutions.
“PRS is proving to be successful in some areas,” says Andy Barnard, “but a major block in many areas is land value. In most cases, a developer building to sell is prepared to pay more for the land.”
“There are probably some public sector landholdings which could be brought into play for PRS,” says Ian Doolittle, “but historically, many local authorities have tended, for understandable reasons, to want to hold onto prime land for that ‘perfect’ scheme which will solve numerous local issues at once. I sense things are beginning to free up a little, in the face of the evident crisis in housing.”
Density is also an issue. Many areas of London, especially some of the large local authority estates, are not sufficiently dense to allow for a healthy commercial ‘street life’. Central Barcelona, for instance, has four times the residential density of central London.
Ironically, says Barnard, “a major hurdle to redeveloping and increasing the density of much of the existing local authority estate in London, for instance, is the presence of individual leaseholders on estates, as a product of the Right To Buy policy.”
One solution could be repurposing underused office buildings as residential property, something which has been done to a certain extent in London and Manchester, for instance, but the issues for local authorities, caught in a spending squeeze, are far from simple.
Barnard points to a large scheme in Archway, London, where Trowers client Essential Living is converting the landmark 17-storey Vantage Tower – which sits on top of the Tube station, with stunning views of the City – to 118 PRS units, with a roof terrace, winter garden and club room. In this example the local authority challenged the use of the rules giving “prior approval” to office to residential conversion.
As Ian Doolittle warns, most UK towns and cities have far less office space, and conversion to residential is something of a ‘one-way street’, with local authorities reluctant to sacrifice precious business rate revenues for council tax.
"In many cases, converting office to residential is indicative of market failure, rather than part of an active economic strategy,” he says. “Local authorities find themselves in the unenviable position of having to balance the often competing interests of different community and business groups, and that kind of move is often a last resort.”
Ultimately, whatever the pressures on this complex market with huge demand, high land values and skills and materials shortages in construction, developers, local authorities and large employers alike will need to look to more creative methods in order to make sure young workers can afford a place to live.
