Updated attitudes towards home ownership and space sharing are changing the social fabric of urban communities and creating a demand for multi-use developments.
The real estate needs of the North American and European population are changing, requiring developers to adapt their schemes. Where once the retail and office elements were the drivers of any development, the explosion in digital technology has changed how space is utilised.
Not only has the growth in online commerce led to a steady decline in retailers' space requirements, but the demands made on office space have also evolved. A workforce that would once have made a daily commute to an urban conurbation is now working more flexibly: be it from home or a co-working space.
And with this digital revolution has come a different mind-set to the way that property is held. While baby boomers aspired to home ownership, for the digital generation and their offspring renting property is as commonplace as streaming music and entertainment from Spotify and Netflix.
Quality rental properties
House prices continue to outstrip incomes globally, and the trend to rent was initially driven by the unaffordability of home ownership, as well as a lack of supply. However, space sharing has now become a recognisable concept and has led to a renewed interest in good- quality rental property in Canada, and an unprecedented commitment to the private rental sector by institutional investors in the UK who would not previously have considered it.
Mixed-use developments that offer a "live, work, play" environment are in high demand on both sides of the Atlantic.
Joel Camley, Gowling WLG's real estate practice group leader in Canada who is based in Vancouver, explains that "geographically, Vancouver is surrounded on three sides by the ocean and the mountains" meaning space is at a premium in the city. Add to this population growth and desirability, and home ownership becomes an expensive prospect.
"What's really driving development in British Columbia is redevelopment of existing sites. We have seen several retail and commercial properties that have lived out their usefulness being redeveloped into high density street-level retail with residential towers on top. It's all planned as a multi-community development."
Residential-led schemes
Manuel Martins, a Gowling WLG real estate partner based in Waterloo Region, Canada, adds that in Ontario, restrictions prohibiting development on greenbelt land exist, leading to a growth in high-rise, high density residential-led schemes in urban areas.
In the UK, community-building or "placemaking" schemes are becoming an increasingly common feature. Richard Beckingsale is head of regeneration at Gowling WLG in London and explains that often these schemes are in former brown-field, warehousing and industrial areas that need regenerating: "The trend is to go to lower value places, and identify ones that are close to transport links.
"One of the schemes I am currently involved in is in Barnet [North London] - it has the largest-ever planning consent in the UK for a mixed-use development, involving 7,000 homes and up to half a million square metres of commercial space, as well as a new mainline train station. It's a transformational, place-changing development, which incorporates major infrastructure investment and public/private partnership working to deliver a mixed use scheme."
Unlike in Canada, in the UK the release of greenfield land where there is a "housing need" has become an increasingly common feature, and although it has met with some opposition, it is a trend that's likely to continue.
Government responses to housing shortage
According to United Nations projections, the global population is expected to reach 8.5 billion by 2030 and 9.7 billion by 2050, forcing housing to the top of the agenda globally. However, how housing supply is addressed has varied.
In the UK a raft of measures to "Get Britain Building" were originally set out in the coalition government's Policy Paper on house building1.
In 2015, then-housing minister Brandon Lewis set an ambitious housing target of one million new homes by 2020, requiring 200,000 new homes a year to be built. Although this plan was initially met with some scepticism, a November 2016 report by Savills2 found that the government was hitting this target. It noted that private sector sales had increased, supported by the help-to-buy equity loan scheme.
The public sector has also played an important role in increasing housing supply in the UK. Beckingsale explains that on many of the regeneration schemes he acts on, the main catalyst is the public sector, with the local authority carrying out a public procurement exercise to find a suitable private sector development partner.
And the public sector is becoming more ambitious, looking to share in development risk and reward through participation in contractual or corporate joint ventures. "This was not as prevalent 10 years ago. That's a reflection of the aims of local government now, which are to produce revenue streams, rather than capital receipts. A lot of councils are not looking for land receipts, they are looking for rental growth or long-term assets and they have the borrowing capacity to enable this," Beckingsale highlights.
"What's interesting is that under Cameron and Osborne there was this increasing push towards home ownership. There have been a string of initiatives to help buyers to get on the housing ladder, including most recently, starter homes. Under Theresa May we are starting to see a shift back towards private and sub-market rental, which is good news for those seeking more affordable housing. Either way, the emphasis on the need for new homes has never been stronger."
Building affordable homes
In his Autumn Statement, the Chancellor included a raft of new funds designed to aid further house building, and in particular affordable housing. These included a £2.3 billion Housing Infrastructure Fund and £1.4 billion to deliver an additional 40,000 affordable homes by 2021, relaxing previous restrictions on grant funding.
The story across the Atlantic has up to now been very different, with little in the way of an overarching commitment to increase homebuilding. However, with growing concern about the unaffordability of housing, the federal government launched consultations for a national housing strategy in 2016, lasting from June to October.
Its initial "Let's talk housing" report3 notes that: "Over the last 15 years, house prices in most of Canada grew almost three times faster than incomes. In Toronto and Vancouver, the price of a home grew more than four times faster than the average income."
Foreign buyers are frequently blamed for the unaffordability of housing stock, although there is little data to back this up. Nonetheless, in Vancouver, an additional 15 per cent property tax on foreign buyers investing in residential property was introduced in August 2016.
Complex housing policies
Many commentators believe that the levels of bureaucracy that developers face across Canada is hindering any meaningful increase in housing supply.
Martins at Gowling WLG explains that: "In Ontario, the challenge is that housing developments have moved too fast for governments in the last 10 years - developers want to meet public needs but municipalities are not keeping pace with the market place. For example, in Toronto there are three different by-laws, some draft and some very old that every developer has to juggle without any clarity if they want to redevelop any land.
"It's the same in the Waterloo Region. There is a conflict between regional and local policy - they don't always mesh, which creates problems for developers. Often they are fighting a lower level of government, when a higher level has approved a certain type of project.
"There is certainly an increasing demand from developers to cut through the bureaucracy, but in Ontario it's getting more and more complicated, and the levels of approval keep expanding," adds Martins.
"We help our developer clients bridge the gap between what a developer wants to build and the current government hurdles that are in place."
Case study: Tailor-made developments
While residential-led schemes can fill a gap in housing supply, creating a sense of community can be more challenging.
Jonny Anstead is a director at TOWN, a developer specialising in custom build developments, and one of Gowling WLG's UK clients.
Anstead explains that the company creates new homes "that people want to live in" by providing bespoke housing that is "professionally enabled".
The custom build sector has gained momentum in the UK since 2011, with encouragement from a number of government initiatives.
Unlike a self-build where the buyer is responsible for all choices on land, planning design and construction, on a custom build the buyer develops their own design from a range of options on a plot supplied by a custom-build developer, providing a more economically viable alternative.
Anstead explains that his company can play an important role in bringing a sense of community to mixed-use schemes.
"While new homes are cheaper to run and easier to maintain, they lack the qualitative features of an older house. We have carried out research which clearly indicated that people want to live somewhere with a sense of neighbourhood; something that can be lacking in new build schemes. It's hard to create a sense of place, which is where we can help.
"We believe that the custom-build concept can really work on a big urban extension project."
Footnotes
1 https://www.gov.uk/government/publications/2010-to-2015-government-policy-house-building/2010-to-2015-government-policy-house-building
2 http://pdf.euro.savills.co.uk/uk/residential---other/spotlight-new-build-homes.pdf
3 https://www.letstalkhousing.ca/
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