Organised as always by Headline Communications, the event was hosted by luxury bungalow specialist William Lewis, and we sent Ian Halstead along to cover proceedings at the developer’s Solihull offices.
Some truly ghastly student accommodation may have sprouted in Britain’s biggest cities over the last decade, and Birmingham certainly hasn’t escaped the plague.
However, that sector has now become the residential market’s most lucrative niche, so the topic of student numbers and educational funding seemed the perfect way to open the debate.
Philip Jackson, whose Maguire Jackson venture specialises in commercial property in the Jewellery Quarter, as well as city centre residential sales and rentals, was clearly well-informed on the subject.
“There are underlying reasons for the sector’s buoyancy, successive governments have been pressing more students into Higher Education, and there has also been a boom in post-graduate courses,” he said.
“Birmingham has something like 60,000 students, and the number coming from overseas continues to rise. There are probably 10,000 students from China across the region, and 6,000 of those are in the city centre.
“The supply of accommodation is increasing steadily, but we’ll have to wait until the new fee structure begins in September, to see what the numbers will be for the next two or three years. However, the post-grad market will certainly be very important, especially in the city centre.
”Looking ahead, Birmingham is very well placed in this sector, and if students are concerned about costs, then we are well ahead of London in terms of quality and value.”
Andy Foote, the founder and managing director of William Lewis, predicted that cities with more than one university would face particular challenges, as the public sector cuts began to bite.
“You often find that one university has a more commercial mindset, whilst the second is more academically-focused, so I wouldn’t be surprised to see mergers and acquisitions in this sector.
“We’re already seeing some universities trying to generate cash-flow by selling their halls of residence, which are really their crown jewels in asset terms. There are just over 100 universities in the UK, and about 20 per cent have sold, or are considering selling, their accommodation.”
John Heron, managing director at Solihull-based Paragon Mortgages Ltd, agreed that demand for student accommodation would remain substantial, and predicted that the market might also show a flight to quality.
“Private landlords are the backbone of the market for student accommodation, because universities simply can not build and hold on to the halls of residence they need, but yields do vary,” he admitted. In London, they might be only 4-5 per cent, but in Birmingham, they would be more likely to be between 7 and 8 per cent, and in some northern towns, you might get 10 per cent.”
Carina Hill, director of Centrick Property’s residential sales and lettings division, nodded in accord as he spoke, and suggested that a growing number of students were finding it cost-effective to share two or three-bedroom properties.
“Overseas students tend to come from very wealthy families, and most don’t take time to shop around, they are willing to pay the market rate.”
“I met one family recently, who have a $3m-plus place in Canada, but they are relocating here because their son wants to go to Warwick University,” said Sarah-Jayne Hart, an associate partner with the Solihull-based estate agents, John Shepherd.
The resultant silence as the panellists considered such a decision meant it was time to discuss the buy-to-let market, and for Paragon’s John Heron to offer his analysis.
“Context is important, because we have to see the current market as part of a long-term shift in the housing sector, which began after the 1988 Housing Act,” he suggested.
“The present congestion in the private rented sector is being driven by demand from needy families, who can’t get social housing, and for people like students, who need accommodation urgently.
“Unfortunately, there still isn’t sufficient funding available for landlords to supply the stock which is required, and I think we are storing up the potential for a quite frightening problem in the years ahead, as rents rise, but the supply can’t keep pace.
“However, one benefit of recession is that landlords are no longer speculating on a very quick turn-round – which was of benefit to no-one – and the fundamentals of holding property have risen to the fore.“
“The typical landlord, north of Birmingham, has probably only got two or three properties, and they are now looking more at two-bed houses, rather than apartments, to avoid service charges,” said Sarah-Jayne Hart.
“Often, they are investing their life savings in the accommodation, because it has become their pension scheme, and they want to avoid the apartments sector, because yields have fallen.”
“I agree, a lot of investors we see are more risk-averse, and are looking at small properties in the suburbs. However, if we are wondering if large-scale investors might enter the private rented market, then I don’t see it,” admitted Andy Foote.
“I wonder what the government is doing on this issue, because small investors haven’t got the funds to take on the big projects. Were the tax breaks announced in the Budget designed to stimulate demand from larger investors?”
“Successive governments have tried to increase institutional investment in this market, but none has been particularly successful, because the institutions need consistent returns, ” said John Heron.
“Unite does fine in the student market, but outside that niche, it is difficult for institutions to operate efficiently, and private landlords have huge cost advantages. Buy-to-let doesn’t need institutional money, it needs more finance to be made available to private landlords.
”It’s difficult to see how an institutional business model would work, and how investors would put their money in, and then get their desired return, without driving rents too far north.”
His logic appeared unarguable, so the debate moved on to consider how housing developers were meeting the needs of retirees, which Knight Frank recently suggested were the country’s fast-growing demographic group.
“I don’t agree with Knight Frank. They’re an active demographic because they have their own money available, but they’re not the largest,” said Andy Foote - warming to his specialist subject of housing provision for mature and affluent people.
“To me, we’ve got the veterans, born before the 1950s, who respect authority, do as they are told, and will go into traditional retirement homes, and the baby boomers, who know their rights, and want to stay in their own homes, and ’age in place’ as the Americans call it.
“Our company was set up to target the more affluent people who wanted to downsize, but had very little product available. They didn’t want mainstream housing to retire to, and certainly didn’t want apartments, so we offer single-storey living, and in the areas where they already live.
”Naturally, I am biased, but I really do think that volume house-builders have to change their business models to cater for this market, by offering such things as better insulation, wider hallways and doors, and by putting in suitable wiring for care assistance and burglar alarms.”
“The really affluent retirees are being catered for, but I think there is another sector, where people live in high-maintenance homes with large gardens, but they haven’t moved because there is no product they like,” suggested Sarah-Jayne Hart.
“In Birmingham city centre, we are seeing audience for ’pied à terres’, for people who visit the ballet regularly, or go to Symphony Hall,” said Philip Jackson.
“We’re also seeing demand from people who retired abroad, often to Portugal or the Balearics, and who need a place in Birmingham for their visits back to the UK.”
“The baby boomers are interesting,” admitted John Heron. “They bought and paid for their homes early on in their lives, and now have decent pensions, so they‘re OK.
“My concern is what happens to the current generation, who can only afford to buy a home later in their lives, and can’t either build up equity, or their pension provision. What do they do, perhaps ten or 15 years ahead?“
Even Stephen Hawking would find that question too much of an intellectual challenge, so it was time to address the woes of first-time buyers, and whether ratepayers’ money should be used to prop up the market.
“There are two sides to this proposal. Yes, it would stimulate the housing market, but its success would depend on how you chose the people to benefit. If they had arrears, the government would struggle to get its money back,” stressed Carina Hall, with a healthy air of pragmatism.
“Surely, the people we should be helping – if any – should be those who have saved up a 10 per cent deposit over the last few years, but now find that they still can’t get on the housing ladder.”
“Let’s not get too holier than thou on this issue, because many of us benefited from MIRAS (mortgage interest relief at source) before it was abolished in 2000, “ said John Heron.
“Regulation is a major issue now. Protection has increased, but there are tensions between consumer protection and consumer choice, because banks now have to hold so much more capital on their ’riskier’ loans.
“Lenders typically have to hold between six and eight times as much capital, for a mortgage with an LTV ratio of more than 90 per cent, as for one with an LTV ratio below 60 per cent, and to generate sufficient return on capital, many lenders make borrowing at higher ratios more expensive.”
It’s not often that the so-called ’Basel Rules’, on capital and liquidity, come under scrutiny in public, but the comment did add a new and different gloss to the oft-heard debates about mortgage lending.
“The challenge is bridging the gap between what the money-lenders require, and what first-time buyers can realistically afford, and to me, the only source of funds is the taxpayer,” said Andy Foote.
Philip Jackson saw a market for a mezzanine-funded lender, and suggested that overseas money might be the catalyst to stimulate the housing market, whilst Sarah-Jayne Hart agreed that vetting applicants was key, but Paragon’s John Heron was not to be denied.
“These are all sticking plaster solutions that do not address the core problem.
“We need a political debate on the issue, because although the climate isn’t yet right to suggest lighter regulation, in ten years, we will find that a whole generation feels excluded from home ownership.”
“Perhaps it was simply that the baby boomer generation came along at a unique moment in history, that will not be replicated, in terms of home ownership, pensions provision and available finance,” suggested Wragge & Co’s Adrian Bland, with a deft touch on the tiller of debate.
“I think the market will soon settle somewhere between the ‘I only had an apple for Christmas’ brigade, and those who had 110 per cent mortgages,” replied Andy Foote.
“There is nothing wrong with 90 per cent, or even 95 per cent, loans, as long as the repayments are sustainable by the home-buyer, “ retorted John Heron.
“As we know, there are very different housing models in Europe. Perhaps we are moving towards a Continental model, in terms of owners-occupiers versus rented.”
A vision of little Swiss chalets, or neat rows of flower-clad Belgian bungalows, in the centre of Birmingham brought the discussion back to solid ground, paving the way to ask if the Big City Plan was right to predict more family homes in and around the city centre.
“Yes,“ said Philip Jackson. “A client has just changed planning permission for 24 flats into 14 houses, and that is very much the current mindset.
”People, especially those without two children, now want to live and stay in the centre, and don’t want to move out to the suburbs.”
“There still aren’t the schools, for infants or juniors, which people would want in the centre though,” replied Sarah-Jayne Hart.
“Chickens and eggs. If family housing is built in the centre, then the rest will follow,” suggested Philip - demonstrating a remarkable belief in both local authorities’ ability to react swiftly to market trends, and the funding resources available to them.
“Densities were so high in the centre before the recession because of land prices, but now values have dropped, developers can make schemes work at much lower densities, “ suggested Andy Foote.
“However, I just don‘t see demand for families to live in the centre.
“I think the Big City Plan is a visionary document, and to me, this is just what town planning should be about,” added John Heron.
“If you build an attractive, rich and interesting environment in the centre of a city, then you attract families in.”
The comment could have provoked a whole new forum, but after two hours of intriguing debate, it was time to close.