Foundations for the Future: Anticipating Change in the UK Residential Property Market
With Simon Rubinsohn, Chief Economist at the Royal Institution of Chartered Surveyors (RICS)
Jun 11. 2024
The UK property market is complex. Demand for new homes far outstrips supply and high interest rates are impacting the affordability of homes and prompting caution from buyers. The build-to-rent market remains attractive to investors and developers with rents continuing to rise but with cost-of-living pressures for consumers. The time frame from initial planning and design through construction and residents moving into new homes can take close to a decade, meaning property developers are committed for the long-term despite ongoing economic uncertainty.
Simon Rubinsohn
We spoke to Simon Rubinsohn, Chief Economist at the Royal Institution of Chartered Surveyors (RICS) to understand these dynamics and how property developers can anticipate and plan for change. Three interesting trends emerge:
Action on energy efficiency
There is a greater expectation of action around energy and emissions in the property market than ever before. In the UK, the Royal Institute of
British Architects 2030 Climate Challenge, and the adoption of the RICS Whole Life Carbon Assessment standard have set new standards for the sector. Responding to this growing urgency, the 2025 Future Homes and Buildings Standards aim to set even higher energy efficiency and heating standards for new homes, aligned with the 2050 net zero target.
Meaningful changes need to start from the initial conception of a new development, with choices about home or flat design, decisions about technologies such as heat pumps, HVAC and the role for renewables, energy storage and infrastructure for electric vehicles, making a difference when it comes to planning approvals.
“From a pricing perspective, 40% of RICS members believe homes that are more energy efficient hold their value, so embracing smart technology that addresses these issues can pay off in terms of sale and resale prices.”
These technologies benefit consumers in terms of household bills and meeting the desire for more energy-efficient living. Once the residents have moved in, there is value for the property owners and development managers, with dashboards and management tools to monitor and optimise energy use, dynamically set systems to use the cleanest and cheapest rates, receive appliance diagnostic data to predict and prevent maintenance issues. This can save on utility operating expenses, reduce repair bills, decrease leasing costs, and boost rental income. From a pricing perspective, 40% of RICS members believe homes that are more energy efficient hold their value, so embracing smart technology that addresses these issues and improves energy efficiency can pay off in terms of sale and resale prices.
As a development project progresses, technology can play a significant role in enhancing energy efficiency at scale across hundreds or thousands of homes. For example, the Brobyholm project of 2,000 homes in Sweden has showcased how this can work. Real estate company, S.Property, has partnered with Samsung, ABB and SMA to install a photovoltaic energy production and storage system on each property, with the homes fitted out with smart refrigerators, ovens, dishwashers, washers, and dryers, all connected to SmartThings Energy to control, monitor and save energy.
Opportunities in the rental market
Demand for rental property remains high, with Savills reporting £4.5 billion investment in the UK build-to-rent segment, signalling the second highest year on record. As a result, developers need to ensure their homes are as attractive as possible to potential residents. Working patterns have changed, with hard-working professionals interested in renting premium properties, which offer more than just a place to live. They want versatile spaces that can adapt to their busy yet flexible schedules, with quality of technology and connectivity a deciding factor and one which helps them get as much done, if not more - compared to being in the office.
Investment in technology and appliances tends to be a smaller portion of the overall development costs of a project but has a disproportionately strong influence on the value, consumer perception and decision making when it comes to choosing a rental or home purchase. The Samsung Smart Home Buyers Index reveals that consumers are willing to pay an average of 7.7% more for a smart home and 30% are looking for their next home to be a smart home. Homebuyers are attracted by the opportunity to manage energy bills, reduce time spent on chores through automation, find a better work life balance and enhance their lifestyle with seamless entertainment.
“Build-to-rent is a rapidly emerging and growing market, with hard-working professionals looking for versatile spaces that can adapt to their busy yet flexible schedules.”
Rethinking commercial spaces for residential living and enhancing communities
Data from the real estate company, JLL, revealed that London office buildings had a 9.6% vacancy rate in the third quarter of 2023 and a report from Leesman’s found that its corporate clients expect to need 30% to 40% less office space than they did before the pandemic.
This creates an opportunity to ease some of the tensions around supply of new homes. Whilst this can be a complex process for developers, the government is granting permitted development rights without planning permission from local planning authority if it has prior approval from the LPA and meets certain conditions..
With a focus from government and local authorities increasing interest on building communities, this can help balance residential areas that remain empty during weekdays and office areas that remain empty on the weekends.
“There is a shortage of the sort of premium properties that people looking to downsize are searching for. While these empty-nest buyers are older, they are not elderly and often have more disposable income.”
Adapting to changing population dynamics
The UK has an aging population, with people living longer and over-50s responsible for half of global spending. There is a shortage of the sort of premium properties that people looking to downsize are searching for. While these empty-nest buyers are older, they are not elderly and often have more disposable income. They are very comfortable using technology and the convenience smart homes can provide in terms of shaping their environment around them.
For those in the upper end of this group, design of living spaces and technology which supports their health and wellbeing, helps them stay connected to family and friends and makes them feel safe and secure, is increasingly important. It is important to design properties so that new technology can easily and securely be added as the individual’s needs change and that these can be accessed through a single, intuitive app.
Despite immediate pressures around mortgages, economic uncertainty, and the need to accelerate the planning process, longer-term drivers around population dynamics, demand for sale and rental property and recognition of the need for action on energy efficiency and sustainability are opening up opportunities for developers. The key is finding the right partners who can help through the project lifecycle and anticipate home buyers and renters need in the next 5 – 10 years’ time when the developments currently in planning are on the market.
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Sources:
RICSs Residential Market Survey (Jan 2024)
Samsung Smart Home Buyers Index 2024
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