2022 predictions: the living sector never sits still 

by Shoosmiths LLP

Published: January, 2022

The living sector will continue to provide opportunities and challenges for investors, developers and residents, alike.


The government is set to turn the page on pandemic restrictions, with most set to stop in England on 26 January.


Time will tell if this will be the year when we can get back to a more normal way of life, but one thing we can be sure of is that the living sector will continue to provide opportunities and challenges for investors, developers and residents, alike.


Optimism prevails, but we should still be mindful of industry challenges.


Rising inflation and spikes in energy costs will need to be navigated carefully and may cause a check to the market. Mortgagors live in fear of further interest rate rises and the recent news of the first 40-year fixed-rate mortgage offered by a UK lender suggests that it wouldn’t take much to knock the sector off balance. And, with equity release on the rise, it would pay to add a dose of caution to the sector’s optimism.


That said, recent history suggests that the living sector is sufficiently resilient and offers enough variety of housing to withstand significant pressure. As such, I’m keeping my glass half full as to the future, with the potential for another year of growth.


With the sector performing strongly over recent months, it is likely that we are also going to see continued appetite from private equity firms to invest in UK residential developers, whose share prices bely their multi-million-pound property assets and don’t fully reflect the growth seen in house prices over the last 18 months. Interest rate rises may cause some investors to pause, but acquisitive investors looking for yield will continue to consider the living sector as an attractive marketplace.


We will continue to see cladding and leaseholder challenges dominate headlines as we wait to see how the Residential Property Developer Tax affects the industry, and whether developers voluntarily offer Michael Gove “reparations” or whether he will have to legislate to fund removing cladding from tall buildings.


How will industry respond? One to watch closely for all stakeholders involved, but I suspect that this story has some way to run.


This year will also hopefully see later living operators be able to look up from the operational challenges that have dominated their board rooms over the last two years to think more strategically about the future. This will no doubt mean a renewed focus on new development pipeline and the enhancement of existing stock. With around 30,000 age-exclusive homes now needing to be built each year to satisfy demand, and only 7,000 being built across private and public sectors, the increased occupier activity and the heightened investor appetite in this sector could see later living come into its own as a covetable – and more mainstream – asset class in 2022.


Another ‘one to watch’ topic this year will, unsurprisingly, be around levelling up. The shelving of projects such as the Oxford-Cambridge expressway and the Manchester to Leeds HS2 leg, query whether there will be some shuffling of budget figures to shore up votes.


Other questions include, how will the ramped-up focus on ESG influence housing design and demand, will ‘build to rent’ continue to see significant growth levels, will we continue to see the repurposing of empty retail and office stock into residential and what does the planning system have in store? The living sector is rapidly evolving, making it a dynamic place in which to work – things never stay still.


 



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