Future Living Research on the homes of tomorrow€¦ · number of people living in small households, migration and increased life expectancy. Estimates suggest 240,000 new homes are

Future LivingResearch on the homes of tomorrow

Introduction from Osborne Clarke ........................................................................................1

B2C research – top 10 findings ..............................................................................................2

Key Finding #1: Generation Rent ...............................................................................................3

Key Finding #2: Generation Help ..............................................................................................4

Interview: Alex Greaves, M&G Real Estate .......................................................................5

Key Finding #3: Generation Share ............................................................................................6

Key Finding #4: Trading Places .................................................................................................7

Key Finding #5: Lazy Landlords/Actions of Landlords ..............................................................8

Interview: James Scott, The Collective ............................................................................10

Key Finding #6: Barriers to Purchase .....................................................................................11

Key Finding #7: Appeal of Branded Accommodation ..............................................................12

Key Finding #8: Location, Location, Location ..........................................................................13

Key Finding #9: Preference of Location in Next 10 Years .......................................................14

Interview: Greg Locke, Linden Homes .............................................................................15

Key Finding #10: Marmite Cities .............................................................................................16

B2B research – top 10 findings .............................................................................................18

Key Finding #1: Determining Demand .....................................................................................19

Key Finding #2: Assets: Demand, Involved and Potential Return ............................................ 20

Interview: Tony Stein, Healthcare Management Solutions ..........................................21

Key Finding #3: Growth of Residential Accommodation ......................................................... 22

Key Finding #4: Future Drivers of Renting.............................................................................. 23

Key Finding #5: Fundamental Facilities ...................................................................................24

Key Finding #6: Funding Facilities ......................................................................................... 25

Interview: James Gibson, Sovereign House .................................................................. 26

Key Finding #7: Generational Influence and Expectations ...................................................... 27

Key Finding #8: Impact of Property-Sharing Websites ........................................................... 28

Key Finding #9: Building a Brand ........................................................................................... 29

Key Finding #10: Rental Cities ............................................................................................... 30

Interview: Richard Simpson, Unite Students ..................................................................31

Osborne Clarke’s view of the legal implications of the findings ......................................32

Methodology, About Osborne Clarke and About FTI Consulting .....................................33

Contents

Introduction from Osborne Clarke

Future Living – Research Launch: The UK Accommodation Market

It is forecast that the UK population will rise by 10 million in the next 25 years. However, the supply of new housing has already fallen well behind the numbers required to meet today’s demand, let alone the demand of the future. Rising house prices, increased deposit requirements and decreased mortgage availability means an increased proportion of young people in the UK will continue to rent rather than buy – a fact supported by a recent survey that predicts that only 26% of 20-39-year-olds in England will live in a home they own by 2025.

What impact will these projections have on how we live in the future? How will accommodation need to change to meet the demands of a growing workforce with different attitudes to flexible working and work-life balance? In what kind of buildings will people want to live in 20 years? What will be their service level expectations and what locations will they favour? Are we constructing the most appropriate buildings to survive these changes?

Identifying the most effective way of capitalising on rising consumer demand for accommodation will be critical for those in the property industry who wish to succeed in this ever-changing market and stay ahead of the pack in the decades ahead.

Osborne Clarke has been involved with the residential market for over 250 years and unlike the vast majority of other City law firms we remain firmly committed to its future. We are heavily involved in all aspects of residential

and the full range of accommodation types that make up the asset class. This experience means we have seen at first hand the way the market has needed to adapt to change in the past and to appreciate the significant challenges that change will present to the sector in the future.

The challenge for lawyers in this changing environment is equally profound. The legal issues that present themselves on transactions today are not the same as they will be tomorrow and we know that our clients will need us to find creative legal solutions that keep pace with the speed of change.

As a result, we decided it would be interesting to undertake some research on the accommodation of tomorrow – from the perspective of both demand and supply. To ask some thought-provoking questions about changes in our market with the hope of gaining insights into what it will be like in the future. This report is the output of that research.

Teaming up with FTI, we surveyed two distinct audiences. The first group was the 18-30-year-olds who will form the bedrock of housing demand until 2050. A group who are rarely asked their views on how and where they want to live in the years ahead. The second was made up of the investors, developers and real estate professionals that will need to provide the property to meet that demand.

We hope you enjoy reading the report. It contains some very interesting results on what the next generation will want from homes in the future. Their vision of future living.

Osborne Clarke has been involved with the residential market for over 250 years and unlike the vast majority of other City law firms we remain firmly committed to its future.

Conrad DaviesHead of Real Estate and Infrastructure

Future Living | 1

B2C research – top 10 findingsDevelopers by their nature have to future-gaze. After all, how many entrepreneurs really know whether their buildings will still be relevant in 20 years’ time?

For years architects and advisers have gazed into a crystal ball to attempt to predict changing workplace habits, and to an extent anticipated the growth in home and mobile working.

But with the property industry now turning its attention – and billions of pounds of investment – towards residential and other forms of accommodation, how best to assess how people will be living in 10, 20 or 30 years’ time?

The answer is to speak to the 18-30-year-olds who will form the bedrock of housing demand until 2050, and who are rarely asked their views on where they hope to live.

Encouragingly for everyone ploughing into the accommodation world, 82% consider the idea of a branded or themed home as an attractive prospect, with the idea being particularly appealing to young men living in London.

The rented status quo isn’t working – with almost half the tenants polled saying their landlords aren’t doing enough to maintain their property.

And these people are already showing a predilection for brands, with ‘sharing’ concepts like Osborne Clarke client Airbnb being used by 26% of those polled. London leads the way again, with a striking 81% willing to consider using sharing websites.

Are landlords fully anticipating this? Have they factored in the idea that demand for new homes may be met by people renting out their accommodation to others if they are out of town for just a couple of weeks?

After all, Airbnb already has a ferocious opponent in the hotels establishment.

Whereas most young renters used to move every year to 18 months, conjuring up images of continually packing and unpacking suitcases, the renter of today now expects to move on average just twice every 10 years.

This is surely a function of needing to rent for longer while saving to buy a home. So why do landlords persist with 12-month Assured Shorthold Tenancies when both sides might prefer the security of a three or five year deal?

The bad news is that the accepted wisdom that buying a home is tougher in London than elsewhere in the UK is not borne out by the Osborne Clarke/FTI research. Cost is also the biggest barrier outside London, at 42% of those polled.

2 | Future Living

Key Finding #1

Generation Rent

Q. How would you best describe the accommodation set-up in which you live?

(Please select one response)

34% of youth live with their parents (just 28% for those who live in London, compared to 36% who don’t), while a further 33% live in rented accommodation.

Just 20% live in an owned home.

Of those who don’t own a property, they expect to remain like this for an average of 7 more years.

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33%

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UK Millennials

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Living outside London

Future Living | 3

Key Finding #2

Generation Help Base: Living in owned home

Q. How was this purchase made possible?

(Please select all that apply) Of the 20% who do own their homes, 21% were able to make the purchase because of their parents and 15% were able to do so because of inheritance.

Just 4% claimed the Government incentive scheme helped to make the purchase possible.


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Own savings & investments

Parents

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Base: (n=213) UK Millennials living in owned home

72%

44%

21%

15%

10%

4%

1%

4 | Future Living

Interview

From a standing start, M&G Real Estate has built a £950 million portfolio of residential, covering all the bases in what many see as property’s most promising growth sector.

That includes built-for-sale houses (through St Edward Homes, a development joint venture with Berkeley Group) and student accommodation for the likes of St Andrews and Swansea universities, on behalf of M&G’s pension-fund clients. The latter focuses on real estate with long leases to provide institutional investors with bond-like returns linked to inflation.

In the private rented sector, M&G is actively involved both in the investment in existing properties and in the forward funding of new homes specifically designed and built to best meet renters’ needs.

Its UK Residential Property Fund is targeting total returns of 7-9% a year, with rental growth at the forefront of the strategy. Growth in capital values is a bonus, but Greaves is more excited by the prospect of generating strong and sustainable returns through rents.

“House prices can be volatile, fluctuating with shifts in sentiment and the availability of debt. Rental revenue, on the other hand, should always provide a stable income with Britain not building enough homes every year.”

The majority of renters are aged 25 to 34 years – they are young, mobile, flexible and looking for quality accommodation near to their work and social hubs. And as their wages rise so does the amount of money they are able and willing to spend on rent for the right property.

“People tend to spend a quarter to a third of their income on rent, so if wages continue to rise, rents are also likely to increase.”

Demand for accommodation is underpinned by favourable demographics through a rising UK population, a growing number of people living in small households, migration and increased life expectancy. Estimates suggest 240,000 new homes are needed every year – over 100,000 more than are currently being built.

Alex GreavesHead of Residential Investment M&G Real Estate

The flexibility of renting and the need for a large deposit to get on the housing ladder mean that a sizeable proportion of that pent-up demand for housing is focused on the rental market.

Traditionally, that market has been dominated by small landlords with variable quality of accommodation. Greaves believes that institutional investors have the opportunity to revolutionise that, using their commercial expertise to create well-designed and efficient, purpose-built homes.

“Student housing has evolved from house-shares in rambling Victorian terraces to bespoke, newly built pods with communal amenities. Now we can use that experience to kick-start a similar transformation in the private rented residential sector.”

Good technology, a well-run front-of-house service and easy access to public transport are what he sees as some of the prerequisites of a successful Private Rented Sector scheme.

He also points to the importance of building a community within a rented complex, saying that the management staff have an important role to play in understanding the customers. That includes the provision of the right amenities to suit the location and target demographics of each scheme – be that cycle parking, a playground or a roof garden.

“We hold our assets for the long term, and we are very keen for our customers to be there for the long term, too,” Greaves says.

“The important thing is that we need to raise the standards of private rented sector accommodation. Our private rented homes are built with quality fixtures and fittings that will last.”

Such attention to detail is crucial to win over customers and to secure returns for investors. As the front man of M&G Real Estate’s residential efforts, Greaves is committed to building a strong institutional portfolio, which will be at the forefront of UK rented property’s growth.

Alex GreavesM&G Real Estate

Future Living | 5

Key Finding #3

Generation Share Base: Living in owned home

Q. Have you ever listed your property on a property sharing website like Airbnb or LoveHomeSwap?


26% of home owners presently have their property on property-sharing websites (a total of 32% have at some time) and a further 26% are considering doing so.

This is particularly popular in London where 81% have or would consider it, compared to just 50% for those outside London.


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6%

26%

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11%

53%

3%

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14%

5%

16%

7%

27%

38%

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UK Millennials

Base: (n=213) UK Millennials living in owned home, (n=59) Living in London, (n=154) Living outside London

Have done:32%

Have done or considered:

26%

6%

26%

31%

11%

UK Millennials

16%

7%

27%

38%

14%

Living outside London

53%

3%

25%

14%

5%

Living in London

81%

50%

6 | Future Living

Key Finding #4

Trading Places

Q. How many times do you foresee yourself changing accommodation in the next 10 years?


On average, youth expect to change accommodation twice over the next 10 years with 86% expecting to move at least once.


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Mean number of moves in the next 10 years:

Twice


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Mean number of moves in the next 10 years:

Twice

Future Living | 7

Key Finding #5

Lazy Landlords Base: Renting

Q. Do you consider your landlord does enough to maintain your property?


Of those renting, less than half (47%) consider their landlords are fully doing enough to maintain their property.


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47%

40%

12%

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8 | Future Living

Actions of Landlords

Q. Have you ever moved from a rented property because of unacceptable actions or maintenance by the landlord?


21% claim to have moved because of unacceptable actions or maintenance by landlords and a further 17% of youth have considered it because of these actions by landlords (i.e. 38% have moved or considered it).


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Moved or Considered:

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37%

25%


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UK Millennials

Moved or Considered:

38%

21%

17%

37%

25%

Future Living | 9

Interview

The Collective is no ordinary property company. James Scott, 23, has been COO of The Collective since its inception three years ago and he has a distinct insight and understanding of his market.

“At The Collective we focus on what is relevant to today’s young professionals – the millennial consumer generation. They are experience hungry, they’re not possession based, everything they consume is a service or an experience. Life is now much more about seeing your friends, telling them about an amazing experience and sharing that experience on Instagram, Twitter or Facebook. This is the lifestyle change that has happened over the last five years.”

The Collective has created its own niche in a market traditionally dominated by experienced property companies. At the heart of the business is a unique Co-Living product, a new form of rental accommodation that offers young professionals a new way to live.

Scott understands the needs of his audience as he is part of it. “Co-Living has been designed to perfectly support the lifestyles that our generation aspire to, celebrating community, convenience and quality. Flexibility, creativity and fulfilment is the new currency of our generation, so we provide places where people with ideas can make them happen.”

The Collective owns 1,500 units either in development or operation. They own and operate buildings across London and are presently developing a 550-bed flagship scheme at Old Oak Common, with plans to build 5,000 more units over the next five years.

The Co-Living product allows their customers to rent a studio or private bedroom. All rooms are en suite with kitchenette facilities. Uniquely, the building operates as a whole with shared amenity spaces – kitchens, gym, spa, games room, movie room, library, roof terraces, private dining rooms and hotel-lobby-style space on the ground floor.

Scott understands that this generation of renters is time poor, so the easier they can make the whole renting process the more attractive it becomes.

“Everything is included in one monthly rent bill. Hassle free is a key requirement. This one cost covers all bills, wi-fi and cleaners. It is the same way you pay for a hotel.

You pay a fixed rent and we deal with everything else. We’ve even removed the expense and bother of dealing with estate agents as you can rent our properties directly through our website.”

The Collective isn’t only interested in creating spaces for the millennial generation to live. “As the boundaries between life and work continue to blur, we are also creating work spaces for the next generation of entrepreneurs and innovators.”

The Collective’s own headquarters is a combination of modernity and the classical – a Georgian building from the outside but inside decorated in a mix of Classical, Renaissance and Shoreditch Hipster design. It is a hive of activity as they rent space to start-ups and other like-minded creative individuals. It practises what it preaches.

James continues the Co-Working theme. “We’re always looking at aligning ourselves with businesses that are innovative, creative and different. At Old Oak Common we have 30,000 sq ft of commercial space. The Co-Working market is well established now and why people choose one space over another is the opportunity these spaces give them – be that through mentoring, networking, business support, exposure or investment. Within that community the live-work dynamic is appealing.”

With the business it is no surprise that The Collective brand is key. “Our brand is everything. If someone has an amazing experience associated with our brand, they then have the option to choose somewhere to live or work that can give them the same quality of experience and lifestyle. People learn to trust that brand because they know the quality of the service they are going to receive.

“We have a unique product and we want to create communities where people meet like-minded people, may that be working or living. They can create new bonds and companionship. This new way allows a whole generation to mix, learn, develop and grow together and, importantly, share these distinctive experiences.”

These people are the future CEOs and business leaders and they are already living and working very differently from the previous generation. The Collective has tapped into this future and is helping to create new futures.


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Base: (n=847) UK Millennials not living in owned home, (n=162) Living in London,

(n=685) Living outside London, (n=350) Renting

Properties are too expensive

43%

48%

42%

46%

Unable to get a deposit together

36%

34%

36%

46%

Able to afford better premises renting

18%

18%

18%

19%

Prefer to spend on my lifestyle

15%

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14%

15%

Not suitable for a mortgage

14%

17%

14%

16%

Waiting for prices to drop

14%

17%

13%

15%

Other

10%

9%

11%

7%

I don't want to buy

9%

7%

9%

5%

UK MillennialsLiving in LondonLiving outside LondonRenting

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James ScottChief Operating Officer The Collective

James ScottThe Collective

10 | Future Living

Key Finding #6

Barriers to Purchase Base: Not living in owned home

Q. What was holding you back from buying your home earlier?

(Please select all that apply)

The biggest barrier to purchase is property cost for 43% and particularly so for those in London at 48%, compared to 42% for those outside London.

17% in London are also waiting for prices to drop, compared to 13% of those outside London.

36% of those who don’t own a property claim they’re unable to get a deposit together, especially those who are paying rent (46%).




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43%

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I don't want to buy

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5%






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Other

10%

9%

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I don't want to buy

9%

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5%


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Millennials not living in

owned home, (n=162)

Living in London, (n=685)

Living outside London,

(n=350) Renting

Future Living | 11

Key Finding #7

Appeal of Branded Accommodation

Q. In theory, how appealing would the idea be of living in accommodation that was operated by a retail, digital, sport or music brand that reflected your lifestyle and perspective with specialist facilities (e.g. Jack Wills, Apple, Nike or Virgin)?


82% consider the idea of branded/themed accommodation as being appealing, with 37% considering it very appealing (especially for 43% of men and 50% of those in London).


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Base: (n=1,060) UK Millennials, (n=221) Living in London, (n=523) Men

Sum: ‘Appealing’:

82%

UK Millennials

MenLiving in London

12 | Future Living

Key Finding #8

Location, Location, LocationQ. In theory, which of the following proximity distance considerations would be particularly important to you when considering your next accommodation?


The most important location consideration for youth is the proximity to work for 64%, followed by family for 58%.

For those in London, transportation links are an important consideration for 55%, compared to just 41% who live outside the capital.

Proximity to work and family are particularly important for women. 1 in 5 men (21%) consider sporting facilities as important, compared to 12% of women.

Conversely, 50% of women consider the location of shops to be important, compared to 40% of men.




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(n=523) Men, (n=537) Women

Work

Family

Friends

Shops

UK MillennialsLiving in LondonLiving outside LondonMenWomen

64%

65%

64%

59%

69%

45%

45%

45%

50%

40%

16%

17%

16%

12%

21%

58%

56%

59%

53%

63%

50%

49%

50%

49%

51%

Public transport links

Sport facilities

44%

41%

48%

40%

55%

Future Living | 13

Key Finding #9

Preference of Location in Next 10 Years

Q. In which location would you prefer to be living in 10 years’ time?

(Please select one response) Towns are the most attractive location for youth in 10 years’ time (31%), with uniform appeal between men and women.

Just 4 in 10 of those in London want to remain in a city in 10 years’ time.


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26%

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10%

9%

14 | Future Living

Interview

For Greg Locke, retiring from a senior role at top house-builder Linden Homes in summer 2015, his experience has given him a keen sense of perspective on different forms of accommodation in the UK.

As a veteran of Redrow, David Wilson Homes and Linden, Locke has seen the housing market through its many cycles and he is now concerned that many first-time buyers cannot afford to buy a home now until they reach their late 30s.

At the same time, he doesn’t believe that younger people are choosing to rent willingly. Talk of a lifestyle change that will see people rent in perpetuity is, he believes, premature.

“Everyone in the UK still wants to own their own home. People are renting for longer than they did 20 years ago, but home ownership as a principle in this country won’t change in the short term.”

To satisfy demand in home ownership, Locke believes there needs to be change: “Increased supply is critical. Planning has got better over the last two or three years, and we are seeing more releases of strategic land. However, it is a far cry from the early 1990s when you could secure a consent in 8 weeks.

“But getting a planning consent in any location is still very costly. And we are not going to get 200,000 homes a year built until we get the small and medium-sized housebuilders building again.”

Locke pinpoints planning delays, subsequent difficulty in raising finance and skill shortages as three issues plaguing housebuilders, particularly smaller ones.

Asked to identify a type of accommodation where he expects to see strongest demand and Locke names affordable housing (in all forms, both private and social), but he warns that mixed communities where both social and private housing are designed and delivered in the same format has to be the way forward.

And for the Private Rented Sector to thrive, Locke insists that a build-to-rent world with far higher standards of service than tenants are currently used to will need to be created.

Greg LockeDivisional Managing Director Linden Homes, 2010-2015

“If we increase the amount of rented property we have to look at the US model,” he says. “It will be the 20-34-year-olds who for now cannot afford to get on the housing ladder who will drive change in the coming years.

“If they have to rent for longer – while they save up to buy a home – they will want a full range of services. They will want, and be prepared to pay for, security, a good concierge service, gym, pool and maintenance because that will become their lifestyle.”

Locke sees the greatest demand for rented property coming in UK cities with the best employment prospects.

Quite simply, in London, Birmingham and Bristol he sees the most jobs being created, driving a shortfall in homes for sale and inevitably forcing ‘Generation Y’ aged between 20 and 34 into the hands of private landlords.

The prospects for the Private Rented Sector are less healthy in Newcastle, Leeds and Edinburgh simply because they are further from London, and where we see lower incomes and values, he says.

At the same time, the new Private Rented Sector era has to be characterised by well-maintained property.

“If you are looking at quality rented developments you will have to refurbish them at least every five years. It’s got to look fresh and appealing – you redecorate your home every five years, so why not rented accommodation?”

And if landlords achieve this level of service, Locke sees no reason why new chains of Private Rented Sector and care-home brands shouldn’t spring up. Disconcertingly, though, he doesn’t see the same market for branded affordable housing: “Sadly, that all just depends on what people can afford to pay.”

Greg LockeLinden Homes

Future Living | 15

Key Finding #10

Marmite Cities

Q. Which of the following UK cities would you either particularly like or dislike living in?

(Please select one column response for each row)

London is the most likely UK city for youth to live in (52%), while Liverpool is the most disliked for 41%.

Londoners would least like to live in Glasgow (43% dislike), with Manchester the most liked (36%) when excluding London (88%).


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London

Manchester

Edinburgh

Bristol

Liverpool

Cardiff

Birmingham

Newcastle

Leeds

Glasgow

52% 26%

35% 31%

31% 30%

25% 29%

24% 41%

24% 31%

24% 39%

23% 36%

22% 37%

20% 40%

16 | Future Living

“Temporary accommodation will obviously be impacted by Airbnb shared services, and this will continue.”

“New-generation hotel chains focused on rooms being smaller but far more practical and more comfortable, with a focus on common areas, will win market share over traditional hotels.”

“Accommodation has to be more compact, with more standardisation. Ultimately we’re moving into a sharing, almost ‘Scandinavian’ style of economy.”

“I fundamentally believe our economy needs to be more flexible to suit dynamic workforces, and we cannot continue with traditional landlord ownership. New brands will emerge that are professional rental companies focused on supporting this demand.”

Future Living | 17

B2B research – top 10 findingsThere are significant differences in perception between 18-30-year-olds who will occupy residential and other accommodation over the next 20 years and the developers and landlords planning to create the same space.

While 18-30-year-olds are strongly in favour of branded rental accommodation (80%), the professional property world sees less potential.

The landlords, developers and advisers polled believe there is more potential in the established world of hotels and student housing, and brackets the Private Rented Sector (PRS) and care-home worlds as the next most likely ‘branded’ prospects.

The professional property world is even more sceptical about the prospect of sharing websites like Airbnb, with a striking disparity in attitudes.

While 26% of 18-30-year-old home owners have their property on sharing websites and a further 26% would consider using these sites, the property community believes ‘sharing’ will have little impact.

Only 16% of those polled believe that sharing communities will significantly impact the rental demands of tenants.

However, there are some big thinkers in the B2B community polled. On Airbnb, one respondent said:

“Temporary accommodation will obviously be impacted by Airbnb shared services, and this will continue.

“New-generation hotel chains focused on rooms being smaller but far more practical and more comfortable, with a focus on common areas, will win market share over traditional hotels.”

Another respondent said: “Accommodation has to be more compact, with more standardisation. Ultimately we’re moving into a sharing, almost ‘Scandinavian’ style of economy.

“I fundamentally believe our economy needs to be more flexible to suit dynamic workforces, and we cannot continue with traditional landlord ownership. New brands will emerge that are professional rental companies focused on supporting this demand.”

Overall the professional community polled sees the strongest prospects for the PRS, compared with all other types of accommodation.

Landlords and potential tenants do, however, agree on the locations most likely to be successful over the next 10 years.

The 18-30-year-olds polled would most like to live in London and would least like to live in Liverpool. Young Londoners have a particular aversion to Glasgow.

Landlords and developers polled see London, Manchester and Birmingham as having the best rental demand prospects, while they are gloomy about prospects for Liverpool and Newcastle.

18 | Future Living

Key Finding #1

Determining Demand

Q. For which residential accommodation assets do you think there will be significant demand over the next 10 years in the UK?




0 20 40 60 80 100


Private Rented Sector (PRS)

Social housing

Care homes

Student housing

Home ownership – traditional build to sell

83%

70%

67%

66%

65%

27%

Hotels (and equivalent)

Other residential accommodation

24%

8 in 10 (83%) claim that demand will increase significantly in the Private Rented Sector in the next 10 years.

This is followed by an expected growth in demand for social housing (70%), care homes (67%), student housing (66%) and a movement towards more home ownership (65%).

Future Living | 19

Key Finding #2

Assets: Demand, Involved and Potential ReturnQ. For which residential accommodation assets do you think there will be significant demand over the next 10 years in the UK?

Q. Which residential accommodation assets do you already own, develop or invest in in the UK?

Q. Which residential accommodation assets do you consider have the potential for return over the next 10 years in the UK?


Of those who said the Private Rented Sector will experience significant demand in the next 10 years (83%), just under half (46%) currently own, develop or invest in this.

The Private Rented Sector is also viewed as the asset with the most potential for return (71%), followed by home ownership (58%) and student housing (58%).

Although social housing is viewed by 7 in 10 as an area of significant growth, just 19% view it as an area of potential gain; subsequently just 17% currently have vested interests in this area.




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Social housing

Care homes

Student housing




None

Expected Demand in 10 YearsAssets Involved inPotential Return

83%

46%

71%

70%

17%

19%

67%

13%

52%

66%

28%

58%

65%

39%

61%

27%

21%

26%

24%

20%

13%

0%

17%

0%

20 | Future Living

Interview

Tony Stein qualified as a Chartered Accountant but after serving time in the insolvency world left the profession to take up various roles in industry. After a spell as a lender with Carlsberg Tetley he moved into the healthcare sector, originally on the corporate finance side but then in a more traditional Financial Director role. Sixteen years later he has been through the ups and downs of the healthcare business and seen it all.

“Over the past 15 years our team has operated in excess of 500 homes – of which 200 were recovery situations. The business is often challenged, the sector is hard, and delivering exceptional results under these conditions has become tougher and tougher.”

In today’s age of austerity the healthcare industry is really suffering.

“Funding is the biggest challenge. Trying to get sufficient funding for public pay clients to be able to deliver the care that society requires is impossible. Simply put, the government can’t afford what society insists we need.

“The key issue is demographics. We are an ageing population and people are living longer but not healthier. People are dependent for longer. There are fewer tax payers paying for more and more people who need that care.”

Despite the structural problems facing the sector, competition for assets is hotting up, fuelled by the compelling demographics.

“There is increasing competition from big US investors because the demographics are so compelling,” says Stein. “Everyone can see there is a huge need for care. Private Equity firms see it as a sector of major opportunity, as this is only going to grow.”

With land sparse and expensive, London is facing a healthcare meltdown.

“Fees will have to increase to a point where it becomes economically viable to open and operate care facilities in London. The problem is that the local authorities, under austerity, cannot put their fees up. Therefore when you look at land and build prices and then you look at what your potential income is going to be, it does not make economic sense to enter the market.”

Stein believes the industry is also facing a ticking time bomb in the form of the living wage. “If the living wage is implemented, it will add approximately 6% to payroll costs. Given that pay represents approximately 60% of income, fees would need to rise by over 3% just for operators to stand still.”

Independent research estimates that 50% of care homes would have to close if the Living Wage were introduced tomorrow.

“There are 425,000 people in care at the moment and 60% of them are publicly funded. The living wage could destroy the industry.”

Healthcare is a high-risk operating business. “Look at a care home, what are the alternative uses for it? It is a very specific asset. If you are not going to use it as a care home, generally speaking the only thing you can do is to demolish it and build something else. Care homes are a difficult investment. People think of it as an asset-backed business but they are not pricing just the asset when they are lending, they’re pricing a business. The success of that business is in the hands of a tough regulator and an unforgiving media among other things and it can all go horribly wrong, very quickly.”

Unlike many other businesses, Stein believes branding can be a difficult proposition in the care-home sector. “All it takes is one incident and the whole business can be damaged overnight. Everyone is looking at tapping into a local market so a national brand isn’t relevant anyway. What people are looking for in a care home is somewhere that has a good local reputation.”

So what does Stein think the future is for a business that seems to be underfunded and under pressure from all sides? “The wealthy will be fine with private healthcare and insurance to take care of them. However, there are just not enough new assets being created for those reliant on government help. In the long term we need to reduce the numbers of people needing care through preventive medicine, healthier lifestyles, drugs. In the short term the local and national budgets supporting care need to be fully integrated to ensure most efficient use of what resources are available.”

Tony SteinManaging Director Healthcare Management Solutions

Tony SteinHealthcare Management Solutions

Future Living | 21

Key Finding #3

Growth of Residential Accommodation

Q. How strong do you expect the positive or negative growth in the following residential accommodation assets will be over the next 10 years in the UK?

(Please select one column response for each row)

Again, the Private Rented Sector is expected to grow more positively than others overall in the next 10 years (98%).

Care homes record the highest level of gradual positive growth (52%), while 47% predict hotels will show the slowest positive growth in the next 10 years.

11% forecast social housing will experience negative growth.


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Student housing

Care homes

Social housing



48%

23%

22% 43% 32%

21% 52% 18% 7%

8% 33% 38% 11% 10%

30% 47% 5% 15%

19%5% 26% 4% 45%

47% 24% 4%

36% 13%

3%

22 | Future Living

Key Finding #4

Future Drivers of Renting

Q. Which of the following do you consider will significantly drive demand for more rented style residential accommodation in the UK over the short and long term?


84% consider housing shortages will drive demand for more rented accommodation in the short term, with a further 7 in 10 claiming it will be the availability of mortgages.

Over the long term, housing shortages and an ever-growing population (both 75%) are viewed as the fuel behind a movement towards more rented accommodation.





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Housing shortage

Mortgage availability

Growing population

Increasing cost of living relative to wage growth

Change in work styles and/or having multiple jobs in a lifetime

Occupier changing requirements

Flexible working practices

Ageing population

Short termLong term

84%

75%

69%

59%

60%

75%

59%

46%

34%

45%

30%

37%

25%

33%

21%

51%





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Housing shortage

Mortgage availability

Growing population

Increasing cost of living relative to wage growth

Change in work styles and/or having multiple jobs in a lifetime

Occupier changing requirements

Flexible working practices

Ageing population

Short termLong term

84%

75%

69%

59%

60%

75%

59%

46%

34%

45%

30%

37%

25%

33%

21%

51%

Future Living | 23

Key Finding #5

Fundamental Facilities

Q. Which of the following facilities do you expect to see high demand for in rented accommodation in the UK?


91% expect rented accommodation with access to public transport will be in high demand.

Facilities that offer levels of interaction among locals are expected to be particularly sought after in rented accommodation, with communal space (64%), shared gardens (48%) and a gym (45%) of particular interest.

Security is a clear consideration, with a concierge (52%) and the latest security technology (46%) forecast to be in demand.



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Access to public transport

Newest available technology standards

Communal space

Concierge

Shared gardens

Latest security

Gym

Parking

Business centre

Swimming Pool

Bar

Other

91%

65%

64%

52%

48%

46%

45%

43%

16%

12%

9%

6%

24 | Future Living

Key Finding #6

Funding Facilities

Q. If these facilities were offered, how would you expect occupants to be charged?


There is a clear split to how these facilities should be charged if they were offered, with 53% claiming the cost should be covered in the rental charge, while 49% believe they should be covered by a separate charge.

4 in 10 claim that they should be charged under a pay-as-you-go styled system.



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Covered in rental charge

Covered by a separate service charge

Pay as you go

Don't know

53%

49%

42%

1%

Future Living | 25

Interview

“The biggest challenge facing our industry today is that the quantum of policy changes that the new government has introduced has started to make affordable housing unaffordable.”

James Gibson has been delivering affordable housing across the south west of England for over twenty years, so if anyone knows anything about the changing dynamics of the housing association market it is him.

Sovereign is one of the largest housing associations in the country, providing over 38,000 homes for 88,000 residents and employing over 1,000 people.

Gibson’s remit covers the broad spectrum of social and affordable housing. “My day-to-day role is managing development opportunities, delivering multi-phase regeneration projects and procuring all-new affordable housing. We aim to deliver 1,000 properties a year for the next three years.”

The Conservative government has made it clear that the UK is facing a period of austerity and in such times affordable housing will be in ever greater demand, so how is his industry coping?

“The government is driving efficiency through cost cutting at local authorities and central government departments. As our residents draw upon housing benefit, they are now trying to drive efficiency through us, as if they can cut that cost there is a saving to the state as a whole.”

But it is the quantum of government policy changes that is the real threat.

“The new Conservative administration has introduced a whole plethora of new housing and welfare policies, which when combined with rising house prices has started to make what would be affordable tenure through housing associations unaffordable.

“The government’s proposed benefit cap of £20,000 leaves only a minimum income for people to live off after paying for their housing costs, so they can’t even afford to live in our properties.

Typically, there are several thousand applicants on a local authority’s waiting list for affordable housing.

“Affordable housing is under pressure because the ‘starter home’ initiative means there is more affordable housing to buy but it is at the expense of those at the bottom of the scale.

“At the moment there is a whole raft of society that can’t afford to buy and are becoming trapped in affordable housing, which is becoming scarce because people aren’t able to move out and buy a property and this is creating a stagnating market.”

Even with all these challenges facing the industry, there is one issue Gibson is not worried about.

“We do compete with other associations for new development opportunities but the factors that differentiate us are how cheaply we can borrow our money and how efficient our management and maintenance regimes are, and due to the size of our portfolio and vast experience we can deliver cost efficiencies.

“Typically we own property that we rent out at less than 80% market rent so people don’t tend to move. Our average tenancy length is 14 years, significantly longer than someone who purchases their own home or is in private rented accommodation.”

So what is the future for an industry that local authorities cannot do without but which is being increasingly squeezed by new legislation, austerity and rising house prices?

“I am positive about the strength of Sovereign. It is a well-managed, financially robust organisation and, relatively, we operate in an affluent operational area.

“What I am less clear about at the moment is that I can’t see my way through all the new policy decisions that are happening or about to happen. There is such an excess of them that it is the way they will interact and interplay amongst one another that is making it quite difficult to discern what the impact of these is going to be on our industry.

“We are going down the rapids, we are afloat and we will remain afloat, but how we end up at the bottom and the condition we are in will be the challenge.”

James GibsonRegional Development Director Sovereign

James GibsonSovereign Housing Association

26 | Future Living

Key Finding #7

Generational Influence and ExpectationsQ. Which generations do you think will be significantly influential in driving changes to the way we live in the UK?

Q. In 10 years, which generation living then do you expect to be significantly less likely to be living in owned residential accommodation compared to now?


Generation Y is expected by 75% to significantly influence the way we live in the UK, with 62% believing they will be less likely to be living in owned residential accommodation in the next 10 years. Over half (57%) say the same for Generation Z.





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0 20 40 60 80 100


0 20 40 60 80 100


Generation Y (20–34 yrs)

Generation Z (15–20 yrs)

Generation X (35–54 yrs)

Baby boomers (55–70 yrs)

Signi�cantly in�uence way UK livesLess likely to live in owned accommodation in 10 yrs

75%

62%

34%

57%

29%

24%

19%

11%

Signi�cantly in�uence way UK livesLess likely to live in owned accommodation in 10 yrs

Future Living | 27

Key Finding #8

Impact of Property-Sharing Websites

Q. As new business/leisure travel patterns emerge (e.g. Airbnb or LoveHomeSwap), how do you expect this will impact the rental demands of tenants overall in the UK?


48% claim new patterns of behaviour such as property sharing will increase the demands of tenants.

4 in 10 (38%), however, don’t believe this will change.


0

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16%

32%

38%

3%

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Signi�cantly increaseSlightly increaseNo changeSlightly decreaseSigni�cantly decreaseDon't know

Increase:48%

28 | Future Living

Key Finding #9

Building a Brand

Q. Which of the following asset classes do you consider lend themselves best to a brand so as to create a sense of quality and loyalty?


76% claim that hotels lend themselves best to a brand, while student housing (64%), care homes and the Private Rented Sector (both 62%) are also considered favourably.

Social housing is seen as being the least appropriate, with just 15%.



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Student housing

Care homes



Social housing


None

76%

64%

62%

62%

24%

15%

7%

2%

Future Living | 29

Key Finding #10

Rental Cities

Q. Which UK cities do you expect will have a significant increase in demand for new residential rented accommodation?


95% forecast a significant increase in demand for residential rented accommodation in London, with Manchester (79%) and Birmingham (67%) close behind.

Demand is deemed to be lowest in Newcastle (23%).



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London

95%

Manchester

79%

Birmingham

67%

Bristol

57%

Edinburgh

51%

Leeds

44%

Glasgow

36%

Cardiff

30%

Liverpool

29%

Newcastle

23%

Other

11%

30 | Future Living

Interview

If there is one property group that has succeeded as a brand in the last decade, it is Unite – now Unite Students.

The listed student accommodation provider, with a market capitalisation of almost £1.5 billion, is synonymous in the minds of investors and the property sector and increasingly in the minds of parents and teenagers heading off to university.

The group’s head of property, Richard Simpson, still believes that student accommodation lags behind hotels in terms of branding and awareness, but says it is well ahead of the worlds of build-to-let and care homes.

“Building critical mass for anyone in the Private Rented Sector will be hard, because to create a brand you need a really strong platform,” he says.

“Unless there is consolidation in the build-to-rent world it will be difficult. But that’s not to say that mergers won’t happen as the market and the economic stars move into alignment. At that stage things could become interesting.”

Having spearheaded the student accommodation sector, which two residentially focused sectors does Simpson see as having the most promise in the next 10 years?

Firstly, he believes affordable housing will be in great demand. “We are in a period of deep austerity, but house prices have risen sharply. New legislation [forcing them to sell their most valuable properties] will clearly make things harder for residential landlords.

“At the same time, this creates an opening for the private sector,” Simpson says.

He believes that just as student accommodation emerged as an effective alternative to traditional student digs, new, efficient, affordable homes could also be created by private developers.

He also, not surprisingly, continues to be bullish about the prospects for student accommodation, and can back this up with a raft of statistics.

Richard SimpsonManaging Director of Property Unite Students

The Government has scrapped its cap on UK student numbers for 2015/16, meaning that 30,000 extra places have been created this year, and there are now 200,000 more students than when it was announced that tuition fees would be raised.

Numbers of students studying abroad will also continue to rise, and are set to reach seven million globally by 2020. The UK is ranked second in the world for higher education (after the USA), and accommodates 12% of the world’s international students.

On that basis, 300,000 additional overseas students would be studying in the UK within a decade. Simpson is also keen to point out that this army of undergraduates contributes £40 billion a year to UK plc.

As accommodation experts, it is also interesting to hear Unite’s views on what tenants really want.

Security tops Simpson’s list, showing that students are perhaps now a more wary bunch than in the days when they lived in tumbledown inner-city homes.

Next is the need for good technical facilities or even a business centre, showing that they are also more hard-working than when many of Generation X were studying.

And, finally, he and Unite are big fans of shared gardens: “Everyone needs to switch off in an oasis of calm,” Simpson says. “Our roof gardens and roof terraces: the second the sun comes out, they are full.”

And the cities he sees as the renting capitals of the next decade? London, Manchester and Birmingham.

This is a simple function of these three cities having the strongest growth prospects, and in Manchester and Birmingham’s case having suffered limited residential development over the last decade.

For Unite, reading the minds of students has been crucial to its rapid growth – its insights into how the Private Rented Sector and other emerging forms of accommodation also provide intriguing lessons into how they might grow.

Richard SimpsonUnite Students

Future Living | 31

Osborne Clarke legal advice on the implications of the findings

The research, talking to both the consumer and the property industry, throws up a number of issues that we believe will drive the accommodation sector. The role of the lawyer here is not to predict how that will happen but to be prepared to be flexible and innovative to facilitate and enable the changing trends from a legal perspective. This goes beyond pure real estate law into the legal corporate, commercial, energy and finance sectors – all of which will need to work together.

Focusing primarily on the PRS market, lawyers will have to continue to find innovative ways to structure transactions depending on whether they are straight acquisitions of existing assets, forward-funding arrangements, joint ventures (single or multi asset) and whether the properties are stand-alone or part of larger residential or mixed-use development. We may need to work with the property industry to look at how we extend the term of the average tenancy agreement beyond a 12-month AST. In addition to real estate, as the market moves towards smarter accommodation and ultimately smart cities we will be called upon to facilitate shared energy supplies within a wider development (already happening), potentially contactless payment requirements for additional ‘pay-as-you-go’ services provided by PRS landlords, and ultimately innovations such as driverless cars. The consumer likes the idea of branded accommodation, so we could see all sorts of commercial partnering and joint venturing arrangements being entered into by developers, investors and other ‘brands’ – is Nike Accommodation or Virgin Living on the way? Exciting times.

The sharing economy and peer-to-peer platforms, such as eBay and Airbnb, where customers deal with others directly, are growing in popularity. In a recent Osborne Clarke survey into the habits of UK consumers, nearly half (47%) say they use peer-to-peer platforms and the majority (59.4%) say their use has increased in the past three years. However, there are consequences to the continued growth and consumer use of these sharing platforms.

The research confirms this growing sharing economy trend, which we believe will extend to sharing rented accommodation. We need to look at how that is dealt with under the traditional Assured Shorthold Tenancy regime and how it might be impacted by planning issues, such as Houses of Multiple Occupation. We have already seen the UK amend the Greater London Powers Act, largely as a result of lobbying by sharing economy companies, so that residential property in London can be let for up to 90 nights per year without planning permission.

As with many disruptive business models, one issue for sharing economy companies has been building trust and understanding of how the platform operates. This is lessening as the sharing economy matures, user rates increase (and user reviews become more widespread) and appropriate insurance products are developed. There are various proposed structural changes that will help further, such as the planned introduction of a quality mark by Sharing Economy UK, the industry association for the sharing economy. However, landlords need to understand their tenants’ sharing requirements, while collaborating with platform providers to produce services that can not only satisfy this demand but potentially generate revenue.

The role of the lawyer here is not to predict how that will happen but to be prepared to be flexible and innovative to facilitate and enable the changing trends from a legal perspective.

Peter DayPartner Co-head of Real Estate

Andrew SaulPartner Senior Partner

32 | Future Living

Methodology, About Osborne Clarke and About FTI Consulting

B2C researchResearch was conducted online by FTI Consulting from 15-17 October 2015 with n=1,060 respondents aged 18-30 years old in the United Kingdom.

B2B researchResearch was conducted online by FTI Consulting from 21 October - 2 November 2015 with n=116 industry experts participating.

Respondents were sourced and invited by FTI Consulting and Osborne Clarke.

Further information on the results and methodology can be obtained by emailing [email protected]

Please note that the standard convention for rounding has been applied and consequently some totals do not add up to 100%.

About Osborne Clarke Osborne Clarke (OC) is an international legal practice. We have 1,200+ employees, including 200 expert partners and more than 500 lawyers, working in nine countries. Real Estate is OC’s largest UK sector team and we are heavily involved with the full range of accommodation asset classes – we act for student accommodation developers, national housebuilders, housing associations and registered providers, PRS investors, retirement home operators and care home providers, to name just a few. As a result of our work at the cutting edge of the accommodation market, OC has the knowledge, experience and sector understanding to guide clients through the many and varied challenges raised in this report. A law firm ready for Future Living.

About FTI ConsultingFTI Consulting is a global business advisory firm that provides multidisciplinary solutions to complex challenges and opportunities. We are advisers to 64 of the world’s 100 largest companies, 89 of the world’s top law firms and nine of the world’s top 10 bank holding companies. We address challenges in areas such as reputation management, business strategy, litigation, M&A, policy and regulatory issues and restructuring. Our UK property team’s skills range from tax to corporate finance to strategic communications. Our London strategic communications team is the UK’s largest in property, specialising in corporate and financial PR, public affairs and thought leadership.

Future Living | 33

© Osborne Clarke LLP 2015 Publication number 27211776

These materials are written and provided for general information purposes only. They are not intended and should not be used as a substitute for taking legal advice. Specific legal advice should be taken before acting on any of the topics covered. Osborne Clarke is the business name for an international legal practice and its associated businesses. For full details please see: osborneclarke.com/definitions

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Future Living Research on the homes of tomorrow€¦ · number of people living in small households, migration and increased life expectancy. Estimates suggest 240,000 new homes are