Evolution is characterised not only imperceptibly by gradual changes but also by ‘punctuated equilibrium’ – sudden changes brought about by a mix of environmental change and fortuitous genetic mutation. Rarely has the equilibrium of UK real estate development been so ‘punctuated’ as it is now.

It is hard to identify a period in recent history when so many paradigm-altering events have occurred simultaneously, quickly and in such number as those that now face UK house building and construction. We would dare to venture that nothing is the same as it was in the summer of 2007 – except perhaps the people and companies involved (and then in fewer numbers than was once the case).

Not only have changes in the finance world changed the nature and scarcity of development funding but also a fundamental shift from purchase to renting has altered the DNA of the UK housing market (see our Residential Property Focus Q3 2011).

Changing development environment

Alongside this genetic mutation in the market is a rapidly changing development environment. Key changes include:

• reforms to the planning system and planning framework,
• the withdrawal of grant funding from affordable housing providers,
• reforms in regeneration and the birth of Local Enterprise Partnerships (LEPs),
• the withdrawal of public sector funding from various development organisations,
• the rise of localisms,
• the threat of anti-growth lobbies,
• the advent of CIL,
• revision of zero carbon definitions,
• restricted mortgage finance,
• dearth of equity deposits,
• low levels of residential property investment...

Every reader can probably think of many more changes that have altered the landscape of the development industry over the course of the last year or that will change it further over the next.

But has there been sufficient ‘genetic mutation’ inside the industry to enable it to survive? Which will be the fittest organisations and what new organisms might emerge to take advantage of the new environmental niches that have been created?

Viability varying

We examine the changes and their implications. Common themes emerge and ‘viability’ has become a watchword for all players in the arena. But viability may mean something subtly different in the 21st century compared to the 20th.

If viability used to mean that sufficient income could be generated to cover borrowing and generate investor dividends, it may not be so relevant in the new age of equity funding.

Perhaps the beast most changed in the new environment will be the owner of development land. No longer can a landowner expect an income receipt for a raw commodity upon grant of planning permission. The value and viability of land may well have to be realised over a longer time period. The role of some landowners has changed from supplier to development, and even funding, partner. This publication shows some of the ways in which all players in the game of development and investment can adapt and thrive.

Taken from
Focus: Development, Investment & New Homes, 2011