3 November 2014 | London
International investment is a key driver in helping relieve the current under supply of housing in the UK
By Felicity Young
London is universally recognised as a – if not the – premier global city. It is attracting significant and growing commitments from international real estate investors and developers targeting opportunities in the UK capital’s residential market. With housing supply lagging far behind demand, could international capital provide the boost that London needs to make up the shortfall? And what are the lessons that could be learnt for other global cities?
Two stories dominate coverage of the London residential market. One is house price inflation. The other is the impact that global capital is having on those house prices. And while these two are often conflated, alternative reading suggests that, far from being the root cause of the problem, international investment may in fact be a key driver in helping relieve the current under supply of housing in the UK.
Latest JLL UK residential research highlights that 20% of the Central London planning pipeline has international involvement. While international developers to date control only nine of the 50 largest sites with planning permission, these add up to 28,000 new homes. With only 15,000 units completed last year in all London developments, the contribution of international developers and investors could prove invaluable in realising the Greater London Authority’s projected need for 42,000 homes to be built every year for the next decade.
This possibility is enhanced by the fact that many of the international developers entering the London market are better capitalised than their local counterparts. They are therefore able to progress developments with the scale, pace and certainty that is so vital to match London’s population growth demands.
As a result, many large development opportunities that have lain dormant are now being rapidly revived. A case in point is the recent arrival of China’s largest developer, the Greenland Group. Having acquired the Ram Brewery site in Wandsworth, South West London earlier this year, Greenland is also involved in developing an ultra-high rise residential development in Canary Wharf, Hertsmere House – and is seeking additional opportunities in UK real estate
JLL UK’s Head of Residential Research, Adam Challis, says that investments by developers like Greenland are essential in transforming the supply/demand imbalance in the capital. But he also notes that there are some challenges associated with managing the impact of international investment on the local market: “The flow of global capital is not, of course, in itself a bad thing. But a key consideration is how those flows are channelled and managed. Addressing their impact successfully means making sure that the real challenge facing the London market – a lack of supply – is aligned with the solution that international capital represents.”
Historically, international capital flows into cities around the world have prompted some adverse reactions at a local level. Some of these have even resulted in legislative action, as is the case in Canada and Australia, aimed at restricting residential investments by international developers. In such cases, there is a risk of short-term local political pressures deflecting attention from the longer-term goal of securing enough supply to meet rising demand.
In this context, London’s experience – if successful – may well offer some valuable lessons to which other global cities should pay close attention. If London can manage the balance between local impacts and broader benefits, it could offer a template not simply for how to attract flows of new international capital, but critically, how to make them work for the long-term sustainability of the city.
Adam Challis suggests that the ongoing shift in global capital flows, particularly from East to West, is a transformational development that all cities will ultimately need to address: “Channelled in the right way, international capital can generate a significant net benefit locally and on the wider economy. Globalisation and urbanisation are huge challenges to manage for cities all over the world, particularly in providing adequate new housing. London’s pioneering experience could well serve as a blueprint for these cities as they too address the problem of acute shortage of supply.”