Building upwards

Could building upwards solve the housing crisis?

Last month, housing secretary Sajid Javid confirmed government backing to create a new generation of town houses.

Under the proposed reforms, it will be easier to build upwards on existing blocks of flats, houses, shops and offices.

Mr Javid said that the government was looking to strengthen planning rules to encourage developers to be more innovative and look at opportunities to build upwards where possible when delivering the homes the UK desperately needs.

Since the announcement, Development Finance Today has spoken to a number of industry professionals to find out whether they believed that these proposed planning reforms could help play a crucial part in solving the housing crisis.

Could building upwards be the answer to the housing crisis?

Paresh Raja, CEO at Market Financial Solutions, said that it was promising to see proposed reforms to planning laws to encourage homeowners to build upwards to utilise available space in urban areas where demand was high.

“With demand for UK property clearly outweighing current supply, the government needs to embrace creative solutions to ensure more homes are added to the market.

“The key advantages of building upwards include the cost-efficient use of existing space, ensuring people have a greater [chance] of accessing property in popular urban areas.

“Of course, while this is not a solution in itself, it is certainly a step in the right direction – it is important we see many more similar initiatives introduced to complement the government’s longstanding promise to construct hundreds of thousands of new-build homes each year.

“Unfortunately, consistent policy initiatives have often suffered due to the high turnover of housing ministers we have witnessed over the past two decades.”

Will Nassau-Lake, partner in the development and housebuilding team at Boyes Turner, said that the government’s encouragement for upwards extensions was welcome news.

“We all know we have a housing crisis, but any solution always seems to come with obstacles.

“Adding capacity to existing housing stock will certainly help – and potentially much more quickly than completely new developments.

“However, homeowners looking to reach for the skies need to be aware that even government support may not make this straightforward.

“The terms of existing leases, the assertion of a ‘right to light’ by neighbouring properties and the provisions of legislation relating to party walls could all potentially get in the way of a smooth ascent.”

Stuart Law, CEO at Assetz Capital, added: “Building on top of existing buildings is a definite opportunity to increase housing supply, particularly in cities where it is often much needed.

“There are challenges though, as retrospectively adding further floors carries all sorts of legal, access and other challenges that are potentially more complex than traditional development and could pose issues to lenders.

“For example, in cities it is likely that off-site manufacture components may be craned in on top of these buildings and this may require forward funding of the manufacture, with resultant manufacturer credit risk added to what is also likely to be a more complex property risk.”

Arshad Bhatti, CEO of Apex Airspace, added: "We have built down, across and up - now we must build on our existing housing stock and make use of the unused airspace above flats, houses, shops and offices.  

"Up to 360,000 homes could be built above London alone, with two-storey rooftop extensions.

"120,000 of these apartments could be built on council and housing association properties, which would also mean more affordable housing for essential service personnel."

Do these planning reforms go far enough?

Robert Simpson, associate director at Naismiths, said that Mr Javid’s proposal was bold and had some merit, but it would require strong foundations for it to work.

“It’s hard to argue with the logic – adding storeys to existing buildings should increase [housing] stock without encroaching on vital green spaces.

“The strategy is likely to deliver the greatest opportunities where additional homes are built on retail and office sites, due to scale and because the units created would typically be positioned in town centre locations, offering greater proximity between people and employment opportunities.

“However, the downside is likely to be the additional demand placed on schools, healthcare provision and parking caused by the increase in population density.”

Michael Dean, principal at Avamore Capital, said: “Building upwards is definitely a solution, of many, to the housing crisis.

“The challenge is around the economics of doing so.

“The higher you go, the more it costs overall to build due to the additional reinforcement required to deal with the additional height and weight of the building.

“Therefore, that’s why you tend to see higher buildings in more expensive locations as the higher sales rates compensate for the higher build costs.” 

Ben Lloyd, managing director at Pure Commercial Finance, added: “Any proactive reforms in the planning laws to help alleviate current market demand must be welcomed, however, there remains a question on the level of impact the reforms will have on the immediate housing crisis.

“While it is expected that the reforms will allow two levels to be added to a property, there is a caveat that developments must remain in keeping with rooflines of other buildings in the area and property owners will still be required to go through the formal planning process to gain planning consent.”

Bernadette Hillman, head of planning in London at Shakespeare Martineau, claimed: “The planning system must be changed so that the current bias against development is reduced.

“Too often, the vocal, well-organised minority can yield far too great a political voice when lobbying against, and often preventing, development.” 

Matt Pigram, partner at Maslow Capital, added: “In realistic terms, the amount of new units created from this sort of development will be fairly limited.

“And typically, these types of developments will be in built up areas where “land” is less frequently found (i.e. city centres) - so this will not assist in more rural locations.

“Ultimately, building in city centres will only work if the end unit is affordable to those looking to get on the property ladder.”

What are the intricacies of funding developments that are built upwards?

Lance Joseph, CEO at Iron Bridge Finance, claimed that building upwards was cheaper than building underground.

“From a funding standpoint, there shouldn’t be an issue – as long as the developer is experienced and the lender has done their due diligence properly.

“In fact, we welcome this change as it’s a further opportunity to work with both new and current developers.”

Matt added: “From a funding perspective, we understand that “airspace” type deals look to be the way forward in certain locations, but they are still relatively new in concept.

“The main concerns from development finance providers would be the ownership of the “site” -  if not being undertaken by owner of the freehold interest of the building or land, then do they have the specific agreements in place with the freeholder? And what rights to the existing tenants have? Additionally, we would be concerned about the actual construction method as these schemes can often be inaccessible.”

Paresh added: “For those looking to build upwards, it is important to consider the full range of funding opportunities outside of mainstream lenders.

“This will be informed by the financial cost of the project, and the time it will take for the extension to be completed.

“Alternative finance sources, such as bridging, can offer developers and homeowners tailored solutions to meet the specific needs of each project, and as part of these reforms, the government should look to increasing market awareness of these products.”


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