Three ways innovation can help to reduce inequalities in the UK housing market
The UK housing market has a huge problem. There’s not enough supply to meet demand, and this trend is set to continue. This imbalance, combined with structural market imperfections preventing correction, has resulted in stark inequalities in, and stemming from access to property, for tenants, home owners and investors.
In this article I’ll share 3 ways innovation is helping to reduce inequality, not just for the ultimate consumer (for example tenants), but for small- or medium-sized residential property investors. But first, in an article about reducing inequality in UK property, why focus on investors at all?
Firstly, for so many of us, it’s a passion and dream. Investing in UK property has long been seen not only as a rite of passage, but as a signifier and determinant of success for potential investors from around the world. The majority of existing investors has 1–4 properties (52% of landlords had 4 or fewer properties in 2018, according to the Ministry of Housing, Communities and Local Government’s English Private Landlord Survey). That figure is falling. But property is still seen as one of the best ways for ordinary people to preserve and grow their wealth, and build a better future, in a way that they can take control of.
Secondly, innovation is being used to reduce market imperfections, and increase efficiency. As a result, the property market can become more responsive to what is needed: more, quality, affordable housing for the people and places who need it.
This article is not about headline-grabbing, shiny objects. It’s about affordable, micro innovations, making a small difference for many potential small- and medium-sized (SME) investors — and consumers — at the margin, and facilitating more equal access to the UK residential property market, in line with the UN Sustainable Development Goal of Reduced Inequalities.
But first, we must address the problem…
Inequality of opportunity in the residential property market
A shortage of land in areas where there is great demand, planning constraints and regulations, and economic concerns of housebuilders mean that supply is likely to remain constrained for the foreseeable future. Growing demand, fuelled by demographic changes like smaller households, living longer and changing tastes make this lack of supply even more of a challenge.
And the UK housing market is decidedly imperfect, in economic terms, meaning it’s slow to adjust. Incomplete information, illiquidity, and clunky processes are just a few of the barriers. The results include substantial inequalities of opportunity across generations and geographies, in terms of access to accommodation and to investment opportunities. Disparities in quality and price mean that inequalities are not just about ‘have’ or ‘have-not’.
These challenges lead to social problems — a ‘housing crisis’. Rising homelessness statistics (according to Shelter, at the end of 2018 one in every 200 Brits was homeless — an increase of four per cent on the previous year’s number) and qualitative reports illustrate the inequality of opportunity to access safe, quality, affordable housing. There is much-publicized dissatisfaction with the state of the housing market. And for my generation and beyond, affordability constraints mean the idea of accessing property as an investment, to build a more secure and certain future, is beyond the realms of possibility, leading to the issue of ‘underinvestment’. In the context of an aging population, this could become a big problem.
There is cross-party political will to tackle inequalities on the housing side, which has led to some of the recent regulatory changes in the residential property sector — ranging from encouragement to professionalise through ‘Section 24’ tax reforms reducing the viability of owning rental properties in your own name, to increased scope of licensing to improve standards.
For ordinary aspiring investors, innovation could be the key to reducing inequality. And because smaller investors don’t have institutional budgets for research and development, micro innovations at each stage of the investment journey, solving real problems, are key, in particular in access to deal opportunities, and the ability to manage assets.
Here’s just three of many examples of how:
- Alternative finance: alternative finance platforms, for example crowdfunding and peer to peer platforms are enabling investors to access opportunities, across geographies, and regardless of the time the investor has to commit. This reduces traditional barriers to investing. In fact, investing is becoming as easy as buying on Ebay. And the requirement for information to be made public can encourage more professional delivery, both for developments and buy to let investments. So, such platforms are already helping reduce inequalities for potential investors, and facilitating access to better quality, more professionally delivered homes. The tokenisation of real estate has the scope to catalyse this change.
- Information: information asymmetries have for many years affected investors, tenants and potential homeowners. But now, information is more readily available digitally, again at the click of a button. You can find out who owns what for free, via Nimbus. You can find out what the house next door sold for and what else is available via Zoopla or Rightmove, or use a data aggregator such as Property Data. And there’s a proliferation of proptech innovators using data more intelligently than ever before — interpreting everything from changes in the use of cannabis vs cocaine in an area, to what the use of particular dating apps says about current and future values. Specific algorithms draw on wide-ranging data sets to forecast which property owners are falling into financial stress, bringing together an owner who has a problem, with an aspiring investor who has a solution. Many of these impressive innovators are opening up the results of their work for free or via low cost subscriptions, meaning geographical restrictions and relationships are no longer such a barrier to information or opportunity.
- Management — the big inequality here historically has been in terms of standards, and costs. Policies ranging from more licensing to the Tenant Fees Act are creating an environment where professionalisation is essential. Innovation is also helping to reduce friction, improve efficiency and help meet tenant needs more effectively, reducing inequality of standards. For example, apps for tenancy paperwork are making the process more efficient and are also reducing costs — for landlord and tenant. Property management apps connect the tenant customer directly to maintenance providers, reducing office costs and enabling faster responses. Extending these micro-innovations in lettings, real estate is moving from being an industry that sells a product, to one that delivers a Service. And that means the dynamics of the market, and the industry will undergo significant change, delivering more of what consumers (tenants, at one end, and investors, at the other) want and need.
Innovations at each stage of the property investment journey can help deliver investor value, and open up access to opportunities for investors, in a context of rapid change and uncertainty. And, they can help resolve the structural under-supply of quality, affordable accommodation, improving efficiency, quality, and safety, and promoting greater equality of housing opportunities. Embracing change can help everyone involved. But as I’ve discovered through helping start a Small Alternative Investment Fund in the sector, as well as supporting a number of other property-related businesses with this, strategy is key.
‘Sticking plasters’ and ‘shiny objects’ are all around. Innovation should be — and can be — used to add value for all parties and genuinely enhance processes and services, opening up opportunities. And effective innovation requires a clear, strategic focus on resolving real problems. This is true for not just SME investors, but for corporates too. Focusing on innovations that will help improve access, and solve the problem of inequality — for potential investors and tenants alike — is a great place to start.