Housing sector trends and predictions – what to expect in the latter half of 2023

Having emerged from the COVID pandemic as well as a politically charged and economically challenging 2022, the focus for those in the housing sector during the first quarter of 2023 has been on change and innovation. With a push from the government to ensure housing safety; increases in building materials; regulatory changes and an ever-growing need to create social value, property owners need to look for ways to save time, money and energy. 

In this article, we take an in-depth look at the housing trends and issues that will define the latter half of 2023.

Increased spend to ensure quality and safety of housing stock

Five years after the Grenfell tragedy and over two years since the death of two-year-old Awaab Ishak from mould exposure, the government is introducing new safety regulations to improve construction and maintenance standards. This contributes to an increasingly tricky regulatory environment that developers, property owners and social housing providers are struggling to keep on top of.

Many aspects of the Building Safety Act 2022 will come into effect when the necessary secondary legislation passes in 2023. It will introduce a host of new rules, penalties and regulatory bodies. For instance, the Building Safety Act will:

  •   Require the establishment of a Building Safety Regulator (BSR). It will operate as part of the Health and Safety Executive (HSE), and we expect it to take a more proactive approach to the enforcement and prosecution of non-compliance issues.
  •     Implement a three-step gateway approval process that necessitates checks at the planning, pre-construction and completion stages.
  •     Ensure the adoption of Golden Thread documentation that details all information concerning a construction for the duration of its lifespan.
  •   Give the BSR the power to issue compliance and stop notices and prosecute a director, manager or other connected people when a corporate entity commits an offence with that person’s consent or knowledge.

While the regulations are intended to improve safety, they will also put pressure on social housing providers by upping the costs associated with compliance and reporting.

The Social Housing Regulation Bill

The Social Housing Regulation Bill was introduced to parliament in early 2022 and has had its third reading in the House of Commons. Designed to improve tenants’ rights and equip the industry regulator with more powers, the bill will likely enter into law later this year and have a sizable impact on the sector as a whole.

Key takeaways of the bill:

  •       Empowers the regulator to set standards for staff competence and conduct.
  •       Prioritises safety, transparency and energy efficiency in social housing.
  •       Allows regular inspections of registered providers.
  •       Removes the cap on the amount the regulator can fine non-compliant providers.
  •       Requires providers to elect a designated health and safety representative.

While it is difficult to predict how the bill will impact social housing providers, it will undoubtedly add to the bureaucratic burden many organisations are currently struggling with.

Social value will be a driving force

One of the more positive aspects emerging from the troubled housing sector is a growing focus on social value. Some private companies are choosing to look beyond their profit margin and consider how they can deliver value to the communities in which they operate. Typically, they frame this value through the prism of environmental, social and governance issues.

Some large-scale investment funds are backing schemes that aim to address inequality and localised deprivation (while also delivering a financial return) through affordable housing and urban redevelopment. For instance, Legal & General, a high-profile financial services group, announced it will invest £4 billion in projects across the West Midlands that result in urban regeneration and housing development.

The cost of borrowing will increase

One thing experts do agree on is that interest rates are likely to continue to rise this year. Starting from a record low of 0.1% at the end of 2021, the Bank of England has increased the base rate eleven times. With inflation at an astounding 10.1%, the base rate now sits at 4.2% (BBC).

Higher interest rates make borrowing more expensive and can mean social housing providers and developers are more reluctant to borrow. Experts believe that social housing providers, in particular, will choose to avoid new capital market transactions and favour revolving credit facilities (Property Reporter).

Experts also suggest we can expect further interest rate rises in 2023. For most economic analysts, it is a question of when, not if, the Bank of England will make its tenth adjustment in two years. Interestingly, the previous vote to raise rates was not approved unanimously. This suggests some internal disagreement about how much the Central Bank should do to combat inflation.

Phoenix Asset Management believes the Bank will raise interest rates to 4.5% by May (Standard Life). The OBR anticipates interest rates hitting 4.8% by the third quarter (ONS). Most analysts predict the Bank of England will start reducing rates by early 2024, though this will depend on inflation and the depth of the approaching recession (Yahoo).

COVID after-effects continue to cause supply chain disruptions

Remarkable changes have taken place in the wider construction and property sector over the last few years. There is little doubt that the pandemic had a pronounced and lasting impact on UK society. This translates to shifts in the housing sector, too. Though many construction firms were able to reinforce their supply chains and make them more stable than before, there are still concerns.

The strong lockdowns in China restricted the supply of raw materials, making them difficult to find and pushing up prices. Though the situation has recovered somewhat, material costs remain high. Immediately after COVID, the enormous increase in shipping costs and Brexit-related logistics issues exacerbated the situation. Between 2020 and 2022, the average cost of a shipping container went from £1,600 to £10,000 (Procure Partnerships).

As prices have settled and raw materials are easier to acquire, the pressure has eased. However, supply chain strain is still playing a significant role in the housing sector and increasing costs for developers, social housing providers and those renovating properties.

Sustainable housing in growing demand

Other long-term housing trends will also influence the direction of the housing sector this year. One of the most influential is the push towards more environmentally friendly homes.

The government is making moves to improve energy efficiency in new social housing and recent constructions. Including safety, transparency, and energy efficiency in the regulator’s remit in the Social Housing Bill demonstrates a commitment to eco-friendly construction in the future.

Similarly, housing developers face increasing pressure to decarbonise older properties and build increasingly energy-efficient designs. This will require additional investment and may force a reduction in the number of new properties under construction as firms look to invest in their existing stock.

The business rate revaluation and its impact on empty properties

The final factor to consider in 2023 is the business rate revaluation that took place on 1st of April. While changes in business rates are expected to hit the retail sector hardest, those managing empty commercial properties will also face tough questions. If a property has been vacant for more than three months, 100% of the new business rate amount will be payable on the property. Though this may force some property owners’ hands and increase property sales, the high costs associated with redevelopment may suppress market interest.

Finding innovative solutions to save time and money

2023 is shaping up to be a challenging year for the housing sector. A looming recession is causing developers to cut back on construction projects, and logistics issues are pushing costs up. At the same time, an increasingly robust regulatory environment is putting pressure on construction firms and social housing providers who have to get to grips with the new rules.

As we move forward, property owners, developers and providers need to look for innovative and original ways to overcome the challenges they face. With this in mind, we believe we will see a significant boom in property owners and those renting in the private sector, seeking to take advantage of property guardian providers this year.

At Dot Dot Dot, we believe the solution we provide – property guardianship with purpose – can help to alleviate some of the pressures property owners are facing in the current climate. Property guardianship ensures your building is secured with responsible residents who keep an eye on costly issues such as fly-tipping and anti-social behaviour. Volunteering for 16 hours a month means Dot Dot Dot guardians are  considerate, community-minded neighbours, and we can direct them towards local causes.

Compared to hard security, guardianship services have very little costs attached to them.  Guardians keep properties well-maintained, reducing overheads in the process. At the same time, our property guardians receive a place to live at a low cost compared to the private rental market.

If you want to learn more about how we can secure your empty property with socially minded property guardians and contribute to your meanwhile objectives, please don’t hesitate to get in touch at 020 3005 2457 or partnerships@dotdotdotproperty.com.