The Subplot | Affordable housing, Liverpool offices

UPDATE: This story has been updated with a comment from Manchester City Council

Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West’s analysis editor, David Thame.

THIS WEEK

• Poor relations: £494m Manchester resi scheme approved without a single unit of affordable housing and just a £106,000 contribution to off-site provision. Is there a way to end this madness?
  
• Elevator Pitch: your weekly rundown of who and what is going up, and who is heading the other way

NO END OF SHAME

The £1.2bn affordable housing opportunity

Something like £1.2bn of institutional money is waiting to get building in the region as the North West faces an increasingly out-of-control housing crisis. Who can open the door?

Yet another major Manchester residential development has been approved without a single unit of affordable housing. Renaker’s SimpsonHaugh-designed scheme at Trinity Islands provides towers of 39, 48, 55 and 60 storeys. There is space for 566 cars (this in a city which proclaims its net zero carbon ambitions) yet no room for affordable homes. A piddling £106,000 initial contribution will be made to off-site affordable housing, which is about enough to build two thirds of a smallish house (literally). Reminder: it is a £494m scheme. At this stage it would be “unviable” to do anything more generous.

Out of control

This comes at a time when Manchester’s housing crisis is described as “feeling increasingly out of control.” The number of households in temporary accommodation in the city is about 50% higher (per 100,000 residents) than Birmingham, about 100% higher than Bristol, and a staggering 6,480% higher than Leeds. Subplot is not making this up, check the graphs here. Private rents are so high that there’s only one area of the city (Harpurhey) still affordable to people on benefits, and more than 4,000 city children are in emergency space.

End the embarrassment

New Manchester council leader Cllr Bev Craig was installed by her Labour colleagues to put a stop to this kind of embarrassment. Last week, a Local Government Association peer review of the council’s policy and programmes gave her some cover, pinpointing failures in affordable housing as one of a handful of could-do-betters. The council points to its This City council housebuilding operation (see below) and says it knows there’s a job to do.

Institutional money

There is another way: institutional money, and potentially a lot of it. If the North West were to get its usual allocation (based on current regional spreads) this pot could easily be £1.2bn, and potentially a lot more. That’s because private sector investors have spotted an opportunity in an expanding spectrum of housing niches. Legal & General have set up an affordable housing business to help deliver 3,000 or more a year by the middle of the decade. Sage Housing is backed by American private equity megafund Blackstone (it raised £500m last autumn). M&G Investments is behind Hyde.

It’s up to you

Talk to Ben Denton, managing director of Legal & General Affordable Housing and he’s clear that the North West could have substantially more affordable housing than it gets today, and that there is plenty of money available to support it from the institutions (pension funds and insurance giants). “The answer is for institutions to collaborate more with the affordable housing sector, meaning what we build ourselves and how we can inject capital into existing housing providers,” he says.

More blushes

Today, a tiny proportion of that money is going to the North West. Why? Because nobody is asking for it. The money follows local council’s affordable housing requirements. So in the South of England, where councils are very pushy, you see lots of development. About 40% of L&G’s affordable portfolio is in the South East, another 25% in the South West. And just 12%-13% in the North West. “The planning system needs to adapt,” Denton says. “The key driver will be more section 106 housing required in the North.”

SFR could be helpful

Finding sites in Manchester is tricky, Denton concedes. The answer could be alignment with the growing single family rental (SFR) sector – meaning build-to-rent, although houses not flats. Many of those exploring SFR like to take fairly large plots, and then to mix up tenures (affordable fits in nicely). They also have bigger budgets. Legal & General does this kind of thing, via a sister business. Aviva Investors has signed up with Packaged Living to create an SFR platform, likely to be big.

Look North

The SFR folk need tempting to the North West. Today, for instance, the Aviva venture started with an initial £200m, has a further £500m in the pipeline, and the aim of targeting the South West, South East and Midlands. No mention of this part of the world, which ought to be worrying. Councils could open the door.

Lancashire opportunities

In the meantime Manchester’s loss is everyone elses’ gain. Wigan, Preston and Blackpool are all proving easier to break into, as are Greater Manchester and Merseyside’s peripheral boroughs. These are the places to watch.

Capacity and appetite

“Institutions could fund significantly more development, they have the financial capacity and the appetite,” says Denton. The brake pedal is being applied by Northern planners reluctant to insist on affordable housing, and capacity constraints in a small industry (the UK turns out just 50,000 affordable units a year).

Council houses

Councils are back in the affordable housing game. Earlier this month Salford’s arms-length developer Dérive launched the first 100 homes of a wider 417-home social housing project at Ordsall and Clifton. Manchester City Council’s equivalent – called This City – is prepping a 500-a-year pipeline and has Rodney Street, Ancoats, slated for an early win. Plenty of other North West councils are planning something similar.

This is good news. But councils might get more done, more quickly, if they beef up their flimsy affordable housing targets, while tapping into a large and growing pool of institutional investment. British Property Federation research due for publication next week should help clarify the potential.

The council’s response

Council leader Craig sent the following comment to Subplot: “It’s important that we look at major schemes like Trinity Islands in the round, alongside our city’s plans and the positive impact that this sort of growth continues to have on our city. I am passionate about ensuring that Manchester’s growth benefits everyone.

“Manchester remains a place of prodigious population growth and the city can only meet the demand for new housing through major schemes such as this one, which also brings brownfield land back into use. This sits alongside our Housing Strategy that bring forward ambitious plans for more social and genuinely affordable homes.

“Trinity Islands is a £494m investment in our city, which is testament to the confidence developers continue to have in Manchester, despite the ongoing economic challenges posed by the Covid-19 pandemic.

“This development alone will create 2,000 homes and 4,000 jobs in the construction stage. Renaker has agreed to invest £10m to create high-quality public space that will create a new green riverside destination and will cover an area 40% of the footprint of the new Mayfield Park.

“However, what is perhaps most attractive about this sort of development is the social impact – it’s exciting we are seeing the first city centre school being built. It wouldn’t have been possible without the £1.5m that Renaker is investing in the Crowne Street School – along with a further £100k contribution to be used for offsite affordable housing.

“It’s sometimes too easy to focus on the perceived negatives of development in our city, but we should also remember the positive impact behind the headlines that growth that is sustainable can have on our communities.”

ELEVATOR PITCH

Going up, or going down? This week’s movers

Going up? Liverpool’s office market is looking forward to the exhilaration of a rapid rise to the top. Hotel investment is also going up, but might get stuck between floors.

Liverpool’s office market

There are small signs that Liverpool’s torpid office market might be picking up speed.

High Street Solicitors has taken almost 14,800 sq ft at No 1 Tithebarn, a move round the corner from Old Hall Street. The rent of £16/sq ft will set no records. Even so, it is the largest deal for 12 months. There is, as usual, excited chatter about big requirements from outside the area, and some reliable rumours about indigenous demand. This year could hardly be worse than 2020 and 2021, so it’s safe to say the year will end on an upswing. Half a dozen more deals like this during the spring and summer would set the tone nicely for a busy Q4.

The timing of two investment deals seems to indicate that investors think the market has taken a turn, or at least is off the bottom. The Passport Office at 101 Old Hall Street has been sold to Priory RE for £39m, a net initial yield of 6.58%.

Simultaneously Abrdn is selling 5 St Paul’s Place off a £34.8m asking price, a yield of 6.5%. Yields like that will attract the bargain hunters.

Hotel frenzy

Stockmarkets, property market and hoteliers have spent the last year talking themselves into froth on the prospects for the UK hospitality business. Deals and developments are now following.

In the last few days Singapore-based investor CDL Hospitality Trusts has acquired the head lease of Manchester’s 189-bed Hotel Brooklyn for £24.1m, equivalent to a 7.4% net initial yield (which explains everything). A few miles south MY Construction has started building a 412-bedroom Tribe hotel for Accor at the airport, the third new hotel in the strip. The £42m contract will see the hotel welcoming guests in 2024.

The UK travel and tourism sector is predicted to turn over £192bn this year, a shade below pre-pandemic performance, according to the World Travel and Tourism Council. Meanwhile, shares in Hilton’s parent company have rocketed on the New York Stock Exchange, and the property investors, many foreign, are stuffing their pockets with hotel assets, snatching £4bn of UK hotels during 2021, according to Knight Frank.

There are good reasons why homeless money might fancy hotels. Whether real world post-pandemic experience will meet investors’ expectations remains to be seen.

Get in touch with David Thame: david.thame@placenorthwest.co.uk | 01544 262127

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