Hospitals to Homes: How the NHS Selloff Alleviates the UK Housing Shortage

As healthcare delivery is made more cost-effective, the National Health Service is providing room for new housing. And it doesn’t stop with hospitals.

 

Necessity is the mother of invention. That’s why homes are now being built out of empty hospitals in London. And if some visionaries have their way, they’ll be built on top of them – and perhaps also above operating schools, libraries, and government administration buildings.

 

These solutions are among many being proposed as a means to address the critical housing shortage in London. There is clearly a desire to continue living in the Capital City – demand far outstrips supply of the housing stock. The greenbelt restrains building outward so the logical conclusion is to build up, on top of what’s there already.

 

The most visible example is the $470 million renovation of St Bartholomew’s Hospital, situated in the heart of London near St Paul’s Cathedral. When completed in 2019, Barts Square, as it is now called, will include 235 modern apartments in 19 buildings across a 3.2 acre site that saw the pioneering of X-ray machines, was where radiation treatment for cancer was first introduced in England, where the Luftwaffe destroyed laboratories and operating theatres in 1941 and where Queen Elizabeth II opened a new wing less than 20 years later. The new incarnation of the site will be a mixed-use development of residential flats and complementary retail, restaurant and café use. The design of the new buildings, some with preserved hospital facades, is respectfully contextual with the surrounding neighbourhood, largely historic warehouses. Starting price for flats will be £750,000. St. Bartholomew's will continue to exist as a specialist cancer and cardiac centre with 65,000 square metres of floor space in new 17-storey towers, right next door to the former buildings in densely populated East London.

 

Barts Square isn’t the only hospital being redeveloped into residences. Investment money engaged in capital growth planning has wisely considered the plight of the National Health Service:  shifting methods and locations of care leaves the NHS with an estimated 20.5 million square feet of unused assets at a time when the Service is running a £330 million deficit. In the space of 16 months (April 2013 through July 2014), the NHS sold off 105 properties for £51 million, including the release of land that has been used to develop 838 new homes. The property services director of asset management for the NHS told The Wall Street Journal that the long-term plan is to release enough strategic land to facilitate development of 100,000 new homes in short order.

 

Such creative repurposing of structures might go a lot further than this. WSP, the London-based global engineering services consulting firm, proposes building new housing on top of other types of existing structures. The firm’s white paper on this, “Building Our Way Out of a Crisis – Can We Capitalise on London’s Public Assets to Provide Homes for the Future? (November 2014), says that it would be possible to construct 630,000 residential units on the city’s existing municipal building sites. Acknowledging the financial, planning, design, environmental and political challenges to such proposals, it surveyed London residents if they would consider living on top of various functioning services. The survey showed that 63% of Londoners would be happy to live over a library; 59% would live over other (existing) flats; 44% would live above a government administration building; 31% over a legal court, 23% over a hospital; 23% over a school; 19% over a fire station; and 8% would even consider living over a prison.

 

These are not pie-in-the-sky ideas. WSP was the structural engineer for Beekman Tower, a 76-storey, 898-unit luxury residential building that sits on a five-storey public (free, American-style) school in New York City. The development was completed in 2011.

 

The WSP survey shows that people are willing to live in creatively developed places. And by how architects, developers and builders – and their investors – are now acting, it’s clear that free market mechanisms are responding in kind. Joint venture partnerships could be how these are financed – although assemblages of investors of any kind more typically work with raw land. But that doesn’t have to necessarily be the case. Investors are accustomed to working with local planning authorities (LPAs) that can grant or deny zoning changes. Topping off a school or library or replacing a hospital will require planning consents as well. Importantly, a residential application raises the value of the land and the neighbourhood, an important consideration to LPAs.

 

With a growing population in London as well as other cities in the UK, and frequent resistance to development on greenbelt land, these alternative means of development are opportunities for all parties, including investors. But as with all types of investment opportunities, investors need to consult with an independent financial advisor to identify when the investment risk fits an overall portfolio strategy.