Is Strategic UK Land a Real Asset Worth Investing In?

Real assets can provide real rewards, but some investments are subject to odd volatility. Strategic land has many solid economic factors in its favour. 

 

It’s understandable that investors might be skittish about investing in real assets. Price volatility is almost the norm for such investments as precious metals, antiques, art and classic cars. Some antique cars rose in value by 257 per cent between 2005 and 2013 (source: Coutts private bank), however that assumes you pick the right model and year, and that your garage and insurance costs are not exorbitant. In February 2015, ten international banks were named by the U.S. Department of Justice and the Commodity Futures Trading Commission for possible rigging of precious metals markets, according to The Wall Street Journal. Real assets sometimes come with real problems.

 

But we are in an era where UK land, the historically most dependable real asset, is in a class by itself. With little reservation, most investment advisors see a great deal of value growth in strategic land – enough so that any investment portfolio of a good size should allow room for strategic land investments.

 

There are several reasons for this. Here are the key factors favouring good returns on the strategic conversion of raw land to housing:

 

1. Shortage of housing – New housing starts in England in 2014 numbered 137,780, up from 112,610 in 2013 – a 22 per cent increase. But the Department for Communities and Local Government estimates the annual addition of new homes should be 221,000 units, and that the country is already one million residences shy of where we should have.

 

2. Growing population – There are several reasons for this shortage of homes. But chief among them is the growing UK population, found to have increased a stunning 7 per cent from 2001 to 2011. This is due to immigration, higher birthrates and extended lifespans, where our pensioners are able to stay in their family homes longer than before.

 

3. Shifting sentiments toward expanding housing – A YouGov poll taken around the time of the 2015 General Election found that 67 per cent of adults in England believe that the number of new homes being built should increase. But exactly where those homes should be located is a point of disagreement and, perhaps, some confusion. That same percentage of the 4,500 people polled feel it’s important to protect Green Belt land from development, and even more (83 per cent) think that building on brownfield land should be supported. But when asked about building on greenfield  land – distinguished not by location but by having never been built upon – more than half do not oppose building there. There is widespread misperception that Green Belt is universally areas of outstanding beauty, when in fact much of it is not. Further, if housing is located beyond the official Green Belts it creates an exurbia phenomenon that requires greater commuting distances, which is precisely what Green Belts are supposed to prevent. In some cities, swaps of brownfield land are being made with Green Belt acreage, enabling parks within the urban core and expanded housing where it is in close range of workplaces.

 

4. Alleviate strain of unaffordable housing – The housing charity Shelter maintains that increasing the housing stock at all price levels alleviates price pressure at the lowest levels, reducing rough sleeping and making rents more affordable for young families.

 

5. Government-sponsored lending assists – With the successful Help-to-Buy programme, first-time home buyers are able to get the deposits and loans necessary to get on the property ladder. At least 70,000 homes were purchased in 2014 under Help-to-Buy.

 

As should be evident, societal as well as economic factors favour investing in home building. Managers of UK property funds, who identify land that is ripe for use designation changes, lead these efforts on behalf of investors. Once the land is approved for a use change by local planning authorities, they construct infrastructure that provides lots for individual home construction, typically by homebuilder firms.

 

Should you invest in a real asset of any kind, including strategic land? It’s best to consult with an independent financial advisor who can assess where in your portfolio such an investment might fit.