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An analysis of the housing market in Belfast, focusing on the City Centre core and inner city areas. It evaluates the potential impact of emerging Local Development Plan (LDP) housing policies on residential development in the district, including affordable housing models and their implications for market feasibility. The document also considers geographical variances in the housing market and the political context of housing delivery in Belfast.
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City Centre (including City Centre core)
The City Centre plays a significant role in the regional economy, with a multiplicity of land uses, serving a wide catchment area beyond its plan area boundary. To remain competitive, a supply of good quality office accommodation is required in the City Centre to support new business investment and job creation. In addition, as the City Centre’s retail offer continues to evolve, it is essential for the long- term viability of the City Centre that a greater focus is placed on increasing its residential population.
Unlike many cities of a similar size across the UK and Europe, the existing residential population of the City Centre is low. However, this is likely to change significantly in the near future with the re-location of Ulster University into the north of the City Centre with growth in purpose-built student living accommodation already leading to improved vitality and liveability.
It is of singular importance that the LDP helps deliver a high quality city living environment. Indeed, there is a symbiotic relationship between the growth of a city’s office sector and its city housing stock and as a consequence, it is of vital importance to Belfast that its City Centre housing provision aligns with its growing office stock. Any restriction in housing provision, may impede the existing momentum of FDI corporate occupiers seeking to invest in the City Centre therefore housing stock will be required in significant numbers.
For the purposes of this paper, the City Centre core is defined as that area of the City Centre bounded by the west bank of the River Lagan, Ormeau Avenue, Bruce Street Link, Great Victoria Street, the Inner Relief Road and Donegall Street returning back to the west bank of the River Lagan at Custom House Square. The City Centre core is outlined in red on the map below, along with the different zonal areas within the core and the wider City Centre. Due to a lack of large scale sites, coupled with design challenges and viability issues created by higher land values (competing land uses), the city core is specifically identified as being particularly challenging for the delivery of housing.
Figure 1: City Centre core and central ‘zonal’ areas
Inner city
The inner city, which Colliers would identify as those areas positioned on the outer edge of the City Centre core, is characterised by a predominance of high density residential development, often including established residential areas of terraced housing and social housing developments interspersed with industrial uses and commercial development. The changing economic climate and decline in traditional manufacturing has left a legacy of industrial sites that have potential to be redeveloped for medium-high density residential development in close proximity to existing facilities and services.
Glider Hubs
The term Glider Hubs in this paper aligns with the terms District and Local centres as referred to in the Council’s Draft Plan Strategy. Located along the city corridors, with good accessibility and well served by high quality transport connections, higher density residential development can typically be supported in close proximity to such centres. Examples include Connswater / Kennedy Centre (district centres) or Ballyhackamore / Finaghy (local centres).
The city corridors are typically characterised by a mix of uses with clusters of small commercial units having formed in a number of places, providing local shops and services for the surrounding residential neighbourhoods. District and local centres acting as key service centres for surrounding communities. They fulfil an important complimentary retail role in providing consumers with convenience and choice in locations outside of the City Centre.
Outer Belfast / Suburbs
The outer areas of Belfast typically contain a greater proportion of housing than industrial and commercial development. Dwellings tend to be larger and lower density moving into the suburbs, with the majority of properties taking the form of semi-detached and detached houses with private gardens. As already noted above, the functioning housing market is much greater than the limit of the Belfast City district boundary. In the context of outer Belfast, this has implications in terms of competition from neighbouring districts such as Lisburn & Castlereagh and Antrim & Newtownabbey, particularly for this type of lower density housing.
Affordability Issues
Given the knowledge that housing supply has not been keeping pace with the additional demands generated by demographic change, it would be logical to assume that the cause of higher house prices is a lack of supply.
Empirical analysis indicates a weak relationship between land supply, housing supply and rates of house price growth. It also suggests almost no relationship between land supply and other factors that impact affordability such as transport costs, energy bills, food expenditure and access to employment.
There are a number of factors leading to affordability issues including; salary to loan ratio, ability to sell, current income and zero contract working arrangements, however the biggest impediment to purchase is the requirement for housing equity/deposit. The financial markets have produced a matrix of mortgage packages that ought to allow most parties to obtain a mortgage, however in the majority of cases, a deposit in the region of £15,000 - £20,000 will be required so clearly this is a fundamental barrier to entry.
Even assuming that increased supply equals more affordability, as the vast majority of sales are from the second hand market, it would take a very long time (and a sustained policy approach over many political cycles) for increased supply to impact on price. The logic of this statement however does not stand up to scrutiny given that a primary objective of the Belfast Agenda is to actually grow the City Centre population and the population of Belfast.
Evidence from the Council’s own housing monitor, following a baseline assessment for 2015, shows that of the land available to accommodate 23,500 housing units, almost 19,000 units were on committed sites (i.e. with planning approval). This reinforces the assumption that more planning permissions do not necessarily mean more housing supply. Notwithstanding the above figure, the NIHE’s Housing Market Analysis (Sept 2017) outlines a significant affordable housing need for Belfast (940 social homes and 630 intermediate annually).
Other factors that have contributed to affordability issues in Belfast include:
Drivers of a more sustainable housing supply include the availability of land in areas of housing need, the availability of both public and private finance, local developer capacity, addressing the backlog in demand since the market downturn and avoiding delays in obtaining all statutory consents.
There also needs to be a clear focus by all stakeholders to work together to effect changes to legislation operating practices etc. as necessary to assist in the increased delivery of affordable housing.
RECOMMENDATION 1 There needs to be a renewed focus by all stakeholders to work together to effect changes to legislation, operating practices etc. as necessary to assist in the increased delivery of affordable housing.
In relation to the availability of land, it is considered that a more proactive approach needs to be taken in terms of transparency and access to land, particularly public sector assets, together with a more robust land management and development strategy and more efficient use of the city’s existing housing stock.
a) Provide developers with access to a register of surplus public sector lands, along with clear, up-to- date information on planning approvals, made fully accessible to the public. b) Encourage the Council and other statutory landowners to be more proactive in land management and land assembly. c) Via the use of legally enforceable contracts, developers proposing to acquire public sector sites must be put under an absolute obligation to build and to do so within a pre-determined time limit. d) Supplement private sector provision by enabling the public sector to also develop new housing, and adopt a more holistic, balanced policy approach to the housing sector as a whole. e) Make more efficient use of the existing housing stock in the city.
Current Approaches to Affordable Housing Delivery
The current policy approach to the delivery of affordable housing in Northern Ireland is through the provision of:
These are outlined in more detail below.
Deposit
Saving for a deposit remains one of the major challenges for prospective home buyers in Northern Ireland who wish to take their first step onto the property ladder. Co-Ownership provides a solution for those unable to raise the necessary deposit amount needed to access homeownership. During 2017/18, more than half of people who purchased with Co-Ownership did so without a deposit (56%).
Outcomes
Co-ownership has been vital to suburban developments, the following examples are set out below:
Household composition – Co-ownership
Single person households were most common during 2017/18, making up almost half of all Co- Ownership purchasers (45%) whilst a combined total of 43% of purchasers were couples at time of application. One in every ten households was a single parent (11%), reflecting the continuing need for affordable homeownership amongst this customer group.
Age Profile
The average age of a Co-Ownership homebuyer during 2017/18 was 32, remaining unchanged from last year. Reflecting the general trend for later entry into home ownership, 28-32 is now the most common age group for Co-Ownership purchasers, shifting from 23-27 last year. This increase is evidence of continuing affordability issues, in many cases, forcing later in life first home purchases.
RECOMMENDATION 4 Co-ownership must become a stakeholder in housing strategy and must be encouraged to change its prevailing matrix to mirror demand, particularly in the City Centre where it needs to participate in supporting 1 bedroom apartments and increasing its funding threshold on 2 bedroom apartments. This action will have a significant impact on the ability of first-time buyers to purchase apartments and give confidence to developers to deliver homes that match the demand of those wishing to live in the City Centre.
3. RENT TO OWN
Rent to Own is a new initiative operated through OwnCo Homes Limited, Co-Ownership’s private subsidiary and is at pilot stage at present. Rent to Own is a fixed-term rental commitment with an opportunity for home ownership at the end. It helps renters who cannot access home ownership to turn around their fortunes within a fixed term tenancy period of three years. Rent to Owners choose a new build property they hope to own one day and pay a market rent for it, receiving a 25% rebate of rent paid at the end of the tenancy if they buy the property. This rebate, coupled with their down payment of £2,500, can then serve as a property deposit and can help them access a mortgage.
Other Affordable Housing Delivery Models - UK
The SPPS recognises that the definition of intermediate housing may change over time to incorporate other forms of housing tenure below market rates. Other products, such as those operating in the rest of the UK, are explored in more detail in the section below. Currently, the co-ownership model is the only readily available intermediate product available to Belfast residents (a pilot Rent to Own scheme also exists). A number of additional intermediate products are available in other jurisdictions as set out in the sections below. Evidently, the NI housing market and indeed the Belfast market has its own nuances and cannot be directly compared with the rest of the UK. The question remains whether the following products, if applied here, would be more or less viable than the current affordable offering in Northern Ireland.
4. DISCOUNT MARKET SALE
This is a low cost home ownership product where a new build property is purchased at a discounted price with the developer essentially carrying the cost differential. This discount is usually around 20% and the scheme is to help low and middle earners get onto the property ladder. Housing should be genuinely discounted below prevailing market value and, to ensure that such housing remains affordable in perpetuity, a developer or government agency may retain a ‘golden share’ to ensure that discounts are maintained in future sales.
A recent example is at Park Avenue Heights, Belfast (Choice/ Maple & May) – 13 affordable homes consisting of 6 apartments and 7 town houses (2 Bed apartments selling for £125,000).
It is important to note that this product does not match the definition of affordable housing as set out for NI in the SPPS. That said this example shows that discount market sale does work in Belfast and could form part of the affordable accommodation offering but as a delivery mechanism, it is probably best left to housing associations.
5. HELP TO BUY (EQUITY LOAN SCHEME)
A ‘help to buy’ equity loan involves a third party (often a government agency) providing a low interest loan for part of the cost of a newly built home, which could help reduce the amount needed as a deposit to access mortgage finance.
The Government lends up to 20% of the cost of a newly built home, buyers require a 5% cash deposit and a 75% mortgage to make up the rest. No loan fees are payable on the 20% loan for the first five years. The following figures from England are correct as at to 30 June 2018:
Council’s Proposed Policy Approach
On 1 April 2015, Belfast City Council became the local planning authority for Belfast as part of the wider reform of local government. The Council are now responsible for the majority of planning functions for Belfast, including local development planning – the preparation of a new Local Development Plan (LDP) that will set out a clear vision of how the Council area should look in the future by deciding what type and scale of development should be encouraged and where it should be located. This marks the most significant change to the Northern Ireland (NI) planning system in over 40 years and presents the Council with an unprecedented opportunity to address the development challenges within Belfast in a more co-ordinated way.
Alongside this, new Community Planning responsibilities were also introduced, with a statutory link between the Community Plan and the LDP. The Community Plan is created by a partnership of key city stakeholders, residents and community organisations and sets out a joint vision and long-term outcomes and ambitions (by 2035) for Belfast’s future, as well as outlining our priorities for action over the next four years. In 2017, the city’s first community plan, the Belfast Agenda, was published and details the 20 year vision for the city. A key target within the Belfast Agenda is to increase the population of Belfast by 66,000 by 2035. As the spatial reflection of the Belfast Agenda, the emerging LDP seeks to articulate where and how this growth should be accommodated.
The Council is currently preparing a new statutory LDP for the City. The Plan will set out the legal framework for how the city will develop over the 15-year period to 2035. Following consultation on the Preferred Options Paper (POP) in 2017, the Council published the draft Plan Strategy on 23 August
In relation to housing, the draft policies of most relevance to this study include:
Although many of these policies within the LDP are likely to have implications for the delivery of housing in the future, the most notable change from existing planning policies is that relating to affordable housing. It has therefore formed a key consideration in this research, alongside the broader policy requirements outlined above. It is anticipated that the Plan Strategy, when adopted, will be supported through the adoption of a range of Supplementary Planning Guidance (SPG). An indication of the range of SPG to be produced is contained within the draft Plan Strategy, which includes an SPG relating to Affordable Housing. It is anticipated that this work will focus on the practical mechanisms available for the delivery of affordable housing as a result of the policy.
Delivery Issues Relating to City Centre Core
1. CONSTRUCTION COSTS
Construction costs continue to rise across Northern Ireland with the greatest impact being on higher density developments – the primary delivery method within the City Centre. Most developers price City Centre construction at approximately £150 per built sq. ft. As can be seen in figure 2 below, construction costs for residential development have risen consistently since 2012.
Figure 2: Construction inflation
2. CAPITAL VALUES
Belfast City Centre remains an emerging and unproven residential market. As such, capital values are averaging £250 per sq. ft. (compared to £150 per sq. ft. in the suburbs) which leaves £100 per sq. ft. for site acquisition, planning, professional fees and developer’s profit. This does not represent significant scope for error, especially when more straightforward development opportunities present themselves elsewhere in Europe (see funding comment in Section 4).
Figure 3: House price fluctuation since 2005
As the table below illustrates, there has been considerable pricing fluctuation within the Northern Ireland market and as a consequence, stakeholders responsible for the delivery of housing product need to de-risk the procurement process as far as possible.
However, it is considered that this risk could be offset in Belfast by the proposed certainty offered by the Council’s aspiration for higher density development.
3. PLANNING CONSIDERATIONS
The emerging trend across Europe is for single/smaller household units and that comment is applicable across all age spectrums. When commenting on recent trends in City Centre living generally across the UK, the Housing Growth Options Report (Turley 2016) identifies “distinct characteristics” in City Centre markets “with a strong demand and concentration of privately renting households and large numbers of apartments and high-density schemes, aimed at single person and couple households”. These human requirements need to be recognised by planning and all stakeholders in the planning process, acknowledging that the City Centre is unlikely to be able to meet the full range of housing need on its own. We need to look at implementing new ways of living. There is a younger generation coming through that is far more experimental.
As acknowledged earlier, in less than 20 years’ time, it is likely that more people will be renting than owning their own homes. With income levels and access to credit being a barrier for many, the Council’s draft Policy HOU5 is therefore necessary to ensure increased provision to service this demand. In this context, significant opportunities are presented by PRS and particularly the more recent BTR sector. In terms of the efficient delivery of new housing, the potential for modular construction should also be explored.
RECOMMENDATION 6 Assess opportunities for implementing new ways of living. There is a younger generation coming through that is far more experimental – significant opportunities are presented by the Build to Rent and Private Rented sectors. The potential for modular construction to fast-track new provision should also be fully explored.
The trend for smaller household units is reflected in the research undertaken to inform the LDP Plan Strategy. NIHE (2017) notes that the growth in smaller households means that housing needs could be met through an increased supply of smaller units, with apartments and terrace house types expected to remain the most popular. However, the House Builders Federation’s ‘Room to Move?’ Report (2015) notes that “those who remain single will tend to buy more space as their income rises over their working life. And a large proportion of the projected growth in one-person households will be among the elderly, many of whom will remain in their family home.”
Specific to Belfast, the Housing Market Analysis (NIHE 2017) notes the importance of the link between the economy and the housing market, with economic performance, income levels and the structure of employment all being important contributing factors in the mix and tenure of housing required. For example, they suggest that “a growth of professional and higher paid jobs may increase demand for family housing, while increased service and customer care posts may attract younger, single people seeking smaller and lower value dwellings, many of which will be rented.”
Unlike other cities in the UK, Belfast City Centre does not have a model to stimulate sales especially among first time buyers. Throughout England, the Help to Buy scheme (referenced above) has given developers the clarity needed to deliver and plan more homes and is consistently supporting those borrowers who need it most. There is therefore a need for a broader range of intermediate housing products to be made available in NI to reflect stimuli available in other jurisdictions.
With the current restrictions being applied (min 2 bed, max £165,000 etc.), it is not feasible for developers to deliver residential product in the City Centre that matches the co-ownership criteria. As of February 2019, the average apartment price in Belfast City Centre (including both new build and resale stock) of those available for sale and with at least 2 bedrooms is £187,000, well above the current limit of £165,000.
Co-ownership need to change their criteria for a defined area within the City Centre – the co- ownership matrix for the City Centre needs to mirror demand. This action will have a significant impact on the ability of first-time buyers to purchase apartments and give confidence to developers to deliver homes that match the demand of those wishing to live in the City Centre. Accordingly, any change made would not be prohibitive and demonstrates that the Council’s proposed policies, particularly on affordable housing, would not undermine the market. Therefore, Colliers would recommend the following:
RECOMMENDATION 7 Within the City Centre core, greater latitude and flexibility of the application of the LDP may need to be applied in the short term, until such times as significant development momentum has been created and a clear and understandable City Centre living market established. The use of viability testing is therefore vital in the application of the new policies, particularly for early developments within the City Centre core.
There is also a need for new intermediate housing products that would work in the City Centre context, as well as changes to existing products to reflect price inflation and differentials for the City Centre. For example, it is recommended that the following pricing schedules are employed to facilitate the co- ownership model in a City Centre context:
As an indication of the impact this would make for first time buyers, below is a brief calculation of the monthly costs:
1 bedroom @ £165,
2 bedroom @ £190,
Colliers do not hold to the view that car parking is required for City Centre living. If Belfast City Council is committed to taking the car out of the City Centre, then it is counter intuitive for statutory stakeholders to demand car parking with apartments.
6. RATE COLLECTION
One sector of City Centre living that does have the potential to deliver floor space, in principle at least, is the funding model of Build to Rent (BTR). However, already we are seeing early interest in this sector being impacted by the Department of Finance’s chosen methodology of rate collection. Across the UK, the industry norm is that the Rating Authority invoices and collects from each occupant of the BTR unit its rates liability (rates are a tax on occupation). The prevailing strategy in Belfast is for the Rating Authority to invoice the developer for the collective rates liability for the created BTR units. Although not necessarily a planning issue, this impacts the delivery of planning objectives in relation to City Centre living by limiting one of the most vital of residential delivery platforms – Build to Rent.
