Housing is central to the UK economy. It’s also a problem we’ve understood for decades and failed to fix.

In his recent research note, Gary explored the persistent gap between population growth and housing supply, asking why clear policy direction hasn’t translated into delivery. The causes are many, including planning friction and stalled output.

To quote Gary, emphasising the state of the current planning system:

Meanwhile the industry itself isn’t the limiting factor:

Gary expands on these structural challenges around property in the UK in this interview before the discussion shifts direction.

Time for a GDP Rethink?

Taken off on a tangent, Gary’s prompted to consider how technological change is reshaping how we live and connect – and this highlights the “huge issue” with GDP, a measure that may no longer reflect the realities of modern life.

Transcript

Leo Hallam

Chief Investment Officer Gary Reynolds is here to talk us through his recent research note. Talk’s cheap, housing isn’t. Gary, hi. Do you want to give us an introduction and talk us through how you put this piece together, why and what it means?

Gary Reynolds

Yeah, so part of sort of asset management, you want to keep up with the big themes. And UK, it’s our own market, is an important market for us and for most of our investors. So you want to sort of stay up to date with the big trends. And clearly, we’re a country that has a very high level of home ownership. And because of that, it plays a big part in our economy. And of course, our population has been growing steadily over the last 40 – 50 years. But housing hasn’t grown at a fast enough rate. Now, this was obvious to the Blair’s New Labour government at the turn of the century, and they commissioned a report which was done by Kate Barker – a very, very good report, and it looked at what needed to be done to reduce the rate of house price inflation so that the cost of housing didn’t get away from new buyers. And 20 years on, I wanted to see how successful it had been, and it’s been a disaster. It’s been a disaster. I knew that, but when you approach research, you’ve still got to approach it with an open mind and see what you find out.

Leo Hallam

Well, you’ve presented Chart 2 to here, haven’t you, that shows us that the Kate Barker targets and the Starmer government annual targets, and that they didn’t actually do that bad around 2005-06, but then it’s dropped.

Gary Reynolds

No, and I want to contrast the Blair government approach with the Starmer government approach. So the Blair approach was, We think we’ve got a problem. Let’s look how we’re going to solve it. Let’s commission somebody to issue a proper report. Let’s see what we need to do and then let’s work out how we achieve what other objectives are set for us by that report. And you can see from that chart in the article that the Blair government were actually starting to get housing up to the – a new start up to the level it needed to be. So we get a big increase in new builds. Contrast with the Starmer government, which is why I put really the header Talk’s cheap. We’re going to build up 1.5 million houses. How? I’m going to revolutionise the, then Reeves claims to have revolutionised the planning system. It’s not revolutionised, it’s not getting houses through. The data is clear on that and you can’t find a coherent policy that’s going to get extra houses built. Now I thought it was a good idea, 1.5 million houses built in this parliament, 300,000 a year and new starts, Q3 2025, 50% of the level needed to achieve that target. And anybody talking about it now? No.

Leo Hallam

So what’s the real cause of this only 50%?

Gary Reynolds

I don’t think you can say there’s one cause. I think it’s multiple causes, which I sort of touch on in the article. Firstly, we all know that the planning system’s gummed up. You can get, if there’s a hint that a newt may have lived anywhere near your house in the last 20 years, you’re probably going to get restricted or a badger or bats, or if there’s any chance there’s any relics or old bones buried anywhere near a building plot, it’s all going to get, it’s all going to be checked out. And so you can, the other point I made in the piece, was that you’ve got a statutory determination. So planning offices are targeted with getting planning permission issued or decisions taken within 13 weeks. And you can see over the last 10 years or so, the number, the percentage of getting dealt with within that period has dropped precipitously. You know, we’re only getting one in five done within that period.

Leo Hallam

And there’s been a decline of the major decisions made full stop, whether it’s in 13 weeks or not.

Gary Reynolds

Absolutely. Well, there’s a decline in major decisions because there’s a decline in the number of applications going through for planning. So if you were going to see 1.5 million houses built, what would you expect to see? A big increase in the number of applications for planning. Are we getting it? No. Now, in fairness, there may be a big pickup post Q3 last year. But bearing in mind, we keep a close look on companies like Persimmon or Barrett and the big house builders. And we’ve got some really efficient house builders in the UK.

Leo Hallam

Any at the moment?

Gary Reynolds

We’ve got Persimmon (Homes) in the portfolio, I mean, and Barrett Redrow (PLC) in the portfolio. So we’re happy with these businesses. So they’re very, very good. But they need releasing. They need to be able to kick on and get things done.

Gary Reynolds

What do you mean releasing? Allowed the land to build?

Gary Reynolds

Absolutely, yeah. And we don’t, they don’t need to be clobbered all the time. You know, you’ve got the community investment levy, you’ve got a number of social housing’s got to be built. So we’re making it more and more difficult for these businesses to make money when they’re actually building new houses because we kind of, we ask them to implement a lot of the government’s social policies. and it makes things tricky. And you can also see, if supply was going up, the house prices wouldn’t have gone up as much as they have. And if you look over the last year, and in fairness, Leo, I’m not saying it’s all on this government. It’s been on successive governments, Tory and Labour. It’s not all on the Starmer government. You know, they’ve inherited a problem in fairness to them. But their way of dealing with it was to talk big, deliver small, and they’ve delivered very small, but it’s been around for 50 years, so the point I make in the article… is that the real cost of a house today is twice as much as it was 50 years ago. So put it this way around, say you’ve got a couple and they’re wanting to buy a house and let’s say it’s a semi-detach din an area because the average price of housing in different parts of the country varies. But say they want to buy a house and the average price at the moment is £450,000. and they’re scratching their heads wondering how they’re going to buy it. There’s no 100%, very few 95% mortgages around anymore because post-global financial crisis, we’ve stopped the banks doing that. If you could turn the clock back 50 years, that £450,000 pound house would cost them £225,000. So anybody in the country think the house is half the price, that’s more affordable. And that would, that would enable a lot of people to get on the property ladder.

Leo Hallam

This point you make in the article, Gary, a fair question that a reader might ask. If there is such a large shortage of housing, then why isn’t the price of mine rising? You’re talking about housing being expensive at the moment, but then there’s demand, so why aren’t people’s houses increasing even more? Similarly, there is a decline in applications. What does this all mean? A decline in applications, looking at a chart, one would be forgiven to think that demand is dropping.

Gary Reynolds

Well, demand has dropped a little bit because, but for a different reason. Demand’s dropped because people are worse off. You know, they haven’t had, another point I make in the article, the average rate of increase in real earnings means that if you turn the clock back into the sort of 90s, then everybody, every person in the UK per capita wealth was increasing about 30% every 10 years. So every 10 years, you were 30% better off than you were 10 years ago. Currently, you’re just sneaking above 2% better off. And in some cases, wages have been rising a lot less than the rate of inflation. That’s only changed in the past two or three years, for a long period. They just weren’t rising as high as inflation. And that means that people have less disposable income. Now, you turn the clock back 40, 50 years, or pre-global financial crisis, when people could get 100% mortgages, you can’t get that anymore. So let’s take a, let’s take a typical couple or individual coming out of, because the other point I make, a lot more people are living on their own.

Leo Hallam

Yeah, we’ll come to that as well. Yeah.

Gary Reynolds

People come out of university. What do they come out with now? Sixty, £70,000 pounds worth of debt. They haven’t got any money in their pocket. They get a job. The jobs, you know, started jobs are under a bit of pressure because of AI now. So, but they get a job and they haven’t got the deposit. And unless the bank of mum and dad come and help them out, they’re not going to get on the housing ladder. It’s really, really difficult for them. So that’s dampens demand because they’ve got less people coming in for the starter homes. But you’ve still got more people, and you see more people going to rented accommodation.

Leo Hallam

I was going to say, this isn’t a case of reduced demand, is it? It’s accessibility.

Gary Reynolds

It’s accessibility, yeah.

Leo Hallam

It’s not an option for a lot of people.

Gary Reynolds

No, you’ve got.

Leo Hallam

So what alternatives do they seek? Is this turning more available properties into rented accommodation?

Gary Reynolds

Well, it has done, hasn’t it, the past 20 – 30 years, because house prices have been rising because of this lack of new builds. So, there are quite a few clients of ours that have built small property portfolios very successfully over the last few years. And that’s been essential because they’ve then been providing reasonably priced rental accommodation. But it doesn’t, in my book, it doesn’t beat being able to get on the property ladder yourself and have your own property.

Leo Hallam

You mentioned AI. AI can’t build houses or homes.

Gary Reynolds

No.

Leo Hallam

Certainly yet.

Gary Reynolds

No.

Leo Hallam

But what about poor workmanship, a point that a client raised in response to your research note? There’s no mention of poor workmanship contributing to the lack of available homes.

Gary Reynolds

Well, A lack of workmen, you mean, and a lack of requisite skills? Yes, that’s true. And of course, what we did when we moved out from the EU and voted for Brexit, we have effectively cut off a stream of very, very highly skilled labour coming in from Eastern Europe – Poland, Bulgaria, Czech Republic. We had a lot of legal immigrants coming in, fulfilling the roles of certainly the building trade. So that’s been denied to us. But the number, the potential for builds within our building firms is high. They can build more houses than that. They’ve got the land banks. They’ve got 7, 8 years’ worth of land banks in many cases. They just need to be able to do it and to do it profitably. And to do that, the government need to improve the planning system, so it reduces the cost of getting planning through and then stop saddling the building firms with so many social projects which they have to fund. And then we would unlock the, we would bust the log jam and get our builders building. Great for the economy, Leo, great for the economy.

Leo Hallam

And if that was an objective and we were wholly determined to meet that, what measures would be in place to ensure that these home builders would employ a suitably skilled workforce to ensure we wouldn’t end up with another Bellway, aka Hellway, as reported in 2024.

Gary Reynolds

Yeah, that’s a very good point. We don’t own Bellway, by the way. You’ve got plenty of inspectors going round, but the danger with this is that you get the type of government overreaction to that. And the thing is, they’ve breached regulations. So the regulations are there, they just need policing. What you don’t want is a kneejerk reaction to that and a government wanting to look like they’re dealing with it and piling loads and loads of extra regulation onto the building firms. That’s a trait that this country has gone through in the past 40, 50 years. And it’s disastrous because it’s meant that we’ve we’re bogged down with far too much regulation.

Leo Hallam

You mentioned property as an investment for some of our clients, having created small property portfolios successfully. That was off the back of rentals and the likes. What does property investment present as an opportunity for intergenerational planning?

Gary Reynolds

Well, it provides a huge opportunity because the family home can be handed down free of a chunk of inheritance tax. It’s one of the few assets now that gets any form of concessions on inheritance tax. That’s very, very positive. So I think that’s a good thing. In terms of what I would say, Leo, in terms of other, you know, those clients handing down those property portfolios to children, that’s not going to, that’s unlikely to happen. I know I know two or three of them who want to wind down their property portfolios now because they’ve got, you’ve got the new legislation coming in that affects landlords and they’re finding that the cost of borrowing is high where they could borrow, build or convert and then move on. So the danger with this government’s policy is that we’re going to make a bad situation even worse. Not only will we not get 1.5 million built, but we might get less built in this parliament than we got in the last. And that will be a disaster. And the way our excellent building firms are sitting on their land banks at the moment is a cause for concern. You want them building.

Leo Hallam

So how much does all of this subject form a factor, an important factor in wealth management for the long term?

Gary Reynolds

Well, it forms a big factor in that if you think about, just move aside from wealth management as being simply about getting the best return you can get on your capital. It’s a lot more than that. So families that do this well, manage their overall tax situation and their overall succession planning. So that they organise in a structured way how money will pass through the generations. And they also decide who’s going to get what and who’s going to organise what going forward. Now property for most people is their biggest asset. So it clearly forms a big part of somebody’s overall portfolio. and how that property is dealt with is key. And there are a whole range of issues, such as what happens when mum and dad want to go into a nursing home or dad or mum wants to go into a nursing home. It frees up the family home because that then has to be sold if it’s only… if it’s a last survivor and there’s nobody living in the property anymore, and that’s going to provide funds for the nursing home. So it can be useful in that regard, but it can also be useful at trying to keep that family home in place to get the benefit of the inheritance tax allowances. Now, let me say very quickly, my side is asset management and not necessarily the tax side. You need to talk to Kap and Dec or one of the other guys to get a real in-depth side of that. And that might be something you want to follow up with Leo, because this is a fascinating subject, inheritance tax now, because the Labour Party put it straight back up there on top of priority by attacking it so heavily in their first budget. So, but property itself is something that we like and we live in. And of course, the benefit of the family home is that you don’t pay any capital gains tax on disposal and you get inheritance tax allowances when the asset’s being dealt with as part of the estate.

Leo Hallam

You mentioned single living, single person households rising. And my question there is whether this is a result of technology. You know, AI is always the subject at the moment of technology, technology, but what it’s doing is enhancing connectivity. Is this fundamentally driving the way that we as individuals interact with the world and each other? And is that a driving factor towards the increase of single person occupancies?

Gary Reynolds

I had honestly not thought of the technology factor driving those increasing single occupancies, Leo, until you’ve just mentioned it. So I would say that I have no evidence to suggest that is why people live in isolation more these days.

Leo Hallam

Is it isolation, though, or is it a different way of connecting?

Gary Reynolds

Yeah, OK, I didn’t mean isolation in a negative way. OK, I meant it. I meant because, you know, let me… It could be. So you could be right. But it could also be that as a wealthier country, we just feel more comfortable on our own. We don’t need to live in big units anymore. We’re not having to have massive families because the state will look after us. We don’t have to rely on having a number of children. Death in childbirth is reduced. So, the poorest nations in the world have the highest birth rates because that’s their best way of protecting them into the long term. Children will look after their parents, they hope anyway, into the long term. But what I would counter on your AI thing. So you just conjured up an image of people living in their homes, gaming, online, doing social media and all the rest of it, and not wanting to go out, not meeting everybody. So not hooking up, not needing to have a relationship. So not there. But the other side of it is social media is connecting people as well. In fairness, you know, I’ve got all sorts of issues with social media, but it is getting people together. And I’ve got quite a lot of sympathy for the dating apps. I mean, seriously hope, I never have to do this. I one thing I really want for the rest of my life, if you’re top of my list, is that I go first because I don’t want to go onto the market. I wouldn’t I would be one of those people living on their own if anything happened to Cath. But I think that there are two sides to that. So I’m yeah, I wouldn’t want to suggest that social media is creating – because the trend in living in on our own was happening before social media really, really took off.

Leo Hallam

Sure, to make my point clear, I wasn’t talking about technology separating people. I think the social connection’s as important as ever, the human-to-human interaction. You know, we’re obviously advocates of that with the wealth management relationships that we have with clients and their advisers. But the point being that it extends the capability to communicate with other human beings without the need to be necessarily so close to each other. It would be an interesting statistic to see what the number of long-distance relationships is, for example, compared to what it might have been, a generation ago – I don’t know.

Gary Reynolds

My guess is going to be up significantly Leo.

Leo Hallam

Because it’s possible.

Gary Reynolds

Yeah, because you can, you can hook in and be talking to somebody in Australia for free. We go back 40, 50 years, that long distance call cost you a lot of money. So you didn’t have the capabilities, you didn’t have the money to be able to conduct that type of… You were writing letters on airmail, which was lightweight paper, because it was costly to send letters on ordinary paper. That’s all changed.

Leo Hallam

The value of time. Instantaneous, accessible, free via computer, not just relationships, but business as well, productivity. This is enabling access perhaps to greater wealth for individuals so they can afford it.

Gary Reynolds

Yeah, I agree. And I think the other thing I’d point out is that we monitor our wealth. So my statistics in this paper on GDP per head, i.e. how much we’re actually earning per head and therefore the real measure of whether we’re better off, is on transactions. So they’re on physical cost transactions. So work done free in the home or charity sector doesn’t necessarily get brought in. What you’ve just touched on is the fact that our lives have been improved in all sorts of ways, which are not only that not reflecting in improved GDP figures, they’re actually pulling it down because now you’re not sending airmail and you’re just hooking online. That’s not registering as a cost on the economy as an income. Therefore, it knocks GDP back. So actually, some of the advantages we have don’t even get measured in the figures. And that’s because – and we’re going off a little bit of tangent here, but I think it’s important – GDP was introduced to count and measure the country’s capability of producing, particularly weapons in wartime. It was really designed to measure physical output: cars, ships, guns, bullets, pans, all this sort of thing. We have a, now we’re mainly service based. It never was really designed to measure that in this, in the way we’re living today. So there’s a huge issue. I reckon if we came back on, did this again in 20, 30 years’ time, by that time somebody’s going to have a better definition of GDP.

Leo Hallam

Gary, we’ll leave it there. I’m sure time has got something to say in between everything we’ve been discussing and thank you for your insights within the tangents we’ve covered.

If you do have any questions in relation to anything we’ve spoken about, please get in touch with your adviser or contact us through the website. Thank you.

Transcript ends