London has systemic issues in its housing industry that go far beyond the impact and distortion of global wealth. Some 140,000 people moved to Greater London last year and the industry here struggles to build even as many units annually as we do in Greater Vancouver.
* Land Assembly:
Purchasing land and due diligence is more complicated. You have to search title back to the Norman Domesday Book of 1066. The Purchase and Sale transaction is much longer; in the time it takes you to get into a binding contract, you are exposed to “Gazumping” (someone else offering more for the land and collapsing your deal). The real binding part of the contract pretty much happens at the end when you “exchange contracts”.
Brownfield sites have the usual contamination issues dating back to the industrial revolution; once in a while an “Unexploded Ordinance Survey” reveals large powerful bombs buried during Luftwaffe Air Raids; and archaeology can sometimes get interesting and time consuming – King Richard III was found buried last year under a parking lot.
UK design culture is focused on skinny buildings with “dual aspect” design, typically six storeys or less. It is difficult to develop the compact buildings we are familiar with in Vancouver (i.e. those with a central core and double loaded units off a central hallway). As a result, buildings in the UK are generally less space efficient on a Net:Gross basis.
Planning generally takes longer and Community Amenity demands are more demanding, led by requirements for affordable housing ranging from 25% to 50% (ie. Tower Hamlets). Some jurisdictions want non-market units pepper potted with market units. Heritage is an issue in some places. In most jurisdictions in the UK you also have to deal with Rights of Light (a civil law issue) which limit how much of your neighbours’ light you can impede with new development.
Construction costs are high in London, and outside the region there are fewer contractors who do a complete turn-key “core-shell-and-residential” fit-out. They build cores first, then the floors, and in general my perception is that new builds take longer.
There is not the same culture of pre-sales which de-risks the development of larger projects. Vancouver developers and purchasers do well with a legal system of “Specific Performance”, the Real Estate and Development Marketing Act” which supports a fair pre-sale system.
In Vancouver, a developer can begin construction with the certainty that 50% to 60% of their units are already sold; not so in the UK. Developers in the UK tend to build and sell in small chunks to limit their exposure to market risk.