I’m a Property Developer AMA

[Cheesenibbler]

Fire away

You say if the demand and market is there for family homes it will get built.

But that's not true, is it. Not without market intervention by government.

Are you a free market purist?
Do you vote Tory?

Do you think the government should restart building council housing, as I do?

I keep everything because every development is such a massive challenge that I see it as almost like a child that I have birthed. I couldn’t sell it.

I don’t find renting immoral at all. If I sold a development and banked a million in readies, I don’t see how that is more virtuous. I have tenants cry and hug me when they get the keys to their new place. I have always let to DSS tenants, so often I have been able to help people out of emergency accommodation. You give some people a safe secure nice place to live, and you see them completely turn around their situation.

what I will concede is that buying property to let, did feel immoral to me when I started. I felt that if I wanted to do it, I needed to create the housing myself.

I definitely think the government should build more council housing.

Family homes to get build. It’s what the massive house builders specialise in. It just depends where you live. If you are in a dense metropolitan area it’s likely that it will mainly be flats

You make the profit from the increase in house prices, not the people living in your properties.

Those precious babies are making you a hell of a lot more money by you renting them than if you sold them to the people living in them.

Why? Some people want to buy, others want to rent - sometimes people are in temporary jobs, or sharing with friends, or moving around the country... Rental properties are needed as well as properties to buy, and in some areas - including mine - there is definitely a shortage of rentals.

How many individual properties do you own? How much is your portfolio worth?

Look not going to lie. Like any specialised job that creates a product or service highly valued by society, the profit is there.

I am not sure what you are advocating for. I should go raise several million pounds, work for 3 years, sleepless night galore, loads of stress, sign personal guarantees, go through the pressure of planning, building and refinancing, and do it all for free, or else I should stop and not do it. It’s quite a narrow view.

what changes the whole situation is if the government reformed planning law. All of a sudden all the risk drops out of property development, and over time so would all the profit, and eventually you would have a functioning sale and rental market. That’s ultimately what you want.

Absolutely. Most of the landlords sold up during covid, so now rental prices are going to the moon. There needs to be a functioning rental and sales market, to avoid the socio-economic issues created by too little housing

So you buy land up which could be utilised to build affordable homes to sell, turn them into rental developments and provide a return to your investors. Via the rental income. So how is that helping the housing crisis?

Planning rules were relaxed in cities to encourage developers to turn commercial buildings into homes without the previous ted tape and all the housing developments have to have a mixture of homes, including a percentage allocated to social housing and additional funds have to be utilised towards local services.

I will have built 72 dwellings (flats and homes) by the end of 2023. That will be worth approximately £20million, with approximately £14 million in debt (I will own about 35% of that equity). The gross rent produced will be £1.1 million a year.

I will be housing 200 people who otherwise wouldn’t be living in that accommodation.

So most social housing developers don’t want to get their own planning permission. They also don’t want to deal with the complexities associated with contaminated brownfield land, which is often made ground i.e. filled with human rubbish, that you can’t dig on.

The government have definitely not relaxed planning law. They did temporarily by allowing a range of planning approvals for conversions, however, this legislation was amended to put far more power in the hands of local authorities. Local authorities generally don’t want development. They want fewer homes, so the house prices increase, so they attract richer people, who generally have fewer social and medical needs than poorer people.

On every development of 10 units you have to make an allocation to affordable housing. You also have to pay community infrastructure levy. I paid £200k in CIL last year, which goes to the pot to help keep schools, roads and doctors surgeries going.

The Gov have relaxed planning laws in city centre developments subject to the addition I stated which you have repeated.

The council have targets, this has been temp paused due to funding, current economy restrictions, business rates have been increased in 2023 to recoup some of those loses whilst retaining the Retail and Hospitality relief scheme for those in hardship. The targets will be bought back when the market stabilises.

In the interim developers such as yourself are buying land to turn into rental developments which reduces the options for those developers seeking land to build to sell. Therefore the sale market stays reduced whilst the rental market increases making larger profits for people such as yourself and your investors seeking their 10% yield which is a very high yield for rental investment.

The real housing crisis issue!
There is a common misconception that developers are the problem because they make loads of money.

The problem is that planning permission is sooo difficult to get, that construction is unbelievably risky, and that building regulation (post Grenfell) is super-strict, that it requires a massive amount of resources and patience to get housing built. As a result, every year the UK misses it’s housing target by at least 100,000 homes. Additionally, the government builds almost no social housing. We are some 3 million homes behind where we need to be.

If the government reformed planning law so the same design principles and rules applied uniformally nationwide, the amount of new housing would grow significantly, and it would lead in time to more affordable housing for sale and rent.

The government do not want this because they want to have a divide between rich and poor. In this country that divide is driven by those that have houses, and those that don’t.

Your investors who want 10%... is that equity funding with all the risk that implies? It's very cheap if so. Do they charge you interest or take their money back first? Is that before or after tax? I would expect 15% IRR post tax, or more.

Do you refinance the properties once let with cheaper longer term debt?

How are things at the moment given finance costs and construction costs?

If you're remediating brownfield sites do you have access to grant funding?

If you hold all your properties for the long term, in my view that's more moral, often, than selling them. It's in your interest to build well and maintain well, not build crap which causes all kinds of issues for the next owner.

We can agree to disagree on planning law. If it’s got easier, then it certainly passed me by.

Councils don’t care about housing targets. There are councils the continually fail to meet their quota, and they don’t care.

In the UK there is almost this devine right people hold to own a home. In the rest of Europe, home ownership levels are very low, and people’s overall happiness is far higher.

The people who make the most from selling are the massive house builders. Why are they any more moral than someone building to rent?

I think it’s because our homes are an emotive thing, and associating profit with something so emotive leaves a bitter taste. Why do Sainsbury’s and ASDA make a profit - we need food as a basic need.

I honestly feel fine about my business. I feel like it’s a force for good, with a positive outcome. I know my tenants are really pleased. That’s what counts for me.

You really are not the savour you are peacocking, you are part of the problem, 72 homes in a year granted is a smaller developer however you are trying to present yourself as ‘giving birth’ to homes for the good whilst retaining them for a long period for entirely your reasons.

I admire your self belief but don’t try and kid yourself that you are some sort of saviour, your tenants cry! Please have you heard yourself.

Are you worried by the BRR as a business model? Isn’t it like a house of cards, many property developers have been massively hit by rising interest rates? Are investors running scared in investing in the UK due to the economic shit show?

At what point is it not acceptable to make smart financial decisions. If you know that the government won’t build more homes, and that house prices will inevitably increase. Why wouldn’t you align with that.

Its not all about profit. It’s about giving people good homes to live in and fair levels. If you do that, surely it’s a win for everyone?

I’m me of the reasons councils miss their quota is because developers have raised the value of land, the councils can no longer afford it.

Council do not own much land, you mention supermarkets, Sainsbury’s and Tesco sit in huge pockets of land which they bought and have not developed, even John Lewis is converting their unused space into apartments for rent, why, because of the profit they’ll make from the tenants.

I have another question - are you female? I work in this industry including with many many developers and I actually cannot think of a single woman who leads an SME. There are women in the finance, sales, legal sides but essentially 100% male in terms of leadership apart apart from a few in massive corporates. So I'm really interested.

*one of

At what point is it not acceptable to make smart financial decisions. If you know that the government won’t build more homes, and that house prices will inevitably increase. Why wouldn’t you align with that.

And that is your primary goal, no matter how much you try and dress it up. Just own it people would have more respect for your honesty.

Where did you get your initial start up money from?

Do you pay VAT on construction of the new build properties you rent? How is this profitable if your margins are 20 - 25 %?

To add to the debate with RoseBucket, land value is a massive issue but it's generally the landowners and the 'strategic land' developers pushing the price up rather than the developers actually building. It would really help to have better regulation and clearer planning.

Let's say you are a developer wanting to build something great quality, well designed etc. The amount you can pay for land is lower than the other developer who just wants to build crap, no affordable housing, poor design etc. The one who plans to build cheapest and worst buys the land and you can't build anything. You have to build in a certain amount of profit because it's an extremely risky business.