For many the outlook for the Residential Sector in 2023 seemed gloomy as the new year rolled in. Indeed, there will need to be a correction in the Residential Development market as interest rate rises start to bite and prices decline.

Overall however, the picture is not all bleak with Student Accommodation, PRS/Build-to-Rent, Later Living and Affordable Housing countering by sheer necessity the economic headwinds. In terms of how the market is currently read by the research teams operating in the Residential Sector, they have concluded the following:

• Interest rates will peak mid-year and then transaction levels in all sub-sectors will increase
• The PRS/Later Living/Student sectors will continue to expand
• There will continue to be a strong focus on Later Living and Affordable Housing in order to provide better accommodation for these two significant areas of the Residential Sector
• There will be greater penetration of the PRS/Build-to-Rent and Later-Living markets by Institutional investors
• With the current conditions and the expected long-term view of the Residential Sector in 2023, it remains a good platform for both private equity and institutional investment across the whole marketplace

Looking at each sub-sector they all face different challenges…

Jump to:

Residential Development

Student Accommodation

PRS/Build-to-Rent

Later Living

Affordable Housing

Summary

Residential Development

As of the end of 2022, the UK housebuilding industry was valued at around £65 billion and employed around 410,000 people. The industry has been facing challenges such as a shortage of skilled labour and increased costs for materials, but the UK government has committed to increasing housing construction to address the country’s housing shortage. Factors such as economic conditions, government policies, and consumer confidence have a significant impact on the market.

The Residential Development sector in 2023 is likely to be shaped by a number of factors, including economic conditions, government policies, and changing consumer preferences.

• Economic conditions: The economic recovery from the pandemic and the Brexit deal will still have a significant impact on the UK housebuilding sector in 2023. The sector is sensitive to changes in the economy, and a strong recovery could lead to increased demand for new homes, while a weaker recovery could lead to a slowdown in the sector. Interest rates need to peak before confidence can truly return.
• Government policies: Government policies aimed at increasing the supply of new homes, such as the Help to Buy scheme, are likely to continue to support the sector in 2023. However, changes to regulations and policies, such as the planning system, could also have an impact on the sector. Developers naturally want less government regulation.
• Changing consumer preferences: Consumer preferences are shifting towards more sustainable and energy-efficient homes, and this trend is likely to continue in 2023. This could lead to increased demand for homes that are built to higher environmental standards.
• Impact of the pandemic: The pandemic has had a significant impact on the UK housing market, with many people reassessing their housing needs and priorities. This may change the types of homes that are in demand in 2023.
• Shortage of skilled labour: With the shortage of skilled labour in the construction sector, housebuilders may struggle to meet the demand for new homes, which could impact the housing market and slow down the sector.
• Supply chain issues: The continued issue of the supply of materials haunts developers and does not look like it will be easily resolved.

Student Accommodation

The UK student housing market was valued at around £47 billion at the end of 2022, with around 4 .1 million student beds across the country. The market has been growing in recent years, driven by increasing enrollment in higher education institutions and a shortage of traditional housing options for students. The sector is expected to continue to grow, with the increasing number of international students and the development of more modern and high-quality student housing. Factors such as government funding for education, university expansion plans, and demographic trends will also have an impact on the market.

The student accommodation sector in 2023 is likely to be shaped by a number of factors, including economic conditions, continued investment, and changing student preferences.

• Economic conditions: A stronger recovery in the second half of the year could lead to increased demand for student housing, while a weaker recovery could lead to a slowdown in the sector.
• Government policies: Government policies aimed at increasing the supply of student housing, such as the purpose-built student accommodation (PBSA) funding, are likely to continue to support the sector in 2023. However, changes to regulations and policies, such as the immigration policy, will also have an impact on the sector.
• Changing student preferences: Student preferences are shifting towards more comfortable, high-quality and sustainable accommodation, and this trend is likely to continue in 2023. This will result in increased demand for student housing that is built to higher environmental standards and with better amenities.
• Impact of the pandemic: The pandemic has had a significant impact on the student accommodation market, with many students reassessing their accommodation needs and preferences. However, normality has returned and this factor now has little impact on future demand.
• Online education: Nonetheless, the pandemic accelerated a shift towards online education, which has had an impact on the student accommodation market. Many students still choose to study remotely, which could reduce the demand for student housing.
• Increasing competition: The student accommodation market is increasingly competitive with the emergence of new players such as co-living providers, which could lead more M&A activity in the sector.

PRS/Build-to-Rent

The PRS/UK Build-to-Rent market had an estimated worth of £60 billion, representing around 5% of the total UK housing market. The sector has been growing rapidly in recent years, driven by increasing demand for rental housing, particularly from young professionals and families, as well as a lack of affordable housing options in many areas of the UK. The market is expected to continue to grow in the future as more and more investors are looking to Build-to-Rent properties as a long-term investment. The government has also implemented policies to support the Build-to-Rent sector, such as the affordable homes guarantee scheme, which provide funding and other incentives for the development of affordable rental housing. Factors such as economic conditions, investment in the sector and demographic trends, will have an impact on the market.

The future of the UK PRS/Build-to-Rent market in 2023 is likely to be shaped by a number of factors, including economic conditions, government policies, and changing consumer preferences.

• Economic conditions: There will be increased demand for rental properties, regardless of any pending economic slowdown.
• Government policies: Government policies aimed at increasing the supply of PRS/Build-to-Rent, such as the PRS/Build-to-Rent funding, are likely to continue to support the sector in 2023. However, changes to regulations and policies such as the planning system and the immigration policy, will have an impact on the sector.
• Changing consumer preferences: Consumer preferences are shifting towards more sustainable and flexible living options, and this trend is likely to continue in 2023. This will result in increased demand for properties that are built to higher environmental standards and with more flexible lease options.
• Impact of the pandemic: The pandemic has had a significant impact on the UK housing market, with many people reassessing their housing needs and priorities. This could lead to changes in the types of properties that are in demand in 2023.
• Shortage of skilled labour: With the shortage of skilled labour in the construction sector, developers may struggle to meet the demand for BTR properties, which could impact the housing market and slow down the sector.
• Increasing competition: The market is becoming increasingly competitive with the emergence of new players such as institutional investors and big tech companies, which could produce over supply of properties at too high a price.

Later Living

The UK Later Living market is valued at around £40 billion, with a growing number of older adults seeking specialized housing and care options. The Later Living market includes a range of housing options, such as retirement communities, assisted living facilities, and care homes, as well as various services and support. The market is expected to grow in the future, driven by demographic trends such as an aging population, and a growing demand for housing and care options that meet the unique needs of older adults. Factors such as government funding for healthcare and social care, changes in consumer preferences, and economic conditions will have an impact on the market.

The future of the Later Living market in 2023 will be shaped by a number of factors, including economic conditions, government policies, and relentlessly changing consumer preferences.

• Economic conditions: The rise of investment by both private equity and institutional investment in the Later Living sector will counter the short-term issues that are threatening investment in 2023.
• Government policies: Government policies aimed at increasing the supply of Later Living properties, such as the Later Living Funding, are likely to continue to support the sector in 2023.
• Changing consumer preferences: Consumer preferences are shifting towards more comfortable, high-quality and sustainable Later Living options, and this trend is likely to continue in 2023. This will lead to increased demand for Later Living properties that are built to higher standards, with better amenities all leading to an improved customer experience.
• Impact of the new Investment: The mindset of heavy-weight investors is that the demographics of an aging population really do conjure up the possibilities for real investment in the sector.
• Shortage of skilled labour: With the shortage of skilled labour, developers may struggle to meet the demand for Later Living properties, which could impact the housing market and slow down the sector thus maintaining the old.
• Increasing competition: The Later Living market is becoming increasingly competitive with the emergence of new players such as institutional investors and private equity businesses which will expand the sector.

Affordable Housing

The Affordable Housing market was valued at around £60 billion, and it has been facing a chronic lack of affordable housing options in many areas, particularly in urban areas where housing prices and rents are high. The government has implemented policies and funding to support the development of Affordable Housing, such as the affordable homes guarantee scheme, which provides funding and other incentives for the development of affordable rental housing. The government has a target of building 300,000 new homes per year; however, it has been falling short of this target. The market is expected to continue to grow in the future, driven by the growing demand for Affordable Housing, as well as government initiatives and funding.

The affordable housing market in 2023 is being shaped by a number of factors, including economic conditions, government policies, and changing consumer preferences.

• Economic conditions: The major players in the Affordable Housing sector have found the past 18 months challenging after a golden run of success. They cannot sell as many properties as before or develop as many as they are required to. Both elements caused by the re-adjustment in the economy.
• Government policies: Government policies aimed at increasing the supply of affordable housing, such as the Affordable Homes Programme, are likely to continue to support the sector in 2023.
• Changing consumer preferences: Like other living sectors, consumer preferences are shifting towards more sustainable and energy-efficient housing, and this trend is likely to continue in 2023. This inevitably leads to increased demand for affordable housing that is built to higher environmental standards.
• Shortage of skilled labour: With the shortage of skilled labour in the construction sector, developers may struggle to meet the demand for affordable housing. Likewise, the huge cost of maintaining massive estates is very difficult to manage in a competent and efficient manner.
• Increasing competition: The affordable housing market is becoming increasingly competitive with a number of mergers taking place in the past two years. The sector is likely to continue to consolidate as the large entities get larger.

Summary

For most parts of the Residential sector there will be progress in 2023 by sheer force of demand. However, Residential Development will struggle and will need around 6 months to re-adjust to an equilibrium where demand is in line with cost and there is an acceptance that interest rates will be at a higher level than they have been in recent years. Housebuilders will need to be inventive in terms of pricing and product offering.

psd has been active in the recruitment of board and senior management level individuals across the whole Residential sector for nearly 30 years. This started with our activities within Residential Development and has since expanded into Student Accommodation, PRS/Build-to-Rent, Later Living and Affordable Housing, on which psd is recognised as an established and highly effective recruitment consultancy.

Please do contact Peter Hardy on 020 7970 9701 – peter.hardy@psdgroup.com for further details.