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How the UK’s dysfunctional housing market may affect employers

Author: ICAEW Insights

Published: 03 Jan 2023

The combination of a housing market in crisis and new working trends mean the onus is on employers to balance the longer term needs of the business with the needs of the employee.

Today, the UK is shrouded in economic gloom. Inflation has reached double figures for the first time in 40 years, thanks to a combination of the war in Ukraine and the economic after-effects of the pandemic. The Office for Budget Responsibility (OBR) predicts that household incomes will fall by 7% as we endure a long recession. And alongside all this, employers and employees are grappling with the worsening, pernicious effects of a longer term problem: our dysfunctional housing market.

The cost of housing in the UK has been astronomical for years. The average house price in the UK reached £296,000 in October 2022 (£316,000 in England), just as market volatility caused by Liz Truss and Kwasi Kwarteng’s disastrous mini-Budget led to the withdrawal of around 1,700 mortgage products and inflated borrowing costs for millions of people who already had mortgages. 

The private rental sector is also in crisis, with the supply of rental properties uneven and many landlords passing increased mortgage and other costs on to tenants. The median monthly rent for England between April 2021 and March 2022 was £795, that for London was £1,450, according to the Office for National Statistics (ONS). Many tenants spend more than 30% of their income on rent, yet government research suggests that more than 1.6 million people live in dangerously poor housing, affected by cold, damp and mould. 

There is also a long-term shortage of social housing. Homes sold via the Right To Buy scheme during the past 40 years have not been replaced, reducing local authority and housing association provision from 5.5 million homes in 1979 to 4.1 million in 2021, including only 3.8 million homes available for social rent (figures compiled for the House of Commons Local Government Select Committee). Fewer than 10,000 new social homes are built each year, but there are 1.1 million people on social housing waiting lists. 

Both homeowners with mortgages and renters will continue to struggle with housing costs while energy, food and transport costs are also rising. Meanwhile, many employers have been finding it difficult to fill vacancies. 

Recruitment firm Robert Half’s 2023 Salary Guide suggests that 51% of employers saw an increase in the number of staff leaving posts in 2021/2022. Might the extremes of the housing market be contributing to that trend? And if it is becoming more difficult for many people to find an affordable home and fund the means of getting to and from work, what impact is that having on employers’ recruitment strategies? Or indeed on their strategies for using their offices?

Nicola Gillen, EMEA Lead for Total Workplace at real estate services firm Cushman & Wakefield, thinks the housing market may indeed be an influence, but one that is linked to the trend towards more remote working, which may lead to fundamental changes in the way many of us work in future. 

One consequence of that trend is that some employees are now choosing to tolerate a longer commute if they don’t have to travel to the office so often. “In the past, if someone was offered a job 200 miles away they might have to move house,” says Mark Essex, Director of Skills at KPMG in the UK. “Now, they wouldn’t: you’d have the employee travelling to their workplace less, maybe staying there for one or two nights a week. So, catchment areas are going to become blurred.”

That might be useful to employers trying to attract new employees from a wider geographical area. But it will also have an impact on their use of office real estate. Lee Elliott, Partner, commercial research, at property consultancy Knight Frank, suggests that many corporate offices may now have daily occupancy rates of about 40% – before the pandemic that figure would have been between 60% and 70%. 

The consequence of this, according to both Elliot and Gillen, is that more employers will reduce their real estate portfolios. “[Businesses] are reducing the amount of real estate they have in some locations in order to focus on better quality locations,” says Gillen. 

But offices will still be important for many businesses, says Elliott: “Offices bring people together to collaborate and socialise, they galvanise corporate culture and they are a place for education.” He says some of the businesses he works with are worried about some senior staff often working from home, because those people are needed in the office to help train junior staff. 

However, many employers may find it difficult to pay those junior employees the salaries they need to meet living or travel expenses. More use of remote or hybrid working also increases competition for some employees: Essex says some small businesses and public or third sector organisations outside south-east England are losing some employees, such as IT specialists, to London-based businesses or recruiters who can offer them higher salaries to work largely from home, wherever home is.

The environmental, social and governance (ESG) agenda is also an important influence, encouraging employers and employees to use hybrid working to cut carbon emissions and/or to use building management or smart office technologies that optimise use of energy and space. 

But it may also encourage owners of empty office buildings and former shops in central business districts and high streets to repurpose those buildings as homes. Gillen says this is already happening in some city centres.

Essex thinks employers could proactively drive this trend, by working with developers on build-to-rent schemes that could house some of their own employees. He would also like to see government support for such schemes. “Government can act not just a maker of policy, but as an employer,” he points out. 

Government-led reform of the housing market will be a long-term project. But employers cannot afford to wait that long. Instead, they will need to be proactive to sidestep the problems linked to the housing market. They must try to adapt to technological and social changes and challenges being driven by new technology, by the climate crisis and by employees trying to find a better life-work balance. As Gillen says: “We need to balance the longer term needs of the employer with the needs of the employee.”

As those forces turn old ideas about the workplace and the working week inside out, employers need to find new ways to work, both with their employees and with their real estate assets. It may be difficult to see the way ahead through the current gloom, but for the good of the planet, their people and their bottom line, they have to make a start.

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