Henry Smith, the charismatic CEO of East London developer Aitch Group, is in a combative mood on the day DealMakerz talked to him.
The 56-year-old is genuinely worried about the housing market in London and by default his house building firm, which he founded in 1995 and remains in private ownership.
He’s done well by any measure. The Aitch Group has so far built some 2,500 homes mainly in East London, and turns over approximately £150 million a year.
It is currently busy building in Hackney Wick on the site of a former bagel factory a development which reflects its two key markets. The site, which is due for completion in the Autumn, will include 181 apartments as well as 70,000 sq ft of commercial space within its three buildings.
Aitch is a rigidly local builder and has concentrated all its efforts to date in East London including two of its best-known developments, The Textile Building In Hackney and LivE2 in Haggerston.
The Aitch Group is not your average house builder. The company has Henry’s personality stamped all over it including an eye for design that can be seen at many of its 120-plus completed developments, and it works hard at being part of the local community. This summer that included establishing his own, privately-funded campaign to reduce local knife crime, the The Wickers Charity.
“I’m an East London boy and I’m a great believer in putting things back into the local community and not just taking and it’s something that I enjoy doing.”
But Aitch also ‘does development the hard way’ as Henry put it, buying up brownfield land and old buildings without planning permission and starting from scratch.
The long-standing planning conundrum of low speed and high expense for developers can only be solved once the decisions are taken out of the hands of local people and taken instead by dispassionate professionals, says Henry.
So what’s eating Henry today? His main concern is the alarming decline in the buy-to-let market which he says has seen demand for his apartments drop by 85% among investors since the government’s tax and regulatory assault on landlords began two years ago.
“This market has all but collapsed for us and is hanging on by its nails,” he says. “In previous developments approximately half the apartments within them would be bought by investors, but not any longer.”
Henry also wonders aloud if the squeeze on overseas investors is a good thing, and doesn’t understand where the additional rental properties needed in London are going to come from, now that many property investors are staying away.
“I think we’ve bashed them over the head a bit too much,” he says.
Henry claims his company is now heavily dependent on first time buyers purchasing via Help to Buy and that between 50% and 70% of his sales come via this route.
Help to Buy is also creating odd pricing bands. Any developer, like Aitch, which has product selling for approximately £600,000 is still enjoying strong Help to Buy generated sales.
But above that there’s an obvious ‘no-man’s land’ between £600,000 and £700,000, the upper limit of the scheme.
“To accommodate this market developers have to reduce their units to around £620,000 or £630,000 so there’s clear light between £600,000 and £700,000,” he says.
“But it’s becoming more and more difficult to find sites where we can build enough homes to provide 35% social and make a profit from selling apartments at that price.”
Nevertheless, Henry says that if the government were to end Help to Buy, as it has threatened to in the past, then it would be a catastrophe and that, in London at least, the property market would ‘all but cease’ and there would be a lot of redundancies in the construction sector.
One worry that Henry says he doesn’t lose sleep over is accusations of land banking, a topic tackled by MP Oliver Letwin within his published review of new homes provision within the UK a few weeks ago.
“The way we operate and because we’re a London developer we don’t have the ability or the desire to land bank,” he says.
“I’ve never thought that the big house builders land banked – the process of gaining planning can take us up to six or even seven years to achieve and go to appeal two or three times, so the idea of keeping land back for later development; it just wouldn’t be possible for us.”
Henry says the long-standing planning conundrum of low speed and high expense for developers can only be solved once the decisions are taken out of the hands of local people and taken by dispassionate professionals.
It’s a view increasingly held in government – enabling local communities to turn down developments in their area is not going to deliver the additional homes the nation needs, it was hinted at recently.
“Put the decision in the hands of planners who will then decide if the proposed new housing meets the local plan; too often we face councillors who contradict the advice of their own planners in order not to offend local people who oppose more homes being built,” says Henry.
“The current process is preventing a lot of smaller developers from building because the costs of getting planning permission are too high.”
One other planning requirement that Aitch faces that annoys Henry is the need to include retail units within residential developments when there is no real demand for it locally.
“We have to build the units and then watch them as they stand vacant for years; life has evolved but the planning system hasn’t evolved with it,” he says.
“I believe in listening to people and finding out what they want within their communities, but I still think the planning process should be removed from the influence of ‘Nimby’ campaigners.”
With that Henry is off – he’s got 1,000 units in the pipeline and, it would, appear, a hard slog ahead of him to sell them.