Industry Insights

Can we solve the housing crisis with property crowdfunding?

We've talked extensively around the housing crisis we're facing in the UK. Even if you're not directly involved - be that as a home buyer, property investor, or any other style - the headlines are filled with news around it.

One of the main issues is, quite simply, we're not building enough homes. We have a growing population but a rate of new home production that doesn't align.

Another issue - or a more specific issue - is we're not building enough of the right homes, in the right locations. It's easy to say "let's build thousands of new homes", but actually building the homes people want and need right throughout the country is a lot more difficult.

And traditionally, those homes have been built best by the smaller, regional housebuilders. These are the housebuilders who have that extensive, local experience; they know the area, know the audience requirements and are able to build houses that tick all of the boxes.

The problem we've seen since the last recession, however, is these smaller housebuilders have found it difficult to access the funds they need to produce such houses at scale - or even, in some instances, at all.

Read more: investing in UK housebuilding - is now the time to become a property investor?

With banks reluctant (at best) to lend to businesses in general for many years, this has started to change as confidence has started to increase, but it's a slow process.

So with banks reluctant to lend, it's resulted in a void that's needed to be - and still needs to be - filled. And the most common option here has been with private investors.

However, property has traditionally required a lot of capital and/or experience to get involved in, something that has obviously deterred a lot of investors. Private investors have undoubtedly been involved in property historically, but with the exception of buying your own home, property investment has been restricted to the more experienced and capital-rich investors.

But property crowdfunding is changing that.

In fact, the property investment sector as a whole has seen considerable changes in recent years, making it an option for more investors than ever before; an option for more investors to get involved and tackle the UK's housing crisis.

And property crowdfunding is a brilliant incarnation of the changes.

Low minimum investment thresholds

Take the fact it allows investors to invest into a property opportunity with a relatively modest amount of money. The joint venture property investment opportunities we present at GrowthFunders, for example, generally have a minimum investment amount of £1,000.

Whilst it's appreciated this isn't a drop in the ocean for many investors, it's considerably more affordable than many other routes into property - most opportunities whereby you're buying a property directly could easily require tens of thousands of pounds at least, for instance.

From an investor point of view, this low investment threshold also makes portfolio diversification much easier to achieve. Traditionally, diversification with property would have meant needing to purchase several houses - today, you can effectively build a portfolio of property investments with £5,000.

Easier access to opportunities

Similarly, the availability of opportunities has greatly opened up in recent years and property crowdfunding has made access to them easier than ever before.

This is largely due to the introduction and continued development of dedicated online platforms; platforms that are focused specifically on not simply promoting the opportunities, but making it possible to understand the full details of the opportunities and subsequently, invest into them.

Read more: how to get involved in property investing through crowdfunding

We've seen a distinct rise in the last few years in particular of platforms being introduced to make investments in general easier to access and partake in. From cryptocurrencies through to bonds, platforms have been developed that makes investing into them particularly easy, and property crowdfunding has moved along with this positive wave.

Short return periods

One of the associated benefits of property crowdfunding - which for many investors can be the driving factor behind an investment - is the return periods can be particularly short in comparison to the targeted returns.

For example, our joint venture property opportunities generally target a base case return of 1.5x money-on-money. This means a £10,000 investment would produce a £15,000 return should the base case be met.

And given the smaller developments, or development phases - which can be less than two dozen homes - timescales are often between 18 and 24 months.

Whilst this itself isn't a unique element to property crowdfunding (in comparison to other property investment routes), it's particularly appealing when comparing it to other investment opportunities.

Investors today have an absolute wealth of opportunities open to them. More so than was even the case just a few short years ago. Whilst this is a positive, it can make it a long process deciding on which asset class to invest in on the highest levels - before we even get to looking at specific opportunities.

Assuming property is the asset class you're exploring, the relatively short timescales combined with the potential returns can make property crowdfunding one of the most appealing options within the asset class - and even when compared to many other asset classes.

An hands off approach

And what's more, with property crowdfunding as an investor, you're generally investing into opportunities in a 'hands off' way. You may be investing directly into a specific residential development, but it's in a way that removes you from the daily activities, something many investors find extremely appealing.

A property crowdfunding investor, you're not laying bricks yourself. You aren't renovating an old property. You're not becoming a landlord.

Read more: an introduction to property investing - direct vs indirect investing

Whilst some investors undoubtedly want to do these things, property crowdfunding is perfect for those investors who want to become involved in the property market but don't want that level of hands on involvement. They want the exposure to the market but don't want the responsibilities that come with being a buy-to-let landlord, for example.

Yet importantly, using property crowdfunding can open up access to returns that are generally not achievable in other asset classes - or even within the property asset class - with the same hands off approach.

But can property crowdfunding solve the housing crisis?

It's clear that property crowdfunding can make access to the property market from an investment point of view easier than we've seen traditionally, but does this mean the housing crisis can be solved by it alone?

It's an interesting question to consider, because if we were only to rely on property crowdfunding, it would be difficult. But this is simply because there are numerous aspects that need to be accounted for above and beyond the process of building houses.

If we're to focus on the housebuilding aspect only, then property crowdfunding can undoubtedly have an extremely strong impact on the volume of houses we see built throughout the UK.

As I mentioned above, we need more of the right homes, in the right locations, and the smaller, regional housebuilders are fantastic here. But they need the funds to support them - and property crowdfunding is allowing these funds to be provided from a larger number of private investors than we've ever seen.

So, can property crowdfunding single-handedly solve the UK's housing crisis? Probably not.

But can it help build more homes, in the right locations, for the right people, itself a key factor of the housing crisis?

In our eyes, the answer can't be anything other than yes.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.