Introduction
This report demonstrates how Uno Homes (UH) will respond to their operating environment through the use of PESTLE analysis, which can be used as a basis for future planning and strategic management. Such analysis of the surrounding environment is designed to point out the specific opportunities and threats that will impact the future strategy of UH.
Organisational Profile
Uno Homes are homebuilding specialists, one of several house builders operating in the city of London. Uno is the commercial brand of Uno Homes Group, one of the leading providers of homes in East London that was formed to meet the growing demand for more affordable homes and rents across the city. UH is therefore involved in creating mixed neighbourhoods and remains committed to various regeneration developments.
Methodology – PESTLE Analysis
The statistics and graphs presented in this report will help analyze the extent to which Uno's market position is affected by prevailing external factors. Often employed as a strategic planning instrument, PESTLE is considered to be an effective technique for scanning various operating surroundings. Despite this, it is vital to be cognizant of the boundaries of PESTLE. Overall market dynamism and changes in the external considerations that may have an adverse effect on UH may not be visible during the preliminary stages of analysis. In other words, the effectiveness of PESTLE very much depends on the accuracy of collected data.
Macroeconomic factors such as job growth, salary and the wealth effect have all been acknowledged to affect the housing market. The Income effect, for example, dictates that a decrease in housing sales and household expenditures will negatively affect the economy and lead to a subsequent decline in income and employment, which ultimately reduces the demand for housing properties. [2015]
The six sections of PESTLE will help create a framework to initiate a revised marketing plan for UH. Political factors will cover Government Subsidies and Affordable Housing, planning regulation concerns, local government issues, brownfield data holding back housing developments and tax policies.
In an effort to support house purchasers and stimulate economic growth, Government backing for the UK housing industry has remained strong, buoyed by the introduction of several buying option initiatives. In regards to land acquisition constraints, UK Government policy encourages the use of brownfield land. In fact, the National Planning Policy Framework states that: Planning policies should encourage the effective use of land by re-using land that has been previously developed, provided that it is not of high environmental value’. (DCLG, 2012, para 111) Additionally, the HM Treasury announced in 2015 that developers would be granted automatic planning permits to build on previous industrial sites. However, unforeseen remedial works and greater contingency expenditures due to the presence of toxic waste in such derelict buildings led to numerous ambiguities in the pricing of such projects. Other barriers are presented in Figure 1 below. [2015a]
Figure 1: Planning barriers to housing delivery (www.londonchamber.co.uk)
In addition, modifications designed to affect both the owners and purchasers of buy-to-let properties were also introduced in 2015. New constraints will be fully enforceable beginning from the 2020/2012-tax year, restricting landlords to claim a basic tax rate of only 20%, down from the current 40% (Barclays).
Economic factors, meanwhile, include gross national product trends, inflation, interest and unemployment rates and disposable income. The UK economy continues to post GDP growth that leads all European nations, supported in large part by a record low unemployment rate of 5.1%, the nation's lowest since 2006.
Figure 2: GDP growth since financial crisis.
Cluttons has forecast prime Central London house prices to rise between 2% and 3% this year, accelerating to almost 5% during 2016 before stabilising at around 4% per annum between 2017 and 2019. [2015c]
Figure 3: London residential capital growth forecast
Regarding mortgage availability, the credit crunch in 2007 nearly leveled the UK housing industry and led to more severe lending criteria with higher down payment requirement. (2014) Studies have also identified interest rates and salary as significant factors that influence house prices over time. In fact, unemployment provides the most substantial negative shock to personal income and ultimately causes difficulties for borrowers trying to maintain mortgage payments. (2015)
Following the 2008 Financial Crisis, mortgage lending became restricted and the number of products available on the market decreased substantially. Determined to curb the negative consequences on lender behaviour, the UK Government introduced the Help-to-Buy initiative, applicable to properties up to a value of £600,000. It has extended the scheme until 2021. (2015d)
In addition, in the Housing and Planning Bill 2015, the Government set out measures to further boost house construction in a bid to boost the supply of new homes. The new Starter Homes Initiative is intended to provide first-time buyers under 40 years of age with a 20% discount on the price of a new home. Caps are set at £250,000 outside London and at £450,000 inside the city. (2015e)
Forecasts anticipate roughly 16% growth in London's population by 2031 and the Greater London Authority assesses that supply in the city is already short by some 17,000 houses each year. As demonstrated by the GLA’s 2013 Strategic Housing Market Assessment, the London Plan sets out average yearly minimum targets for every borough until 2025. In terms of the qualified size of new homes, the Mayor introduced required specific space criterions. (Appendix 1) The GLA evidence clearly demonstrates that 52% of new homes should be rendered affordable, either as rented or intermediate homes.
Figure 4: The GLA housing need assessment (www.london.gov.uk)
Regarding the worsening skill levels among construction workers, the RICS confirms that UK’s construction industry has been suffering a skills crisis since 1998, particularly due to the short supply of bricklayers and quantity surveyors. The upcoming EU Referendum threatens to worsen this situation, with firms facing barriers when hiring migrant workers from Europe. The Construction Industry Training Board forecasts it will need to hire 224,000 new workers between 2015 and 2019 alone. (RICS 2015f) The RICS construction survey illustrates a decline in the number of developers confirming a deficiency of materials as an issue resulting in restrictive building levels.
Source: UK Residential Development Land Index - Q3 2015, Knight Frank
Social/cultural factors include things like population demographics, social mobility, lifestyle changes and the disapproval of shared-ownership scheme.
The 2011 Institute for Public Policy Research report discusses how certain factors influencing housing demand, such as increased immigration, rising life expectancy and the unforeseen phenomenon of adults returning to their parents’ home. (2014a) Moreover, the gradually worsening impacts of welfare reform and cuts in public services on customers’ living standards, combined with several government support programs, may have served to increase demand on underpriced market properties. That being said, there remain common complaints from people involved in shared ownership schemes, including high maintenance charges, restrictions on sub-letting, the risk of owing negative equity and the difficulty inherent in buying up increased shares of such properties.
Technological factors, meanwhile, have come to include the introduction of building information models, as well as social media becoming a mainstream communication channel between customers and service providers. From 2016 on, a Building Information Modelling (BIM) will be required for all central government projects and private sector clients in order to deliver more sustainable buildings. (2013) Such modern methods of construction (MMC) employ off-site construction methods that lead to advantages such as reduced labour, quicker access to skilled demand on-site and lower construction costs. In fact, a block of flats could be constructed in around 12 weeks using MMC, compared to the typical 18 months for a more traditional construction method. (2016)
Legal factors include those laws and regulations that affect the property market and construction industry. In 2012, the Mayor of London issued a housing strategy coupled with new legislation:
Localism Act 2011
Welfare Reform Act 2012
A new national housing strategy
Energy Act 2011
The Local Plan also presumes that the NPPF will establish more sustainable development. Employment of the Local Plan also demands co-operation with various organisations in order to reflect a broad range of factors, including assessing the level of market demand upon completion of certain projects, as well as consideration for current and future house prices, design, construction costs, s106 agreements and community infrastructure levy (CIL) contributions.
Environmental elements focus on environmental protection laws, including enforcing Zero Carbon Policy, construction waste management and a more affordable land acquisition systems, given both national and local policy preferences against the uses of green spaces for such projects. There is an old adage that bears great relevant to the manner in which an organisation approaches these external environmental factors: ‘There are three types of companies: those who make things happen; those who watch things happen; and those who wonder what happened.’ (CEM 2007)
There remains, for example, sustained pressure to improve the energy efficiency of new homes. The Mayor of London has set objectives to reduce London’s carbon dioxide (CO2) emissions by 60 per cent by 2025, focusing his attention squarely in the energy, transport and building sectors. Sustainability Statements should therefore demonstrate that any new design meets the highest feasible and viable standards, such as those outlined in the Building Research Establishment Environmental Assessment Method (BREEAM) and Code for Sustainable Homes. Reductions in funding for government green initiatives in regard to existing housing, it should be noted, makes these schemes less attractive and even less worthwhile to pursue financially.
Recommendations - Implementation of marketing strategy plan for the next 5 years based on PESTLE analysis:
The Chartered Institute of Marketing (2011) defines marketing as ‘the management process responsible for identifying, anticipating and satisfying customer requirements profitably.’ Kotler further defines market segmentation as ‘dividing a market into distinct groups of buyers who might merit separate products or marketing mixes’. The concept of Kotler's marketing mix refers to: ‘The set of controllable market variables that the firm blends to produce the response it wants in the target market.’ [2015g] The core purpose of the marketing mix is to efficiently communicate with the target market. The first marketing question concerns the product and properties that offered to our customers. With regards to place, questions regarding geographic areas of housing development need to be addressed. Follow up questions include what specific price levels of properties will be offered? And finally, regarding promotion, we'll examine what messages will be distributed through a combination of promotional options. (CEM 2007)
Based on the above analysis, there are numeral recommendations that can be made to the marketing department of Uno Homes by synthesising the factors presented above and evaluating the fundamental matters posed by the external environment. The analysis of London’s housing demand, already outlined in the previous sections, demonstrates the various needs the company should reflect in its property portfolio. However, the Mayor of London's latest home building policy indicates that one specific area the company should focus on is affordable housing.
Product:
In order to secure sales moving forward, Uno should work closely with the UK Government in an attempt to prompt changes in legislation for first-time purchasers and young professionals, who should become our core market. As such, the majority of new developments should be apraised below the £600,000 threshold to be considered for 'Help to Buy', which will provide a strategic incentive both for us, as well as the mainstream market generally. (Home Truths 2015/2016: The housing market in London – www.housing.org.uk) While politics might help to positively influence the growth of affordable housing subsidies, we should focus on lowering housing price tags furthermore by fostering a more positive perception of the government’s scheme among our potential buyers.
The degree to which London's 'Help to Buy' and the 'Starter Homes' schemes are utilised will only serve to enhance our development. That being said, mortgage availability remains a threat to our business. The inability of clients to secure adequate mortgage financing could directly impact UH's transaction levels. For more precise targeting, it may help to compile a current list of people who pay intermediate/affordable rent from our database, providing detailed information on those who are likely to purchase a home but would not be able to afford a property on the open market. Buy-to-let landlords will soon be hit with new costs from April on, including an extra 3% stamp duty charge. This would also have a positive impact, especially for those critics who were blaming landlords for pushing up property prices and keeping first-time buyers locked out.
Our broad approach to improve marketing to new customers should help raise awareness amongst potential customers to counter such negative myths about Government schemes, in order to expand our own marketing initiatives.
Regarding the growing concerns on housing's environmental impacts, marketing brochures should emphasise that we have implemented the Building Research Establishment SMARTER waste programme, fully supported and in line with the Building Research Establishment Environmental Assessment Method (BREEAM). Customers should be educated and encouraged to see the big picture when it comes to the advantages and opportunities of low carbon housing. Furthermore, they should be made aware that these new technologies would help reduce yearly bills significantly. Such technological innovations could attract more price-conscious buyers.
Placement/Distribution:
The decision making process concerning the second P of the marketing mix involves more than merely determining the actual location from which our clients can purchase the property from. UH often works with intermediaries to develop certain marketing channels about the availability of housing, where these intermediaries assist in transmitting information on distinct dwellings. In this way, local authorities and real estate agents can also serve as linking tools between the potential clients and UH, contributing to the distribution of marketing catalogues.
In previous years, our business strategy concentrated on inner London. However, the technological impact of developing transport routes in and out of London has had positive impacts on commuting. Taking into account that Crossrail’s high-speed service is anticipated to bring additional commuters to Central London within a 45-minute travel timeframe, UH is now uniquely positioned to expand its construction of more desirable suburban addresses. Recent forecasts have now emerged, stating that houses prices down that rail line could continue to increase by 3.3% per year above local house price growth until the route’s launch in 2018/2019 – which is equivalent to an average increase of more than £133,000. (JLL) We are presently revising company’s assets in order to establish how many further sites we can acquire, especially in outer London, to offer homes that more Londoners will be able to afford. In particular, lower value inner London boroughs and well-connected outer London boroughs are set to become the growth areas over the next five years. Such crucial regeneration undertakings are generating hotspots and allowing us to move from Zones 1 and 2 to 5 and 6, where we can offer homes at affordable prices in order to make such projects more viable. In order to target first-time buyers in these particular outer London areas, developments need to be advertised through a wide variety of outlets, each targeting different market segments through diverse methods and channels.
Price:
Pricing is simultaneously influenced by a competitor’s pricing policies, government regulations and buyer affordability. Indicators from the National Housing Federation’s Home Truths report reveal that a London home currently costs £526,000, which is roughly 16 times the average Londoner’s pay of £33,000 per annum. However, the greatest demand for housing in London currently comes from households with an annual income of less than £50,000. (2014b) In this environment, we feel high property prices present a good opportunity to get involved in more shared-ownership projects across London. That being said, the crucial question that needs to be asked concerns the minimum proportion share that will make such schemes economically viable; something that can be achieved by negotiating affordable housing quotas and managing s106 contributions, particularly when development of brownfield land is involved.
Promotion:
Promotion refers to the efforts of a business to encourage the popularity of its product in the market. Although there has been a significant shift towards digital marketing, promotion traditionally refers to channels of communication such as advertising, direct selling, PR and sales promotion. That being said, Generation-Y homebuyers are extremely tech savvy, armed with digital spreadsheets, instant communication and an inclination to buy homes that are equally technologically friendly.
Berkeley Group encourages their customers to use The Sustainability Living Tool, which was developed to demonstrate and explain what measures have been taken across planned building sites to encourage customers to lead more active and healthy lifestyles. It is highly recommended that we introduce this tool to our clients. Ultimately, selling a house is a lot easier when you also sell a certain lifestyle and location to go with it. Emphasising the virtues of the area through Computer Generated Images is one way to ensure maximum interest.
Perceptions of risk:
Lender support for this product will be a crucial factor influencing the number of shared-ownership homes we are able to develop. As it stands, shared ownership is seen as a complex and potentially higher risk initiative by lenders. That being said, a look at recent social trends suggests that the market for shared ownership is undergoing significant change. Analysing the demographics of those who have more recently become shared owners, for example, suggests future buyers might be older and wealthier than those that have been traditionally associated with shared ownership schemes in the past. This may actually need to be the case, since that same trends data suggests that buyers are likely to be paying more for their shared ownership properties.
As is almost always the case, changes demographics and economics will need to be met with changes in products and services. The proportion of households with children taking up a shared ownership sale has decreased. Increasing divorce rates, meanwhile, mean that more new homebuyers are older singles, a factor that is leading to the opening up of the shared ownership market to previously long-term renters. Such interpretations have already provided the inspiration for new shared-ownership products aimed at older buyers, not least of which is the Government’s own 'Help to Buy' OPSO scheme (Older Persons Shared Ownership).
Summary conclusion:
Moving forward, there are a few final factors to consider. First, it is important that companies never lose sight of the customer - both who they are and how they are changing - as learning from them will only continue to generate new ideas and opportunities for improvement and innovation. Secondly, the central aim of this business should be to maximise sales within the boundaries of its business plan, financial capacity and the risk management arrangements in place for newly built shared ownership housing. Such forward planning will ensure that we remain vigilant and that marketing messages adapt to market forces and changing macro environments, ensuring that we identify both opportunities and - perhaps more importantly - risks. A SWOT analysis will help to provide further insight into the past and devise possible solutions to Uno Homes' existing or potential problems down the line.
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Annex 1
