Tuesday, 31 January 2017
Can we blame the 55 to 70-year-old Canterbury citizens for the current housing crisis in the city?
Also known as the ‘Baby Boomer Generation’, these Canterbury people were born after the end of the Second World War as the country saw a massive rise in births as they slowly recovered from the economic hardships experienced during wartime.
Throughout the 1970’s and 1980’s, they experienced (whilst in their 20’s, 30’s and 40’s) an unparalleled level of economic growth and prosperity throughout their working lifetime on the back of improved education, government subsidies, escalating property prices and technological developments, they have emerged as a successful and prosperous generation.
...Yet some have suggested these Canterbury baby boomers have (and are) making too much money to the detriment of their children, creating a ‘generational economic imbalance’, where mature people benefit from house-price growth while their children are forced either to pay massive rents or pay large mortgages.
Between 2001 and today, average earnings rose by 65%,
but average Canterbury house prices rose by 154.3%
The issue of housing is particularly acute with the generation called the Millennials, who are young people born between the mid 1980’s and the late 1990’s. These 18 to 30 years, moulded by the computer and internet revolution, are finding as they enter early adult life, very hard to buy a property, as these ‘greedy’ landlords are buying up all the property to rent out back to them at exorbitant rents ... it’s no wonder these Millennials are lashing out at buy to let landlords, as they are seen as the greedy, immoral, wicked people who are cashing in on a social despair.
Like all things in life, we must look to the past, to appreciate where we are now.
The three biggest influencing factors on the Canterbury (and UK) property market in the later half of the 20th Century were, firstly, the mass building of Council Housing in the 1950’s and 60’s. Secondly, for the Tory party to sell most of those Council Houses off in the 1980’s and finally 15% interest rates in the early 1990’s which resulted in many houses being repossessed. It was these major factors that underpinned the housing crisis we have today in Canterbury.
To start with, in 1995 the USA relaxed its lending rules by rewriting the Community Reinvestment Act. This Act saw a relaxation on the Bank’s lending criteria’s as there was pressure on these banks to lend on mortgages in low wage neighbourhoods, as the viewpoint in the USA was that anyone (even someone on the minimum wage) any working class person should be able to buy a home. Unsurprisingly, the UK followed suit in the early 2000’s, as Banks and Building Society’s relaxed their lending criteria and brought to the market 100% mortgages, even Northern Rock started lending every man and his dog 125% mortgages.
So when we roll the clock forward to today, and we can observe those very same footloose banks from the early/mid 2000’s (that lent 125% with a just note from your Mum and a couple of breakfast cereal tokens), ironically reciting the Bank of England backed hymn-sheet of responsible-lending. On every first time buyer mortgage application, they are now looking at every line on the 20-something’s banks statements, asking if they are spending too much on socialising and holidays ... no wonder these Millennials are afraid to ask for a mortgage (as more often than not after all that – the answer is negative).
Conversely, you have unregulated Buy To Let mortgages. As long as you have a 25% deposit, have a pulse, pass a few very basic yardsticks and have a reasonable job, the banks will literally throw money at you ... I mean Virgin Money are offering 2.99% fixed for 3 years – so cheap!
So, in Part Two next week, I will continue this emotive article and show you some very interesting findings on why young people aren’t buying property anymore (and it’s not what you think!).
Wednesday, 25 January 2017
While Brexit has not yet had a sizeable impact on the Canterbury housing market, my analysis is pointing to the fact that the economic viewpoint still remains uncertain and Canterbury property price growth is likely to be more subdued during 2017 - although that isn’t a bad thing so let me explain.
Since the summer, apart from a little wobble of uncertainty a few weeks after the Referendum vote, property values (and the economy), on the whole has outperformed what most people were anticipating. In fact, when I looked at the property prices for our Canterbury City Council area, these were the results...
November 2016 - rise of 0.89%
October 2016 - rise of 1.09%
September 2016 - rise of 1.32%
August 2016 - rise of 1.89%
July 2016 - rise of 1.78%
June 2016 - drop of 0.59%
The UK property market continues to perform robustly (because we can’t just look at Canterbury as if in its own little bubble) with annual price growth set ended last year at 11.35% and most South East region property market at 9.1%.
Talking to fellow agents in London, the significant tidal wave of growth seen from 2013 through to 2015 in the capital has subdued over the last six months. However, as that central London house price wave has started to ripple out, agents are starting to see stronger property growth values in East Anglia and the South East regions outside of London, than what is being seen within the M25. So, fellow Canterbury landlords and homeowners, is this the time to get your surfboards ready for the London wave?
Well, we in Canterbury haven’t really been affected by what is happening in the central London property mega bubble (i.e. Kensington, Chelsea, Marylebone, Mayfair etc.). The property market locally is more driven by sentiment, especially the ‘C’ word ... confidence. The main forces for a weaker Canterbury Property market relate to economic uncertainty surrounding the Brexit process, which I believe will impact unhelpfully on consumer confidence in the run up to and just after the serving of the Section 50 Notice by the end of Q1 2017.
In addition, the influence of reforms to the taxation of landlords is expected to result in a reduced demand from buy to let landlords, which will limit upward pressure on property values. However, on the other side of the coin, demand from tenants has been strong, but this has been counterbalanced by a strong supply of rental properties. In my opinion, there is a slight risk of rents not growing as much in 2017 as they have in 2016, but by 2018 they will rise again to counteract Philip Hammond’s changes to tenant fees.
The broader Canterbury rental market looks relatively positive with modest rental growth expected and rents might rise further if landlords begin to sell properties in an effort to offset to the impact of tax rises.
So what do I predict will happen to the Canterbury housing market during 2017? In Canterbury, I believe price values are expected to fall by 2.3% in 2017 compared to a rise of 11.35% this year, then pick up to growth of 1.9% in 2018, 3.1% in 2019, then 4.2% in 2020 and 6.5% in 2021.
But these predictions do not take into account any effect of a possible snap General Election or further referendum on ratifying any Brexit deal (if that comes to pass in the future).
Thursday, 19 January 2017
Canterbury people aged over 65 currently hold more housing wealth in their homes than the annual GDP of the whole of the Isle of Anglesey … and this is a problem for everyone in Canterbury!
Many retiree’s want to move but cannot, as there is a shortage of such homes for mature people to downsize into. Due to the shortage, bungalows command a 10% to 20% premium per square foot over houses of the same size with stairs. To add to the woes, in 2014, just 1% of new builds in the UK were bungalows, according to the National House Building Council - down from 7% in 1996.
My research has found that there are 4,369 households in Canterbury owned outright (i.e. no mortgage) by over 65 year olds. Taking into account the average value of a property in Canterbury, this means £1.51 billion of equity is locked up in these Canterbury homes, compared to the GDP of the whole of the Isle of Anglesey being £797 million of GDP.
A recent survey by YouGov, found that 36% of people aged over 65 in the UK are looking to downsize into a smaller home. However, the Government seems to focus all its attention on first-time buyers with strategies such as Starter Homes to ensure the youngsters of the UK don’t become permanent members of ‘Generation Rent’. Conversely, this overlooks the chronic under-supply of appropriate retirement housing essential to the needs of the Canterbury’s rapidly ageing population. Regrettably, the Canterbury’s housing stock is woefully unprepared for this demographic shift to the 'stretched middle age’, and this has created a new 'Generation Trapped’ dilemma where older people cannot move.
Some OAP’s who are finding it difficult to live on their own, are unable to leave their bungalow because of a lack of sheltered housing and ‘affordable’ care home places. So, older retirees can't leave bungalows, younger retirees can't buy bungalows and younger people can't buy family houses.
Interestingly, adding insult to injury, the problem will only get worse, as in the 50 year old to 64 year old homeownership age range there are an additional 2,617 Canterbury households that are mortgage free and a further 2,189 Canterbury households who will be completing their mortgage responsibility. With Government projections showing the proportion of over 65’s will rise by over a third from the current 17.7% to 24.3% of the population in the next 20 years ... this can only add greater pressure to the Canterbury Property market.
House prices have rocketed over the last 40 years because the supply of property has not kept up with demand. With migration, people living longer and high divorce rates (meaning one family becomes two) we need, as a Country, 240,000 properties to be built a year to just stand still. In the 1990’s and early 2000’s, the Country was building on average 180,000 to 190,000 households a year, but since the Credit Crunch (2009), that has only been between 130,000 and 145,000 households a year.
The solution …. release more land for starter homes, bungalows and sheltered accommodation because land prices are killing the housing market as the large firms dominating the construction industry are more likely to focus on traditional houses and apartments. My opinion – until the Government change the planning rules and allow more land to be built on – Bungalows could be a decent bet for future investment as they continue to attract ever growing premiums?
Thursday, 12 January 2017
Well, wasn’t 2016 eventful. The ups and downs of Brexit, the Queen’s 90th, Andy Murray winning Wimbledon, Trump, Bake Off to Channel 4 and something close to the hearts of every buy to let landlord and homeowner in Canterbury ... the Canterbury property market.
So, let’s look at the headlines for the Canterbury property market...
In the last month, Canterbury property values rose by 0.81%, leaving them, year on year 9.9% higher, whilst interestingly, Canterbury asking prices are down 2.0% month on month. All three statistics go to show the Canterbury property market has recovered well after the summer lull, which was worsened by the uncertainty surrounding the EU vote back in June. Irrespective of all the issues, the average value of a Canterbury home now stands at £346,400.
Generally, Canterbury asking prices continue to hold up well, as asking prices are 4.7% higher year on year. Asking prices tend to drop on the run up to Christmas and locally, they dropped by 2.0% last month (December 2016), although this still compares well with last year’s drop in Canterbury asking prices, as we saw asking prices drop by 1.1% in December 2015.
Now it’s true to say, after chatting with fellow property professionals in Canterbury, all of us have seen the number of property sales fall slightly, suggesting a slowing market, but it is very early days and it could be the time of year. Also, the numbers are limited, so it’s interesting to take note from a recent survey by the Royal Institution of Chartered Surveyors, stating new buyer enquiries and new instructions are falling at the same rate, suggesting that there will not be a downward pressure on property values.
Looking at the figures for the UK (as we can’t just look at Canterbury in isolation), property values are generally rising slower than a few years ago, but on a positive note, there's still growth across the UK. You see, slowing property value growth isn't solely Brexit related, but after a number years of double digit rises in property values, affordability has weakened and cooling price growth is widely seen to be a natural correction of the market.
On the other hand, interest rates being at a record low of 0.25% are helping the property market. The cut in interest rates in the late summer was the medicine for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.
So, what will happen in 2017 in the Canterbury property market?
Some say until we know what type of exit the UK will make from the EU it is hard to evaluate the outcome. Although, I believe, the whole Brexit issue is a sideshow to the main issue in the UK (and Canterbury) housing market as a whole. As I have mentioned time and time again over the last few months, the biggest issue is demand outstripping supply when it comes to the number of households required to house us all. Canterbury has an ever-growing population: with immigration (we still have at least two years of free movement from EU members into the UK), people living longer and the fact we need thousands of additional households as the country has nearly 115,000 divorces a year (where one household becomes two households). These are interesting times ahead!