What will the 0.25% Interest Rate do to the Falmouth Property Market?

 

I had an interesting chat with a landlord from Maenporth who owns a few properties in town. He popped his head in to my office as his wife was shopping in the area (and let’s be honest talking about the Falmouth Property Market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the town to manage his Falmouth properties) yet after reading our blog on the Falmouth Property Market, the landlord wanted to know my thoughts on how low interest rate would affect the long term Falmouth property market. I thought I would share these thoughts with you……

 

It has been three months since interest rates were cut to 0.25% by the Bank of England. The Bank believed Brexit could lead to a materially lower path of growth for the UK, especially for the manufacturing and construction industries. You see for the country as a whole, the manufacturing and construction industries are still performing well below the pre credit crunch levels of 2008/09. As a consequence the British economy remains highly susceptible to an 'economic shock'. This is particularly important in Falmouth, because even though we have had a number of local success stories in manufacturing and construction, a large number of people are employed in these sectors. In Falmouth, of the 9,988 people who have a job, 964 are in the manufacturing industry and 639 in Construction meaning (see note 1 below) 

 

 

9.7% of Falmouth workers are employed in Manufacturing

 

and 6.4% of Falmouth workers are in Construction

 

The other sector of the economy the Bank is worried about, and an equally important one to the Falmouth economy, is the Financial Services Industry. Financial Services in Falmouth employ 170 people, making up 1.7% of the Falmouth working population.

 

Together with a cut in interest rates, the Bank also announced an increase in the quantity of money via a new programme of Quantitative Easing to buy £70bn of Government and Private bonds. That is unlikely to do much to the Falmouth property market directly, but another measure also included in the recent announcement was £100bn of new funding to banks. This extra £100bn will help the High St banks pass on the base rate cut to people and businesses, meaning in theory the banks will have lots of cheap money to lend for mortgages. This relaxation on lending on the other hand could have a dramatic effect on the Falmouth property market. One hundred billion pounds is enough to buy half a million homes in the UK! (See note 2 below)

 

It will take until early in the New Year to find out the real direction of the Falmouth property market and the effects of Brexit on the economy as a whole. However, something bigger than Brexit and interest rates is the inherent undersupply of housing (something we have spoken about in our blog and the specific affect on Falmouth). The severe undersupply means that Falmouth property prices are likely to increase further in the medium to long term, even if there is a dip in the short term. This only confirms what every homeowner and landlord has known for decades .. investing in property is a long term project and as an investment vehicle, it will continue to outstrip other forms of investment due to the high demand for a roof over people’s heads and the low supply of new properties being built.

 

 

 

Reference Note

1.     Numbers relating to the people working are based on the 2011 census statistics.

2.     Half million houses is £100bn divided by the average value of a UK property at £260,000 and assuming a £200k mortgage

 

 

 

 

 

New House Building in Falmouth drops by 9.2% in the last year

Let me speak frankly, even with Brexit and the fact immigration numbers will now be reduced in the coming years, there is an unending and severe shortage of new housing being built in the Falmouth area (and the UK as a whole).  Even if there are short term confidence trembles fuelled by newspapers hungry for bad news, the ever growing population of Falmouth with its high demand for property versus curtailed supply of properties being built, this imbalance of supply/demand and the possibility of even lower interest rates will underpin the property market.

 

When the Tories were elected in 2015, Mr. Cameron vowed to build 1,000,000 new homes by 2020.  If we as a Country hit those levels of building, most academics stated the UK Housing market would balance itself as the increased supply of property would give a chance for the younger generation to buy their own home as opposed to rent.  However, the up-to-date building figures show that in the first three months of 2016 building starts were down.  Nationally, there were 35,530 house building starts in the first quarter, a long way off the 50,000 a quarter required to hit those ambitious targets.

 

Looking closer to home, over the last 12 months, new building in the Cornwall Council area has dropped.  In 2014/15, for every one thousand existing households in the area, an additional 8.04 homes were built.  For 2015/16, that figure is now only 7.3 homes built per thousand existing households.  Nationally, to meet that 1,000,000 new homes target, we need to be at 7.12 new homes per thousand, which means Cornwall Council is actually meeting the National target, the problem is the country is only building at a rate of 4.9 for every thousand exiting households – we can’t just rely on little old Cornwall Council to build for the rest of the Country.

 

To put those numbers into real chimney pots, over the last 12 months, in the Cornwall County Council area,

·        1,480 - Private Builders (e.g. New Homes Builders)

·        270 - Housing Association

·        Nil Local Authority

 

I am of the opinion Messer’s Cameron and Osborne focused their attention too much on the demand side of the housing equation, using the Help to Buy Scheme and low deposit mortgages to convert the ‘Generation Rent’ i.e. Falmouth ‘20 somethings’ who are set to rent for the rest of their lives to ‘Generation Buy’.  On the other side of the coin, I would strongly recommend the new Housing Minster, Gavin Barwell, should concentrate the Government’s efforts on the supply side of the equation.  There needs to be transformations to planning laws, massive scale releases of public land and more investment, as more inventive solutions are needed.

However, ultimately, responsibility has to rest on the shoulders of Theresa May.  Whilst our new PM has many plates to spin, evading on the housing crisis will only come at greater cost later on.  What a legacy it would be if it was Mrs. May who finally got to grips with the persistent and enduring shortage of homes to live in.  The PM has already referenced the ‘need to do far more to get more houses built’ and stop the decline of home ownership.  However, she has also ruled out any changes to the green belt policy – something I will talk about in a future up and coming article.  Hopefully these statistics will raise the alarm bells again and persuade both residents and Councilor’s in the Cornwall Council area that housing needs to be higher on its agenda.

9600 People Live In Every Square Mile Of Falmouth – Is Falmouth Over Crowded?

Falmouth is already in the clutches of a population crisis that has now started to affect the quality of life of those living in Falmouth. There are simply not enough homes in Falmouth to house the greater number of people wanting to live in the town.

 

 

 

The burden on public services is almost at breaking point with many parents unable to send their child to their first choice of primary or secondary school and the chances of getting a decent Dentist or GP Doctor Surgery next to nil. (Well that’s what the papers would say)

 

 Let’s look at real numbers......

 

To start with, the UK has roughly 1,065 people per square mile – the second highest in Europe. The total area of Falmouth itself is 2.339 square miles and there are 22,600 Falmouth residents, meaning …

9,600 people live in each square mile of Falmouth, it’s no wonder we appear to be bursting at the seams!

 

 

 

 

… but yet again, newspapers, politicians and property market bloggers quote big numbers to sell more newspapers, get elected or get people to read their blog (I recognise the irony!). A square mile is enormous, so the numbers look correspondingly large (and headline grabbing). Most people reading this will know what an ‘acre’ is, but those younger readers who don’t, it is an imperial unit of measurement for land and it is approximately 63 metres square.

 In Falmouth, only 13.82 people live in every acre of Falmouth … not as headline grabbing, but a lot closer to home and relative to everyday life, and if I am being honest, a figure that doesn’t seem that bad.

Yet, the issue at hand is, we need more homes building. In 2007, Tony Blair set a target that 240,000 homes a year needed to be built to keep up with the population growth, whilst the Tory’s new target since 2010 was a more modest 200,000 a year. However, since 2010, as a country, we have only been building between 140,000 and 150,000 houses a year. In 2016 the total housing deficit stands at 1.2 million homes. So where are we going to build these homes .. because we have no space! Or do we?

Well, let me tell you this fascinating piece of information I found out recently in an official England is the most densely populated major country within the EU.  

all the 20 million English homes cover only 1.1% of its land mass.

That is not a typo, only one point one per cent (1.1%) of land in England is covered by residential property. In more detail, of all the land in the Country -

Residential Houses and Flats 1.1%

Gardens 4.3%

Shops and Offices 0.7%

Highways (Roads and Paths) 2.3%

Railways 0.1%

Water (Rivers /Reservoirs) 2.6%

Industry, Military and other uses 1.4%

 This leaves  88.5% as Open Countryside (and if you think about it, add to that the gardens, which are green spaces, and the country is 92.8% green space)

As a country, we have plenty of space to build more homes for the younger generation and the five million more homes needed in the next 20 years would use only 0.25% of the country’s land. Now I am not advocating building massive housing estates and 20 storey concrete and glass behemoth apartment blocks next to local beauty spots such as Trebah, or Pendennis Point or Kimberley Park, but with some clever planning and joined up thinking, we really do need to think outside the box when it comes to how we are going to build and house our children and our children’s children in the coming 50 years in Falmouth. If anyone has their own ideas, I would love to hear from you.

Source:
1,065 people a square mile is from the Office of National Stats

Occupation Levels from Census

HM Government Report Technical Report of the UK National Ecosystem Assessment 2011

Population Density - Daily Mail Online

http://www.dailymail.co.uk/news/article-2530125/This-worryingly-crowded-isle-England-officially-Europes-densely-packed-country.html

Housing deficit figures mortgage solution

http://www.mortgagesolutions.co.uk/news/2016/07/15/uk-house-build-target-missed-huge-1-2-million/