£12m a year black hole in the Falmouth Property Market - Is Buy to Let Immoral? (Part 2)

 

An Englishman’s Home is his Castle as Margaret Thatcher once lauded - everyone should own their own home. In 1971, around 50% of people owned their own home and, as the baby-boomers got better jobs and pay, that proportion of homeowners rose to 69% by 2001. Home ownership seemed here to stay. Many baby boomers assumed that it was very much a cultural thing here in Britain to own your own home.

But on the back of TV programmes like Homes Under the Hammer, these same baby boomers started to jump on the band wagon of Falmouth buy to let properties as an investment. Falmouth first time buyers were in competition with Falmouth Landlords to buy these smaller starter homes … pushing house prices up in the 2000’s (as mentioned in Part One) beyond the reach of first time buyers. Alas, it is not as simple as that. Many factors come into play, such as economics, the banks and government policy. But are Falmouth Landlords fanning the flames of the Falmouth housing crisis bonfire?

I believe that the Landlords of the 2,054 Falmouth rental properties are not exploitative and are, in fact, making many positive contributions to Falmouth and the people of Falmouth. Like I have said before, Falmouth (and the rest of the UK) are not building enough properties to keep up with the demand; with high birth rates, job mobility, growing populations and longer life expectancy factors in this trend.

According to the Barker Review, for the UK to standstill and meet current demand, the country needs to be building 8.7 new households each and every year for every 1,000 households already built. Nationally, we are currently running at 5.07 per thousand and in the early part of this decade were running at 4.1 to 4.3 per thousand.

It doesn’t sound a lot of difference, so let us look at what this means for Falmouth …

For Falmouth to meet its obligation on the building of new homes, Falmouth would need to build 86 households each year. Yet, we are missing that figure by around 36 households a year.

For the Government to buy the land and build those additional 36 households, it would need to spend £12,225,448 a year in Falmouth alone. Add up all the additional households required over the whole of the UK and the Government would need to spend £23.31bn each year … the Country hasn’t got that sort of money!

With these problems, it is the property developers who are buying the old run-down houses and office blocks which are deemed uninhabitable by the local authority. They are turning them into new attractive homes to either be rented privately to Falmouth families or Falmouth people who need council housing because the local authority hasn’t got enough properties to go around.

 

The bottom line is that, as the population grows, there aren’t enough properties being built for everyone to have a roof over their head. Rogue landlords need to be put out of business, whilst tenants should expect a more regulated rental market. Features of this market would be greater security for tenants, where they can rely on good Landlords providing them with a decent quality safe and modernised home. As in Europe, where most people rent rather than buy, it doesn’t matter who owns the house – all people want is a clean, decent roof over their head at a reasonable rent.

So only you, the reader, can decide if buy to let is immoral, but first let me ask this question - if the private buy to let Landlords had not taken up the slack and provided a roof over these people’s heads over the last decade .. where would these tenants be living now? ….. because the alternative doesn’t even bear thinking about!

 

Falmouth’s private renting set to hit 2,896 households by 2021 - Is Buy to Let immoral? (Part 1)

 

Can we blame the 55 to 70-year-old Falmouth citizens for the current housing crisis in the town?

 

Also known as the ‘Baby Boomer Generation’, these Falmouth 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. This was on the on the back of improved education, government subsidies, escalating property prices and technological developments. You could say they have emerged as a successful and prosperous generation.

Some have suggested these Falmouth 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 Falmouth house prices rose by 125.8%!!

 

The issue of housing is particularly acute with the generation called the 'Millennials'.  These are young people born between the mid 1980’s and the late 1990’s. Moulded by the computer and internet revolution, these 18-30 year olds are finding it very hard to buy a property. The  ‘greedy’ landlords of their parents generation are buying up all the property to rent out back to them at exorbitant rents. It is no wonder these Millennials are 'lashing out' at buy to let landlords, as they are seen as the 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 Falmouth (and UK) property market in the later half of the 20^th Century were - the mass building of Council Housing in the 1950’s and 60, the subsequent Tory sale of the same Council House stock in the 1980’s and thirdly 15% interest rates in the early 1990’s; the latter resulting  in unprecedented levels of house repossessions. It was these major influences that underpin the housing crisis we have today in Falmouth.

In 1995 the USA relaxed its lending rules by rewriting the Community Reinvestment Act. This Act saw a relaxation on US Bank’s lending criteria’s. The political impetus for this was that the working class person (even someone on the minimum wage) should be able to live the American dream and buy their own home.  Unsurprisingly, the UK followed suit in the early 2000’s. Banks and Building Society’s relaxed their brought to the market 100% mortgages. One Bank Northern Rock even started lending every man and his dog 125% mortgages - and we know where that ended up.

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 a relatively unregulated Buy To Let mortgage lending. As long as you have a 20% 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!).

 

END

 

Notes

 

This is Part 1 of a two-part article.

 

Numbers for Households from Census.

 

Numbers for House Price Growth from Land Registry.

 

Numbers for Earnings from Office of National Stats.

 

Its 670 words long, which for those of you that need to chop it slightly, you will need to trim it slightly. Can I suggest you remove the some/all of the following to reduce word count if required?

 

·        Second to last paragraph – the one starting   “Conversely, you have” (c. 50 words)

·        Third to last paragraph – the one starting “So when we roll” could be trimmed (not removed)

 

Graph

 

We are still doing graphs – it’s just we don’t put an example on the article

 

The link to every graph (so might be good idea to book mark this link) is here

 

https://drive.google.com/open?id=0B0d59TaH3c33RzdYSlVTdkZKTUU

 

Again, any issues on changing the numbers, export the graph out an=s an image – please pick up the phone to me   (Christopher 07950147572)

Falmouth property price rises set to be more restrained in 2017 due to Brexit

 

 

Brexit has not yet had a sizeable impact on the Falmouth housing market. The battle lines for our exit are yet to be drawn and therefore the uncertainty has meant that the market appears to be plodding along. We feel the tone has been set for the year and that the Falmouth property market is likely to remain subdued for the foreseeable.... 

 

This isn't a bad thing. Since last Summer, apart from a little wobble of uncertainty a few weeks after the Referendum, property values and the economy has outperformed what most people were anticipating. In fact, when I looked at the property prices for Cornwall these were the results...

 

October 2016              - rise of 1.12%

September 2016         - rise of 0.28%

August 2016                - rise of 1.24%

July 2016                     - rise of 1.59%

June 2016                    - drop of 2.56%

 

Looking beyond the Falmouth 'bubble', the UK wide property market continues to perform robustly  with annual price growth set to end this year at 6.91% and most South West region property market at 7.18%. Indeed talking to fellow agents, the significant tidal wave of growth seen from 2013 through to 2015 in London and the South East is still rippling out to the provinces. So, fellow Falmouth landlords and homeowners, it may be surfboard time for a little while yet?

 

The property market locally is more driven by sentiment, especially the ‘C’ word ... confidence. The main forces for a weaker Falmouth Property market relate to economic uncertainty surrounding the Brexit process. Prices are still holding up because there is a short supply of housing. You can always tell this, since estate agents seem to be spending just as much time peddling their literature on how great they are and how they are in need of more property. I don't know about you but the volume is on a par with the pizza vouchers! 

The reforms to taxation will focus landlords attention on their profit margins. They may also naturally 'check' demand for more buy to lets. Likewise student landlords appetite for buying student buy to lets will be curbed by the need to show a history of HMO usage in Falmouth before June 15th.

 

On the flip side, demand from tenants remains strong. In our opinion, rents are stable and in many cases edging up.

The big question for all agents and landlords is the likely ban on tenant fees and what impact that might have for both of us. This is encompassed in the Bill of Rights for Tenants, the details of which are being discussed by the Government over the next six months. More on this another time. Suffice to say if this goes through, we predict that towards the end of 2018 rents will rise more significantly than they have for a generation.  

 

 

 

 

 

Valentine Letting Agent

Valentine’s Day. It is that time of year again. It got me thinking about what I perceive to be the role of the letting agent. We are not plastic individuals without heart. Behind the bravado and shiny suits we care about people and we care about service. In a work sense we exist with the purpose of matching people with property.

 

You could say we are a Dating Agency for Landlords and Tenants.

A Dating Agency can cook up a match made in 'heaven' or a match made in 'hell'. They can get it right and they can get it oh so very wrong! Letting Agents are little different. Some have the speed dating approach – a couple of quick questions, exchange details and 'wham bam' the next thing you hear the tenant is in the property without as much as a 'how do you do'. In doing so the agent fails to interview the prospective match and they miss the most critical and obvious information.  Hardly the sort of approach that will ensure an enduring relationship.

 

Call us old fashioned but we are always looking for marriage material.

We vet tenants thoroughly before they even attend a viewing let alone are considered for the property. Often we ask for a biography of the tenant and a series of photographs of how they live. It gives the best indication of how they are likely to live in your property.

All good agents should know their clients. We do. Sadly we currently have too many tenants and not enough properties. It reminds me of all those parties when I was younger – plenty of lads, bit too few girls

If you have property and are looking for a soul mate for it, then please let us know........

 

 

 

 

Falmouth OAP's sitting on £1.05 Billion of property!

 

Interesting fact ……Falmouth people aged over 65 currently hold more housing wealth in their homes than the annual GDP of the whole of the Isle of Anglesey. 'Yachi Da' I say!  

 

This creates a problem since many retiree’s want to move but cannot. This is because 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. In 2014, according to the National House Building Council, just 1% of new builds in the UK were bungalows, down from 7% in 1996!  Locally, aside from Roscarrick Gardens to the edge of Falmouth I can’t think of a single development of bungalows built in the last 15 years?

 

My research has found that amongst the over 65’s in Falmouth they own 3,097 houses outright (i.e. no mortgage). Based on average value of a property in Falmouth, it is likely that £1.05 billion of equity is locked up in these Falmouth homes. The GDP of the whole of the Isle of Anglesey is £797 million! Yachi do!

 

A recent survey by YouGov, found that 36% of people aged over 65 in the UK are looking to downsize to 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 Falmouth’s rapidly ageing population. Regrettably, the Falmouth’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. I’m not laughing because along with my co-directors we are careering towards this age group ourselves!

 

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. The chain of supply for housing therefore stutters along.

 

Interestingly, adding insult to injury, the problem will only get worse. In the 50 to 64-year old homeownership age range there are an additional 1,875 Falmouth households that are mortgage free and a further 1,483 Falmouth 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 Falmouth 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) as a Country we need 240,000 properties to be built annually just to stand still!  In the 1990’s and early 2000’s, the Country was building on average 180,000 to 190,000 households a year; since the Credit Crunch in 2009, that has only been between 130,000 and 145,000 households a year.

 

The solution although politically sensitive for all of us that like our beautiful countryside, is to release more land for starter homes, bungalows and sheltered accommodation. Currently land prices are ‘killing’ the housing market as large firms dominating the construction industry are more likely to focus on traditional houses and apartments. Their accountant decision makers inevitably want to pack the properties in and it is unsurprising that the floor area of UK properties are smaller than anywhere else in Europe.

 

My opinion - If you can get your hands on a bungalow, this could be a decent investment bet for future. Either that or put a few quid into Stannah stairlifts (other lift companies are available to invest in too).


NOTES

 

1.      ‘Yachi Da’ – Welsh translation Good health. Perhaps should read good wealth!

 

2.      When I say GDP – as your town isn’t a country – so strictly speaking - there can’t be a GDP of a town. (Although everyone knows the phrase GDP. The official Office of National Stats term for the GDP of a domestic location (i.e. your town) is the Gross Value Added (GVA) stat. The GVA is the grand total of all revenues, from final sales and (net) subsidies, which are incomes into businesses. I personally believe there is no need to change the article – but if you are asked – you have the answer to hand.

 

3.      Numbers on Homeownership and OAP’s from 2011 Census

 

4.      Average Value of Property from Zoopla

 

5.      Average floor Area University of Cambridge study 2014 reported in The telegraph by Miranda Prynne 18 June 2014.

 

6.      Future Population Stats – Office of National Statistics (ONS)

7.      Household Building Stats - ONS

Falmouth Semi-Detached House Prices rise by 462% in 20 years

 

 

 
The semi-detached house with its bay windows and net curtains has long been ridiculed as an emblem of safe, lacklustre and desperately uncool suburban life. These are the homes that we would associate with sitcoms like George & Mildred, Terry and June, Hyacinth Bucket from Keeping up Appearances and the curmudgeon that is Victor Meldrew from One Foot in the Grave. While we were laughing watching them, their equivalents locally are having the last laugh, having witnessed the highest price growth of any property type in Falmouth. In the last 20 years, their value has increased by a staggering 462%! I Just don’t believe it ! (sorry Victor, I couldn’t resist it)

 

 

The semi can now laugh in the face of its posher detached counterpart, which saw a rise of only 290% in the same 20-year period. Looking at smaller properties, flats/apartments only rose 178%, whilst terraced houses did much better at 392% (although they were starting from a lower base and demand from buy to let landlords has had a big part in driving the values on that type of house).

 

In 1996 the average value of a Falmouth semi stood at £54,400,

today it stands at £305,800!

 

Semi-detached houses were built in their hundreds of thousands by the Victorians and Edwardians between the wars and through to the present day. Interestingly in the late 19^th Century and early 20^th Century – they often weren’t referred to as semi-detached – but as villas!

 

 

Over one in four houses in Falmouth is a semi-detached house

(I just don't believe it!)

 

Falmouth is full of them! Indeed every other house in Dracaeana Avenue and the roads off are semis, the same is true of Boslowick, Swans Reach and Longfield. In fact there are 2,767 semi-detached properties in Falmouth and they represent 28.05% of all the households!

The most overlooked aspect of popularity for the older semis is the garden. The front garden, designed to separate the house from the world, and the back garden designed for private relaxation. Both give privacy and afford an opportunity to improve, extend, build over and glaze with a conservatory for all year round living.  

 

Their versatility lends to family and in many areas student letting too. It is little wonder that as I write this, two landlords I know, have put firm offers in on semis in Falmouth. Very wise fellows they are too! I would say this because I'm off home to Trescobeas  to live the semi lifestyle myself.

Notes

Percentage increases based on Land Registry figures for Falmouth now vs 1996

Average Values of Semi are also based on Land Registry data for Falmouth

 

 

12.5% of Falmouth People Live in a Shared Household

I had an interesting chat the other day with a Falmouth landlord. She said she had been talking with an architect friend who said back in the mid 2000's he was being consulted on the building of mostly one and two bed properties. This compared to today, where the majority of the buildings he is designing are three and four bedroom properties as well as extensions to accommodate more bedrooms. Now, this was all anecdotal of course, but it made me think if similar things were actually happening in our local property market?

 

We have long observed that there is an inequity between supply and demand. Knowing or predicting the dynamic of both will help inform what property type is the best buy for landlords. That is of course if they offer a decent return!!

 

In 2001, there were 214,800 households with a population of 499,100 in Cornwall. By 2011, that had grown to 230,400 households and a population of 532,300.

 

.. meaning, between 2001 and 2011, whilst the number of households in the Cornwall grew by 7.25%, the population grew by 6.64%

Nothing surprising there then! My analysis of the 2011 Census results, using the most recent in-depth data on household formation (eg households), has indicated a sudden and unexpected break with the trends of the whole of the 20^th Century. Indeed there has been a seismic change in household formation in Falmouth between 2001 and 2011.

 

Between 2001 and 2011, the population of Falmouth grew, as did the number of Falmouth properties. The average household size in the two decades remained almost exactly the same. This is interesting in itself, since the first time for at least 100 years it had not fallen between censuses. Since 1911, household size has decreased by around 20% every decade.

Looking at figures specifically for Falmouth itself,

One person households  - 33.1%


Couples/family households - 54.4%


Couple + other adults/multi-adult households - 12.5%

This decline was reflected in large scale shifts in the mix of household types. In particular, there were far more couples + other adults households and multi -adult households. 12.5 % is a lot of households! It means approx. 1 in 8 households are multiple occupancy households (where adults are mostly unrelated) This shift is due to a number of things happening locally.

 

Increased international inward migration, which has changed the traditional household structure. There is a culture of migrants from EU countries like Poland, Latvia and so on where adults happily share houses in order to save money.


Increases in adult children and their partners living at home. Little surprise here as the young generation of local people are finding it virtually impossible to get on the housing ladder in the same numbers as their parents did in the 80's and 90's.


Growth in the student population. Enough said.

We suspect that the trend will continue since there appears to be no slow down in international in-migration. There is no abatement in house price increases; consequently unless we all win on the lottery our kids will still find it difficult to get on the property ladder. Instead they will stay at home or live communally with friends in ever greater numbers. Finally student numbers are only going one way!

So, what does all this mean for Falmouth Homeowners and Landlords? Quite a lot in fact. There has been more than a subtle shift to slightly larger households in the last decade, meaning smart landlords might be tempted to buy slightly larger properties to rent out. This is good news for homeowners who will get top dollar for their home as they sell on in a limited supply market. It will only be good news for landlords if they can buy something that will give them the return. The purchasing power of students and of young people living together is strong.


Notes
All the statistics are from Office of National Stats specifically relating to Cornwall. Also reference from Town & Country Planning Tomorrow Series Paper 16 new estimates of housing demand and need in England, 2011 to 2031 by A. Holmans