Shifting sands under bricks and mortar
Have you tried to buy a house recently? If you have, you may have noticed that despite the invention of the internet, AI and robots, today’s purchase process is not that different (and certainly no quicker) than during the reign of Queen Victoria. The paperwork remains... er… paper, and legal searches still cost a bomb despite the fact there’s no-one sitting in a dusty vault reviewing deeds anymore!
We all moan about this, but, hey, property is the best investment we can make, right? It always goes up. Generations of Britons have made their fortunes – or at least owe a comfortable existence – to a property market that has defied gravity. According to the Nationwide House Price Index, UK housing has produced a compound annual return of 7.5% since 1952. And that doesn’t include rental income that could be made from second – or third – houses.
Since the global financial crisis and a subsequent slide, property prices have continued their upward march, helping Housebuilders Bellway and Persimmon report excellent numbers and margin enhancements.
I have been a bit stumped by this. For personal reasons you can probably guess at, I’ve been monitoring the housing market in Berkshire and Wiltshire over the past few months. I signed up to Rightmove alerts, which has been sending me daily messages showing new-builds’ asking prices slipping further and further down. Admittedly, the original prices seemed a bit stretched to me, but nevertheless this, coupled with the recent deceleration in property values announced by various market-watchers, gives me pause for thought. Remember: many of the organisations reporting these price trends probably want prices to trend upwards.
I am not in the game of trying to forecast house prices, but I’m trying to figure out if we are about to see a structural shift in all property markets in the UK. Why?
- What happens to residential demand when Help to Buy ends? And remember: it only applies to new builds.
- What happens to surplus retail property in a post-Amazon world – could it be converted to residential?
- Is Generation Z keen to buy, or will they stay at home till they’re 30+ or are they simply happier to rent?
We take for granted that there will be disruption in all areas where we invest due to technological advancements, cultural changes, shifting demographics and greater competition. Yet in residential housing, the Englishman’s-home-is-his-castle concept continues to endure. Why? Simply because prices have almost always gone up in our living memory (the term ‘negative equity’ seems to have had a long time in the wilderness now), largely because, as a nation, we have confidence that they always will.
Of course, this may continue. However, it is worth taking a step back and considering whether our children and grandchildren, saddled as they are with student debt, with lower wages than baby boomers enjoyed, have the same blind faith in ever-rising prices? Given that prices are staggering multiples of the average wage and regulators have forced banks to ask for hefty deposits that boomers would have balked at, can they even afford to buy?
Whatever – as the kids say – it’s time to be cautious on property I believe. Particularly if Generation Z decide to settle into their bedroom at mum and dad’s house for years and years to come.