This morning I watched with interest on BBC Breakfast as the presenters discussed, alongside experts and contributors, today’s property news: Home ownership is falling in major English cities. This headline comes from a report by the Resolution Foundation, stating that across the country home ownership has fallen, giving the example of Manchester where home ownership has dropped from 72% in 2003 to 58% in 2016.
The question is, are we surprised? Er, no.
The report states:
Explaining the falling rates of home ownership, Matthew Whittaker, chief economist from the Resolution Foundation, told the BBC’s Today programme: “What we particularly have seen since 2002-03 is that incomes simply haven’t kept pace with house prices, so it’s not just that house prices have gone up.
“We had access to lots of relatively easy credit and the position we’re in now is that credit has been turned off.
“We have this sense now that house prices have become detached from people’s earnings … and we no longer have the route through 100% mortgages and the like for getting on to the housing ladder.”
The average first time buyer paid just under £30,000 for their new home in the 1980s compared with more than £150,000 now, the think tank said.
I first bought a Manchester 2 bed apartment for £54k in 1996, with the princely sum of £1 deposit on a 105% mortgage. Bellway Homes not only paid my deposit but also kindly gave me a lump sum to buy furniture, with the proviso I didn’t sell for a few years or I’d pay a penalty. I had zero money at the time and even though few other people I knew were buying, it seemed like a sensible thing to do so I chanced it. Most of the development, all flats and small starter homes, were bought by homeowners not investors.
Jump forward 20yrs and those flats are now almost £150k, three times the price, with no 105% mortgages yet wages haven’t risen accordingly. When my initial 2yr discounted deal came to an end, we’d to sell and move as we couldn’t afford the monthly mortgage hike, but luckily the small £15k rise in value allowed us to buy a dilapidated doer-upper terrace and that was the start of my property career.
And therein lies the problem really. My gain, and the gain of many people who invested in property back in the 90’s / early 00’s meant property became a career for many, many more people than it traditionally had been.
Sometime around 2001 I bought a teeny terrace for £67k, sticking a new kitchen in and selling it for £120k. I was gobsmacked, but deals like that allowed me to buy the self-managed rental properties which are now my full time job and pension. That same terrace with 1.5 bedrooms in a trendy Manchester suburb is now £240k. Absolutely craziness.
So why are prices so high?
- Unlimited finance fuelled by greed – back in the noughties, everyone wanted to be a property dealer and everyone had their fingers in the property pie. Prices were often inflated artificially to make sure everyone got their cut, especially in city centre apartment developments, and those prices had knock-on effects in the suburbs. This was all made possible by the ease of getting B2L mortgages, which obviously isn’t still the case. Hands up, I benefitted financially from this, but said fairly early on that I was looking to build a long term, secure business with great properties and happy tenants, rather than just make a fast buck.
- The Ripple Effect – the ease of getting B2L loans made it a doddle to buy those doer-uppers in the suburbs which homeowners avoided. Putting them back on the market as the best houses on the street at a time of affordable finance made prices rise quickly. Couple that with other similar suburban properties which were not sold but instead rented out to groups of tenants at rents which easily covered higher mortgages… values leapt up.
- Buy To Let was seen as quite the thing to do, with TV shows, roadshows and books telling us all to get into it and thousands of us jumped in with those easy to get B2L loans, forcing prices up and homeowners out.
- Houses were seen as a viable way to make money rather than as homes. Now that’s ok if only a relative handful of people are doing it, but when way too many people are doing it because the loans were so easy to get, house prices spiral up. I remember buying a normal 3 bed end of terrace house for £90k in 2002 or so, then selling it a couple of years later. The prices rocketed initially due to the ease of lending and later due to supply & demand. It’s now worth £350k, yet salaries have barely risen since. A great family home, but now unaffordable to most families. I helped in that process, which isn’t a great feeling, I have to say.
- A largely unregulated rental sector – it’s quite easy to ‘be’ a landlord and there are relatively few rules and regulations, so bad ones can often get away with being bad, especially when demand is so high in cities. There was precious little regulation of landlords during the boom years and now councils tell us they can’t properly afford to do so.
- Super low interest rates & low growth tempted investors out of traditional investments and into property. This is still the case. Who wants to have their money in a bank at 0.5% growth?!
- Cool pads – there’s lots of awful rental property out there but equally there’s some pretty cool stuff too, mine included. When you’re in your twenties and can rent a snazzy Northern Quarter apartment with smart kitchen and balcony for £600pcm, why wouldn’t you? If you’re still renting it in your forties, check back on your life choices.
- Exploding city populations from migration. More and more people on less and less money heading into the UK and into cities for work. They can’t buy so they rent, which drives up the demand and therefore prices. Higher demand means more landlords buying in city centres, which has a ripple effect as the population grows. Think about it. A terraced house in a Manchester suburb is much more affordable to a landlord who has four or maybe even more people who’ll live in it, rather than to a couple with 2 kids with one income and a mortgage. Massive problem. Have we got a housing crisis, or have we got a people crisis? It’s an interesting question.
- Little social housing investment by councils. Don’t get me started on this one. It was all very well selling off council houses to let people get on the housing ladder, but those social houses were never replaced. Most councils have pretty much washed their hands of housing, passing the responsibility onto housing associations who now act as social landlords. Councils are now pressing their HAs to build build build properties for sale and not for rent. But there’s no land left in cities. Go figure.
- Foreign money – it’s not just London. Massive amounts of foreign cash are now fuelling rental properties, from students to ‘luxury’ pads across the country. Personally I think this will be Not A Good Thing. Remote landlords don’t give a toss about their tenants and use remote agencies to deal with problems, which then don’t get sorted. Foreign investors are only interested in their bottom line, full stop. They have heaps of cash to build, and heaps of cash to buy, driving up prices even more. This doesn’t bode well for tenants, in my opinion. Let’s wait and see on this one.
- An increasing number of young people renting on their own = a booming private rented sector. I mostly rent to single young professionals and it’s been interesting to see which ones ‘succeed’ and which ones ‘fail’. The cost of living has rocketed in the 15yrs I’ve been a landlord and it’s caught a few tenants out, sending some heading back home after a few months when they realise just how costly life is when you live on your own. Others have headed back home with the specific intention of saving for a property deposit. Others have told me they’re moving in to house shares to reduce costs and save. And some don’t care. In fact I’d go so far as to say quite a few don’t care. They love renting, the freedom it gives them, the lack of responsibility for maintenance etc, and their money is spent on holidays, shoes, bags and going out.. Living for Friday night is fun right? I do wonder about this gang though, about when they get to 40 and look around and realise it might just be too late to start planning for the future.
I was always pretty sensible, maybe because I had no parental home to fall back on or financial safety net to catch me in the future so I felt like I’d to make sure I knitted my own security blanket, which meant sacrificing things like holidays and fancy cars. That said, it obviously used to be much more affordable to be sensible and much easier to get on the housing ladder. I mentioned shoes and living for today on Radio 4 earlier and that wasn’t meant to sound flippant but I do see a real lack of growing up around me, people who want to party like they’re in their early twenties forever, pretending to be fabulous and putting off adulthood. It arrives faster than you think, be warned.
Should we be bovvered? Should we be more like European cities where people rent all their lives? All very well and good in fabulous European cities where years of slow development ensure superb infrastructure, schools, medical facilities and food markets but not so great in Manchester where thousands of flats were simply thrown up in the Noughties and little thought was given to that point when young renters morph into families and there’s been buggar all green space, facilities and infrastructure created for them. Those renters then look out to the ‘burbs and anything half decent to buy is well over £250k – eek!
There are, of course, also many people who are living well within their means and still can’t and will never be able to afford to buy.
In Manchester, Polly, 33, who volunteers for the Greater Manchester Housing Action Network, said: “I am a graduate, I have lived in Manchester for 10 years now and I am not someone who is silly with money, but there is no way that this market is friendly for someone like me who works for a charity.
“It is not possible for me to buy. Buying a property would help me to plan and settle down.”
Surely also it has to be remembered that owning property isn’t a right. If you choose a career working for a charity or volunteering, then should the market be expected to be more ‘friendly’ to you than to someone equally as nice but opting to work hard in a higher paid sector?
Owning a property isn’t something which can ever just automatically be available to everyone, however for those who work hard, save and want to own, it should surely be an option, as it was for me.
I go back to a phrase I used earlier: have we currently got a housing crisis or a people crisis? I reckon that’s a whole other blog post…..