£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.