Supplement 17 Nov 24 - Growth, Growth, Oops

“All growth depends upon activity. There is no development physically or intellectually without effort, and effort means work” - Calvin Coolidge, 30th US president.

Before we get started, get those tickets bought for the next Property Business Workshop - Thursday 16th January 2025 is the one! This time round Rod Turner and I will be covering productivity, planning and financial accounting and bookkeeping. Why? Because we constantly see property businesses struggling with appropriate financial reporting, accounting and bookkeeping and making the same mistakes time and again. Help get a complete handle on the financial performance of your company/group when you aren’t at a level yet where you can afford a CFO or financial controller. Set up CORRECTLY - once - and then just iterate from there. As always it will be an action-packed, content-filled day which will stand alone in helping to advance your understanding as a Property Business Owner!

The link is LIVE and a few Super Early Bird tickets, with a 25%+ discount, are still left: bit.ly/pbwfive ??

The first week for a few without a near-seismic event, but how are things settling down? We know - for example - quite a lot more about rates at this point than we did in the immediate aftermath of the budget - or the (re-)election of Mr Trump. More on that lot later! It was also that week in the quarter where I got to attend the Bank of England briefing for the Midlands, and that always leaves me with some valuable insights and also makes me think just that little bit more. I’ll have to dive into the Chancellor’s Mansion House speech as well - that can’t be resisted.?

Into our usual cycle then: Chris Watkin asked himself “that question” one more time - What is currently happening in the UK Property Market? This report was from the week containing the base rate cut (where many poor unsuspecting lambs would have then expected mortgage rates to drop, although if they are watching the headlines then they will know that this is not going to happen, in the short term anyway - and in fact the big banks have been spending the week putting rates up).?

Chris - property stats guru - made my week this week when he added me to a secret distribution list for his property market analysis in real time. What a gent he is, and a great service he provides to the property industry.

He reports on the UK portal data which is aggregated for him by TwentyEA on a weekly basis. I love real-time (or as near-real-time as possible) snapshots and pictures of the market that we can piece together. Nothing better for staying informed - we have to analyse what HAS happened, but only really so that we can meaningfully try to predict what WILL happen.?

Listings took a bump up to 29.5k last week. Rare for this time of year. What’s behind it - budget smelling like “unfinished business” and a few savvy landlords expecting another CGT rise next year, having felt like they’ve dodged a bullet? They could be right - but you (or your company) can get rent forever, whereas you pay CGT only once (per property, anyway).?

The market still looks healthy enough. This week saw the sub-4% mortgage deals evaporate for the owner-occupiers - but the stress test level is the one to watch. As long as we can stay near 6%, and ideally 5.5%, there isn’t much to worry about as people really have started getting used to the “normalised” rate of interest now.?

SSTC stayed at 24k this week, remaining far higher than 2023 (17% higher for the same week) and we are even further ahead of the pre-covid averages than we have been (8.2% above 17-19 year-to-date).?

The fall-throughs ticked up a bit more - 28.7%, up from the 1 in 4 that we’ve been seeing that also represents the long-term average. The budget didn’t have a catastrophic effect - but Chris estimates that it explains about 600 fall-throughs. Remember the fall through rate was 40% for 2 months after the Truss/Kwarteng mess of 2022.?

Net sales are ahead of 2022’s number for the rest of the year - no doubt. The only year with more net sales (gross sales minus fall throughs) was 2021. Remember how bad those last 2 months of 2022 were! A healthy print on the year - and 5.7% above the pre-pandemic average of 2017-19 now.

Remember about these newly re-introduced stamp duty “bumps” (rather than cliff edges) at 125k-250k, and 300k to 425k; as I said last week, they will nudge behaviour the other way around in the first-time and secondary markets of course in Q1 of 2025 (and possibly before Xmas, for the very well organised). EVERYONE paying over 125k is paying the extra (FTBs aside) in the 125k-250k band, and FTBs will likely be the most motivated because the marginal band between 300k and 425k is 5%, and so 7.5k of extra cash to find (or borrow from bank of Mum and Dad) will force some transactions through before April 1st 2025.?

You would expect (from the point at which we are starting) the impact to be more volume before 1st April, and then less volume after (as the market adjusts to the transition), with future volume dependent on the pace of rate changes. Use this wisely - don’t compete if there’s a scrum in Q1, stick to your guns, with a BIG effort in Q2 at the beginning to get the reductions that will pay the stamp difference 3 times over.

Remember what this also means for anyone disposing of any stock. List your sales wisely. List now or soon. Certainly prepare to list on Boxing Day (and get carried away with the usual hype) OR make an impact on the first weekend of the new year after the kids are back to school - depending on what you are selling. Line up decent lawyers on your side as well! It does look like there will still be plenty of stock on the market. As we near the November auctions, I’m still seeing tumbleweed for the vendors - there’s still the same money out there for the right lots and bargains, of course, but many buyers are going to be looking to load the entire “new” extra 2% onto the vendor, to make already tight margins hold up. We snagged a lot this week at 80k when we happily would have paid 95k, end value 160k without much work to be done. This - simply - NEVER happens this “easily” (it’s an “overnight success” of many years of hard work - to be clear), and this has been the pattern of the past 3 months.?

December looks again likely to be very quiet in the investment market, and one week further on from the budget, it is exactly what we are hearing and seeing in terms of numbers of people at auction viewings, etc, and numbers of calls we are getting from agents desperate to move stock on.

One more takeaway from the real-time desk though. October SSTC figures showed ￡346/ft - 1.5% up on July, in spite of the bearishness overall - things are moving north. My 5% for the year looks a pretty reasonable stab, although the ONS/land reg might print closer to 4% instead. I’m going to be really close. October numbers will hit the ONS about March-time or so.?

Stop - Macro time. This is one of those weeks that selects itself. Unemployment and the labour market report - can’t go unmentioned. GDP growth - of course. The RICS house price balance and the monthly report - perhaps no surprises for regulars here, but still worth a look as always. We close with the gilts and swaps as you will know - where we will be closing for some time to come.

The labour market report. Some headlines around this, this week. The employment figures as a whole have been being cast into doubt for at least a year now, and I’ve mentioned it a few times. It’s one reason not to get too carried away with a reading like this week - however, as always, the reporting on the why is lacklustre and lacking detail/the correct answer. For those who don’t follow the macro stats closely, we swung from 4% to 4.3% unemployment in what’s a really violent swing for a non-recessionary environment (and no, don’t start, I know they aren’t doing a great job but we really aren’t in recessionary territory here).?

This is nothing to do with the ACTUAL budget - because that was at the end of October - but could be arguably something to do with the budget run-up, of course. The PMIs have been more bearish especially since Starmer’s doom and gloom prep speech in early September, but not to the tune of this sort of haircut.?

It isn’t just poor reporting and collation of data though, or the lack of participation in important employment surveys that firms used to participate in a lot more before Covid, and have really fallen out of love with/don’t return on a timely basis any more. There’s another reason - as always - that isn’t really being spoken about.

Always remember as well - this is looking backwards (only a bit, but September feels a long time ago - in terms of this particular metric) and not forwards. Still, let’s get into the meat of the ONS report.

Here’s the rub - when we remove ourselves from the headlines, and ask ourselves what percentage of the potential workforce, as defined, is EMPLOYED - we get to 74.8%. The same as a year ago, and improved in the previous quarter (you remember we had a fairly rough second half of 2023, according to the macro stats).?

Then, we look at the unemployed - which is where the headlines start. That rate has moved upwards - month on month, quarter on quarter, and year on year. But clearly not at the expense of employment, as a percentage of the workforce.?

That leaves us with inactivity. The much-lamented problem, that is standing out in the UK post-covid. The question gets asked - why so many more still inactive compared to European neighbours, for example? The answer is a mixture of the health of the population - both physically and mentally (things like relative obesity are an issue, but not a sole explanation), and the ease at which the population has been able to opt out of work due to under-tested benefits.?

The benefits system has been, once again, becoming the problem it was before 2010. This isn’t a political point at the change of government, though, because the recent issues have absolutely been bred and created by the Blue Boys and Girls. There was talk of sorting this out, post-hoc, late to the party, once figures were known to Mr Sunak - but then the exit door beckoned, of course. The new administration will have to - at the very least - get their head around the figures and the ballooning nature of the problem, fast.?

Water runs downhill and my belief is that people behave as they are incentivized. If it’s viable, there’s a decent slice of the population who would rather not work. They don’t see the upsides in having purpose, structure, being part of a team and a network. They don’t bear sole responsibility for that either - some places just are not very nice to work for, or in. Then you start on what career aspirations that social media drives in the teenage generation who are monopolised by the dopamine factories of TikTok (and the rest).....and you’ve got a problem - a problem that is likely only solved by “benefits austerity”.?

Sounds quite political, for me. I AM subject to ideology like anyone else - my belief, as I said above here, is that people behave as they are incentivized. That doesn’t feel in any way a leap of faith to me - it seems like a fact - but that’s how belief works. Some would likely believe that society is to blame. The truth lies somewhere between those spectra, I have no doubt, but I’m simply speaking from what I’ve observed over the years.

There’s also been a genuine long-term sickness problem, of course, but as I say - we’ve moved a long way out of line with the rest of the developed world. Nevertheless, that long-term sickness problem is being addressed (we created another one here with NHS funding, although money alone won’t solve the problems as we all know - but it will have an impact). The current outcome looks like people can come off the sick/awaiting appropriate medical treatment list and straight onto the unemployment list (because lists have peaked around a year ago for elective treatment, but really haven’t come down a long way - 200k off a peak of 7.77 million, and lots left to do there).?

And where have we got to? 0.3% of the population of working age, instead of being inactive, are now actively seeking work but don’t have it yet. It’s not quite as stark as that - but the numbers are that the same percentage are employed, and so the unemployment actually looks like a side-effect of getting people back off the inactivity list.?

We’d expect some more of this, of course. Vacancies are dropping - although we still have 831,000. They remain above pre-pandemic levels, but it is getting close. They dropped 4% last quarter which is quite a rate year-on-year.?

None of this is budget-result-driven of course, although some of it is inevitably budget-speculation-driven. The natural reaction has been - for firms, and individuals - to “wait and see”. The best opportunities I have ever seen are there when everyone else is “waiting and seeing” and that’s exactly why we’ve been so very busy in acquisitions over the past couple of months, and continue to be so.?

If the significant drives in the NHS - plus improved morale of staff, which is key (but needs to happen, rather than be a theoretical) - are successful, then expect unemployment to go up a fair bit more. This is a nuanced reason that the Labour party will need to communicate, because it will be fuel for the fire for the Conservatives - they won’t want to explain why, just point at the numbers, which is easy to do.

Now we know from the PMI analysis that a lot of this HAS been budget driven. Companies have been citing it left, right and centre and barely a week has gone by since September where I haven’t been quoting it, like a broken record. But that’s been EVERYWHERE. The November PMI reports will be the most interesting for a while, even though I think we know what they will say. Hiring freezes and concerns over inflation, due to further increasing staff costs and an inevitability of price rises being pushed through supply chains.

The positives from the labour market report though? Inflation that was well under control in Q2 (and had dropped thanks to energy price normalisation, remember) meant that regular pay once adjusted for CPIH (including housing costs) was up 1.9% in real terms, annualised. Healthy enough for the workforce - how will it hold up over the next couple of years?

We probably need one more topic before moving onto the next one - and it is the absolute key, the holy grail of economic growth - productivity. There has been this mystery since the financial crisis as to why UK productivity has stuttered so much, although I think the answers are there - a lack of capital investment (AI, plus more expensive people, might well encourage some, perversely); a big increase in the denominator in recent years (the cost of everything, including people) - there are several other theories too.

An ONS report on productivity was released this week as well. The estimate is that output per hour worked decreased by 1.8% in the past year. Other sources that the ONS are considering - because their labour force survey data isn’t that reliable at all since the pandemic - suggests actually output is up 0.5% on the year - which is passable but not great. The problem is, the official figure is down and that is what will be broadcasted around and will weigh on investment decisions and the likes (when institutions consider “UK or not UK”).

The average earnings increase year-on-year nibbled down to 4.8% which is not low by any standards.?

Enough - to the GDP growth figures. Shall we sensationalise it and just blame the Labour party? Growth HALF what was predicted? Well, none of that is quite true, but let’s just try and stick to the facts. The initial thoughts around Q3 were about 0.3% growth. That’s where I was - at one point I was bullish enough to be up at 0.4% growth, before revising my forecasts downwards once I saw and heard what was coming out of the senior ministers’ mouths.

This was on the back of a decent run in the economy, and also the “inflation dividend” - always remember, GDP growth is adjusted for inflation. When inflation dips significantly, that’s a big following wind for growth (and likewise, I said a number of times, the economy did incredibly well in late 2022 and 2023 to even keep pace with inflation - it was a miracle, really).?

The 0.1% for the quarter was a disappointment because we had 0.2% in August alone. That meant September went backwards - which it did, by 0.1%. Elections are allowed (and always create) a bit of a blip. There’s no two ways about it. As I said before, give people a reason to procrastinate and they will. It’s just the way it goes. It’s a limp and weak performance, driven of course by the services industry, who also grew 0.1% on the quarter.?

Let’s go a bit deeper though and get under the skin of it. 1% ahead of a year ago, apparently. That feels about right, because we were down 0.3% in Q4 2023 and up about 1.4% since then, when you look back at the current figures (I say current because they have a tendency to get revised).?

When you get to the breakdown - yes, services dominate - but don’t miss construction expanding by 0.8% on the quarter versus production falling 0.2%. Construction only makes up a small percentage but of course is of greater interest to us.?

The bit that makes a difference to the people - Real GDP per head/per capita - is flat compared to a year ago and 0.1% down on the quarter. Conclusion - we went backwards per head, and only grew thanks to migration/having more people. GDP per cap fell by a pretty massive 0.6% in Q4 of 2023, though, so that will drop out of the figures this quarter and it really doesn’t feel THAT bad, does it? This isn’t what gets you re-elected though, never forget the much-vaunted “Feelgood Factor”. Early days yet, of course.

On the services side - nothing did particularly badly, but business-to-business stagnated. That does feel like budget concerns, and that’s what all the big businesses were saying in all the reports and surveys on the ground. Consumer-facing - a smaller component - increased by 0.5% as the cost of living crisis eased yet further.

The press don’t tend to comb through these reports for headlines - if they did, they might point out the 0.9% decline in water supply, sewerage, waste management and remediation activities - having been told all this was going to get sorted out, it isn’t the best start.?

Construction, though - new work up 2% in the quarter, with repairs and maintenance down 0.6%. Infrastructure new work was up 2.8%, which is great news - private housing repair and maintenance went down by 5.8%. I know there’s still a huge groundswell of opinion that landlords are “moaning” and it’s all “fuss about nothing” in the PRS - I can categorically tell you that all indicators are showing this to be incorrect, and there’s a massive shock coming when the figures are finally “out” (pencil in 13 months time, or so, ridiculously).?

When repair and maintenance moves downwards like that, it is very often a sign that people have made decisions to sell and are keeping it very tight before sale. I’ve seen it time and time again. There are seasonal factors, of course - build while the sun is shining (although, did it in Q3?), and then do the indoor work over the winter. Let’s keep a close eye on this number though. The seasonal factor doesn’t say a lot when you are comparing it to the previous quarter which is the other half of the “decent” part of UK weather!

One more observation from the report too. Services exports, which have been doing well, fell by 1% in the previous quarter. Some of this might have simply been the stronger pound, which peaked at the end of September, but again looks strong particularly compared to the Euro, who are not having the same issues with their bond yields and are now growing at a much faster pace than the UK. Growing trading partners are a good thing, although they will make our Government look bad of course if the trend continues.

Even Germany put in a positive Q3 which - they will hope - puts an end to the absolute treacle they have been in for the past couple of years. Italy stalled, but France roared and the US just charged forward (and the attitude around the US, for those who are hanging around for Trump v2, is VERY positive - over optimistic in my opinion, but, let’s see rather than pre-judge).

Enough stats - you must have stats lag by now, I hear you say! Never. Onto the RICS house price balance, and the temperature in the housing market according to the professionals. The Residential Market Survey.

The strapline? Sales market activity continues to rise steadily. Recent trends positive. New buyer enquiries - positive. Headline house price growth gradually gaining momentum. Sounds good to me……..and also expectations of a brighter picture for activity being sustained over the near-term.

Now - I don’t think too many of the RICS worry too much about the bond yields and swaps. We will get on to those in a moment. The last few weeks haven’t been good, though, and expect mortgaged buyers to have lost about half a percent. We also know the market isn’t as sensitive to this as we would all think, and although it doesn’t help, it isn’t going to derail the train anytime soon.

The balance figures - remember - are the positives minus the negatives in the report. So, the near-term sales expectations at +34 means if there were 100 people in the sample, 67 are positive and 33 are negative about near-term sales expectations, and so 67-33 = 34 and that’s the print.

+36% see the sales volumes rising over the next 12 months, as well. New instructions were still positive at +14%. Sales agreed are rising less quickly, but still positive at +9%. This is the third positive print in a row for this statistic that had been below 0 for 2 years, nearly.?

The house price statistic - the big one - printed +16% which is the highest print for 2 years, since September 2022………ahem. The near-term expectations for prices went to +20% over the next 3 months. The rental market figures represent continued carnage:

+19% on tenant demand

-29% on landlord instructions (the most negative reading since the end of 2021)

+33% expect rental prices to drive yet higher over the coming three months. The rest aren’t paying attention (or must be in a funny old part of the UK).

And just look at what a great job Labour are doing in Wales when you see the rent expectations regional chart that I’ve shared as this week’s image.?

OK - gilts and swaps - let’s go. The 5-year UK gilt opened the week at a yield of 4.347% and closed at 4.33%. Flat? Well, it closed Thursday at 4.365% having butted heads at 4.45% for the week, testing a level that does just look too high. Looks like my Xmas bonus prediction will be more at the high end of my new “realistic” trading range of 3.75% - 4.25%, although I have less conviction on that range right now than I had on my lower range at the start of this year. There aren’t a lot of forces pushing it down below 4.25% at the moment.?

The gap down to the swap rates, which has been an inexplicable 30 basis points for some weeks now, was preserved and even increased on the swaps. 4.009% was the last 5-year SONIA swap traded on Friday afternoon, and that’s (for the second week running) 32 basis points lower than the gilt close. Long may that last - it still compares very favourably with the numbers from a year ago that were 0.2% higher - and keeps the mortgage rate with no fee at 6%, and investment grade gross yields as I see them (a dangerous concept, especially if there are service charges or bills included of course - those yields must be higher) at 8.5%+.

The same lesson I’ve been preaching for the last couple of years bears out. Those with net yields (pre-finance) at or above 6% are OK. Those without - prepare to keep subbing your portfolios if you want to hold onto them, OR get active with your asset management to force yields, restructure, sell, etc, OR accept terrible returns on equity. You are fine to price in a 10% rent rise over the next couple of years as long as there is affordability in your area - but there will be capital growth, so your net yield won’t just improve by 10% - more likely to be between 3% and 5%.

Prepare for the deep dive. Insights from the Bank of England regional meeting, the longer-term impact on rates, and the Chancellor’s Mansion House speech.?

I’m going to start where I ended that meeting - with a question. We have got to the stage now where the rep always jokes that I’m going to ask a difficult question, avoids me for the first couple of questions, and then gets round to mine (and usually gives a pretty solid and robust answer). My question this month was a bit more of a comment, and hopefully will give some reasons to be cheerful.

I said last week that there’s a bit of an error going on in terms of what people are interpreting the recent fiscal policy changes as doing, in the budget. We need to remember C + I + G + (X-M) (sorry for those who didn’t do Economics at GCSE and beyond. It’s a nice easy formula for the national income:

C = Consumption - struggled since the pandemic

I = Investment - the Chancellor contends she has found a way to boost it, I have my own take

G = Government spending - you can’t deny this is growing……

X - M = Net exports. There’s issues here of course.

So. Remember economists are usually simple people. Consumption is the biggest part of our national income - and easy to understand, in many ways. People have money from work, benefits, and their own investments. They only do one of two things with it. They spend it, or they save it.

The savings ratio is a concept that basically measures how much of their disposable income a household saves, on average (always a dangerous concept, the average, of course). Dangerous but not useless. How do we feel about savings, at the macro level? Not great to be honest. If you save at 4% and pay a 20% tax on that savings income, then the Government gets a slice. If you spend it instead, the government gets a 16.666% slice most of the time (VAT) and then the money trickles down the supply chain, and that money gets spent again, and again, and again (the multiplier effect). It creates much more economic activity and contributes much more to GDP.

Before the pandemic we used to save about 5% of disposable income (I’m talking late in the day, 2019 - prior rates were higher). The US has an even lower savings rate as a more “aggressive consumption” society. We hit 10% early this year. Why?

Well here’s where I take issue with the Bank. The “book” dictates that people are seduced into saving because of the rate of return. Empirical evidence throws this into question - for example, in Japan with a zero or negative savings rate for decades before the recent covid-inspired inflation even getting to THEM and moving their interest rates up from 0, people still save. Savings, or non-consumption, is about putting money aside for future events, first and foremost. Of course the rate has an impact, but it is - in my book anyway - a lot lower than it is given credit for.

There’s the key, though. Saving for future events. What has there been to save for? Of course, the subject matter which I am obsessed with. Housing. The cost of the roof over the head has been rising, and some would say rocketing.

Your mortgage might well at some points have looked like it was going up by 50-60% per month in terms of payments - things have calmed down, largely, since then. Your interest only mortgages might have gone up - my record one was 800% on an old interest only one at base plus a tiny margin - the payment went from ￡100 a month to ￡900 a month. Good job the rent still left some margin, and I had many years of clover from that one base rate tracker that I had from pre-2008. The average percentage, as I calculated some months back, looked more like about 90%.?

These are huge, huge rises of course. Far above inflation. Unlike many other price rises, there’s also a heads up. As an average household (depending on age, here) has one mortgage, and it is the biggest payment they make each month, they keep a pretty tight eye on it.?

Now the rest of the logic. If you had a 2-year mortgage in 2022 you are at the end of that cheap money cycle. It has expired by now - there will be a few who had mortgage offers from September 2022 that held up, completed in perhaps December 2022 and are trailing off their mortgage rate in the next 6 weeks and that really is the end of it.?

The 5-year money, however - hopefully it is relatively easy to see that we are only about 40% of the way through that cycle because we are 2 years into it. Every offer pre-September 2022 was pretty darned cheap by today’s standards. That sword of Damocles hangs over many households until it does drop off. The Bank of England’s own data - whether correct or not - suggests that people cut their consumption (and thus increase savings) by about 30% of the implied increase in rates, and by about 60% of the actual monetary increase each month when they actually get to the new rate. Where does the rest come from? Income rises for households in the interim - which have been reasonably generous for years now - or forced income rises from second jobs and the likes.?

This is the cost of ZIRP (the Zero Interest Rate Policy) to the households. It is a slow, carbon-monoxide style grip on the household finances. It manifests itself in that higher savings rate, and, in my opinion (and it is only opinion, not science here) explains a good 70-80% of the change in the savings rate.

This is also all over within 3 more years, as I have said, and there won’t be much reason for households not to return to “normal” consumption levels. That - in itself - has stunted growth for the past 2 years, alongside all the other factors such as high inflation - and cyclically will come back and provide a boost to growth.

Then we have the Government spending more. The “you can’t tax your way to growth” argument does resonate with me - BUT, if you tax 40 billion extra and spend (as a Government) 80 billion extra then I’m afraid, folks, that 40 billion net difference is absolutely extra “growth” the way that things are measured. You might impact investment negatively - the rhetoric has all been about increasing it, and rhetoric and action in this Government are disconnected for sure; but all the construction figures this year have shown improved infrastructure investment for example - which again is boosting the national income.?

Imports are more of a problem, even though some fairly outrageous claims have been made in terms of the quantum of the effect of Mr Trump’s favourite word, Tariffs. 0.5% cost to our GDP, the Guardian quoted, from a credible economic source. I’m not sure about it being that high, or whether the UK will get a bit of a deal there as an “old mate”, so we need to wait and see. It doesn’t help us, but I’d be stunned if we took a 0.5% growth haircut on the back of it.?

X-M is always the smallest part of the formula anyway, in the vast majority of developed economies, so there’s actually a case over this parliament for better than expected growth, in my opinion. Please note this isn’t the same as me suggesting this Government is doing a good job - the Growth figures at the moment speak for themselves, hence the name of this week’s piece - but actually the runway, shocks aside, looks pretty good.

Then the shock we HAVE got coming, next April, takes a couple of years to play out according to the Bank of England. We see some rising unemployment - not necessarily a bad thing, as long as you don’t lose your job or your tenants don’t. Unproductive companies and workers do need to be cut out of the loop, go broke, and re-train, re-skill, and do something more productive. Units need to be repurposed, increasing GDP, and improving the quality of offering of commercial and residential stock. That’s the capitalist game, and the market - largely - works.

We might well be more efficient at 4.5% unemployment and see some productivity gains. You never know. As per the above labour market analysis, it is difficult to trust the figures at the moment, but Labour are currently keeping up their track record of increasing unemployment in every stretch they have done. Very few will discuss whether that could be a good thing.

So - that (much shorter than that, that’s all my thoughts) was my commentary on Thursday, and my question for the rep was really - what do you think about all of that? He suggested I could well be right, and that my thoughts were largely captured in one of the “upside” scenarios that the Bank considers. I’m not often accused of being overly bullish - and this wasn’t one of those times - but hopefully you can see I’m highlighting a scenario that I think is more than 50% likely to play out, whereas the Bank sees it as an alternative scenario rather than a base case one.

I hope I’m right for the sake of the country - we need some positivity and some good results, of course, and the rising tide to at least attempt to lift all boats. I carried out a poll on LinkedIn this week about how positive people were still feeling after the budget, and 77% of the 200+ contributors suggested that they were as hungry as ever to start and develop more successful businesses. The entrepreneurial spirit has not been quelled or crushed by the negative messaging that’s out there.

I’d also remind everyone that - if my other contention is right around inflation, and we live in a world closer to 3% than 2% without much action being taken, this is a fabulous thing for investment property. Prices go up more. Rents go up more. Nominal debt decays further and faster. If this lasts a decade (and it could be longer) that’s a fabulous result. There will be shocks along the way - there always are - but the base case looks as good as ever, regulatory frameworks aside.?

This week saw the most bearish news alongside my (increasingly contrarian) viewpoint on all this. I know there’s plenty of portfolio landlords that agree with me, and the larger operations and fewer of them is the future of this game. The NRLA caused a stir this week by releasing their survey data (and be careful on intentions versus actions - we need to measure both, but intentions don’t always lead to actions, ESPECIALLY in property!) - saying 41% of landlords plan to sell at least some rental properties, with just 6% saying they would buy.

Now if the 6% look like me and the 41% look like an average NRLA member - that balance might not be anywhere near as bad as it sounds. However - as I’ve said over the past few weeks - I will buy fewer than I would have done had the stamp not moved from 3% to 5%. That’s just how economics, and taxes, work. Some vendors won’t be able to accept that extra 2% off, and on some “good stuff”, I’ll pay an extra 1% or 2% - but certainly not across the board.

Still, with only 1 in 8 renters being able to afford to buy in the area they rent in, this Government is continuing in the same vein as the previous one in a trend that is now 9 years old - making things harder for renters, and whilst appearing to “care” - Renters’ Rights Bill - doesn’t care about the inevitable economic impact on the renters. The only solution is buying or maintaining stock in areas where there is likely to be decent capital growth and rent growth, and there is affordability. We will be fine - the consumers, not so well off, in my view.

So where do rates now go in the medium term? Down even more slowly than I’ve said in the past, in my view. I think we are looking at 2 cuts in the next 6 months, and then a stall. We might have a “surprise hold” at some point which once again spikes the bond yields, if and when they come down a bit from here. As at today, the base rate going below about 4.25% looks hard to justify over the next 6 or even 9-12 months.?

If we lose some more economic steam - unemployment moves up to 4.6-4.7% - and savings rates stay high - with growth down in the doldrums of basically break-even once again, there might be noises about cutting to try and keep the economy limping forwards. It’s not what we want, but if it happens, then rates will go down - just be careful what you wish for……

We then, as a more nuanced point that I’ve been making, may well lose more units to temporary accommodation - the noble cause of getting people out of terrible B and Bs nevertheless removes units from the PRS (almost a problem without a solution, who “deserves” it more - difficult to say, because the brutal reality is that “it depends why you are in temporary accommodation”), asylum has the same issue and that’s why the Government is struggling to do what it said it was going to do when it was in opposition with some of the bigger asylum centres. All of this sucks more and more units out of the “vanilla” PRS.?

The direction of travel is ugly for renters and very little is improving - and we aren’t at the bottom, in my view. I’ll grow my portfolio - that’s a guarantee - but I might not grow the PRS element of it. Leases to providers are more attractive from a service perspective, have an investment case, have more social purpose behind them - I care about all of these things. PRS in itself (please don’t confuse that with “investment property”, because it is a very important distinction to make) has little to recommend it at the moment.?

That leaves us with Mansion House, then. The Mansion House speech is a “state of the union” address about the state of the British Economy, delivered by the Chancellor (who was a bit embarrassed by Friday’s growth figures, of course - luckily Mansion House was on Thursday).?

Reeves tried to buy a few friends with promises to cut red tape in the city to encourage risk taking. Rhetoric that would have been enjoyed. There was the odd headline about a return to “casino banking” which is unlikely - but also, some pointing out that net zero target impositions are the opposite of “less red tape”. It does seem to be one more disconnect between the rhetoric and the policy which is just making this Government look inept, so far, and that really should be the biggest worry of all. It isn’t like we haven’t had inept administrations in recent times (one particular salad ingredient comes to mind, of course, but what about the guy with the hair?) - but we were promised better - and we aren’t getting it, right now. We are getting “better than some of the worst we’ve had in recent times - but only just”. Even for all of Sunak’s weakness and lack of spine - Sunak/Hunt were miles better than this.?

So - Reeves assured us that economic growth is at the heart of everything. She’s right - but you’ve more chance of achieving that by “drill, baby, drill” than by arbitrary and misguided net zero policies. That’s just an economic fact. Get on with the Small Modular Reactors, and stop messing about.?

Stability, she once again wheeled out. I could buy this, but “stably bad” is probably at least as bad as “erratically OK”. Investment - we’ve had a bit promised now, it has started. Nowhere near as much as we need, but there is a rock and a hard place - no growth, no investment, no investment, no growth. Chicken and egg. She’s borrowed what she feels she can borrow and even that has put 50-70bps on the debt (12.5bn+ per year in debt costs, as debt rolls over and breaks out, all else being equal).?

Then we have “reform” (small R). Her third wheel. Not a great choice of wording, in my view - but nonetheless. The reform so far is all favouring the people - very Labour. But is it growth-inducing? Not at this time. Margins are cut, people will lose jobs not gain them, expect hiring freezes and negativity around employment until 2026. Don’t get me wrong - there have been mistakes, but not mistakes so large as to send us into recession - although we may well be flirting with 0% growth for Q4 (on that subject, NIESR, whose real-time forecasting I do respect, still see 0.3% growth for Q4 2024 - I think “no chance” now because October will be a write-off or a step backwards, and I’ll reserve judgement until we see November’s PMIs but I don’t see much more than a 0 or a 0.1% (and a -0.1% wouldn’t be a huge surprise) for our 4th quarter).?

There was then an emphasis that the budget was a “once in a parliament” budget to wipe the slate clean. Many think she can’t really stick to this, but remember it was a biggie, the biggest in tax revenue rises for 30 years+. This will be adhered to, unless there’s yet one more crisis, I think - but that’s not the same as tax not going up for the rest of the parliament!

She emphasised again and again that this is all about growth. I have set out my case, which is very much housing-related as you’d expect, and be more about luck than judgement. Unfortunately some economic illiterates like Sadiq Khan go around suggesting that lower house prices might lead to economic growth (has he been on the phone to Kwarteng, or something?) - and by disadvantaging private renters, which is absolutely what every shred of policy is doing at the moment, they must be hoping that all the boost comes from the homeowners, is all I can think (a decent slug of whom are retired, of course……)

She referenced her time at the Bank of England, which sadly she’s chosen to fluff up a bit - alongside her career in financial services which turns out to be not what she talked it up to be. This is concerning, because this is the sort of puffery you’d expect from a property guru, not the Chancellor of the Exchequer. Do better Rachel, and tell the truth. Hopefully it is a lesson now learned - we all recall things differently, sometimes, but we need less sizzle and more sausage, please.

Reeves did nail the fact that we need the best financial services in order to export them. Referenced that we are weak on IPO (without saying it) and need to attract more, a field in which we are struggling in a really quite embarrassing way these days.

Five services were referenced for focus in the Government strategy: Fintech, sustainable finance, asset management and wholesale services, insurance, and capital markets. To be developed and released “in the Spring” - let’s wait and see how good it is.

She wants significant private investment from the City for net zero - of course, it will only work if there are returns for those putting the money in. Usually, guarantees will be wanted, and firms/funds will accept some quite meagre returns that we wouldn’t get out of bed for (because we are not capital allocators - as a rule - we are wealth creators).?

Then we had the “pension shakeup” rhetoric once again - Reeves wants fewer bigger pension funds with lower cost bases, which in itself makes a lot of sense. Let’s see how it actually plays out. She also wants pension funds to invest in startups, which makes no sense in the environment of 4%+ gilt yields. They don’t need to. She’s barking up the wrong tree, here, IMO. This is great rhetoric when interest rates are zero. So - how will this happen? Infrastructure? Energy assets? SURE, that makes sense, especially when returns are guaranteed and beat gilts. But startups? Not for me.

She then talks about Australian pension fund investment in private equity. Sure, again if returns are highly well protected. Buy a massive company with no debt, that can carry debt, and all is good. If not, you have an Asda-style situation. Anyway - there’s a pension scheme bill coming next year, and it will be interesting, and overall I think she’s on the right lines here, although claiming there’s ￡80bn of extra investment to unlock by doing this really sounds like a very best case scenario.

Then there’s the attempt to butter up Mr Trump, that the Labour party are internally absolutely hating of course. I do think the press have largely been unfair quoting what’s been said by the likes of Lammy, when Mr Trump’s VP called him “America’s Hitler” and many other members of his administration have been ever more ad hominem with their attacks (Rubio, for example), and still have a top job. I very much doubt Mr Trump remembers or cares - if he kept a black book of everyone who had slagged him off, it would be bigger than the Encyclopedia Britannica, and the thickness of his skin makes a Rhino look over-sensitive.

There were assurances over sensible spending of funds in the NHS - let’s see - and then details of digital investments and tech that do sound exciting, as long as they work, and are delivered on time and on budget (which never happens, of course). Overall I think the city received it well, but Reeves now really has to deliver and prove herself rather than spending time fluffing up what she did before she got to Number 11. We don’t need to care at this point - she’s there - and the finances of the country will live and die by her leadership. She strikes me as a pretty decent chess piece in a pretty limp board, at this time, and I hope she digs her heels in because she’s stronger than a lot of the rest of the team. My worry is that’s a bit like being taller than me (I come in at a mighty 5 ft 6 - and a half) - not a huge achievement.

Before I call it one more time, a reminder that tickets for the next Property Business Workshop are OUT - Thursday January 16th 2025 (Wowsers), with some great subject matter - planning, efficiencies, and also financial accounting and bookkeeping - not “how to use Xero” but how to ensure reporting is SET UP correctly and how to monitor it on an effective, ongoing, monthly basis. Come along and also get your strategic planning sorted out, and your January kick up the backside comes as part of the package as well!

SUPER Early Bird tickets are available with a 25%+ face value discount on them - once they are gone they are gone, there are half a dozen or so left. These events DO sell out. Rod and I hope to see you there. Buy one here: https://bit.ly/pbwfive

There’s only one way to deal with all of this ongoing noise and excitement - Keep Calm, ALWAYS read or listen to the Supplement, and Carry On!