Supplement 24 Nov 24 - Affordability Examined

“The problem: affordable housing has to be subsidised, if the ‘affordable’ bit of the phrase is going to work. The solution: replace every wall, ceiling and floor with a gigantic plasma screen and charge for advertising space. The affordable living room of tomorrow is a futuristic cube with a perpetually looping Go Compare commercial in place of carpets and wallpaper.” - Charlie Brooker, satirist.

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 handful of Super Early Bird tickets, with a 25%+ discount, are still left: bit.ly/pbwfive ??

Welcome to the Supplement, and we had a comparatively slower news week on the economic front compared to some of the recent significant events - and, as expected, had a first look at the November auctions that we as a group concentrate on. As predicted, it was a bit of a bloodbath - lots pulled, left, right and centre - and successful lots limping over the line. Vendors went in with expectations too high, and buyers are simply sitting on their hands, waiting and seeing, or expecting vendors to take the hit that is at least 2% to pay that extra SDLT, if not more.?

In the deep dive this week, I take a look at rent affordability - already a hot topic, but when you see the rent growth figures for October in the macro section, you will understand why I think it is going to continue to be a hot topic for 2025.?

Into our standard fare then: Chris Watkin asked himself “that question” one more time - What is currently happening in the UK Property Market? This report was from the first “calmer” week (without a budget, election or Bank of England meeting).

Chris, guru of Estate and Letting Agency stats, keeps pumping out the great content and is always pushing himself to find new ways of looking at the data. It’s lovely stuff to a data geek like me!

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 stayed around 29k last week. Similar to 2018, higher than all of the other years for the last 8. You could say the same about almost all of this year though, as the 1.6m listings so far are the highest over that period.?

The market looks OK. In a flash, it seems, the 3.6% mortgage deals we did have are now “clumping” around 4.3% for the owner-occupiers - not horrific, but not much progress downwards in the past 12 months, although many will have managed to snag 4% or less this year with some good timing.?

SSTC improved to 24.2k this week, remaining far higher than 2023 (19% higher for the same week) and we are even further ahead of the pre-covid averages than we have been (8.5% above 17-19 year-to-date).?

The fall-throughs came right back to 25%, seeming to suggest that the budget really had a minor impact - the fall through rate was 40% for 2 months after the Truss/Kwarteng mess of 2022, and the 7-year average is 24.2%.?

Net sales still looked good - ticked-up last week and the only year with more net sales (gross sales minus fall throughs) was 2021. A healthy print on the year - and 6% above the pre-pandemic average of 2017-19 now.

There’s more houses on the market now, though (725k or thereabouts) than at any single time over the past 8 years (or perhaps more, Chris himself would know the answer to that one!) It can’t possibly be that landlord sales are influencing the amount of stock out there, can it? What else could it be……..expect a drop come January, though, as people make decisions to give up if they can’t get the price they want.?

I’m going to say one more time though - remember about these newly re-introduced stamp duty “bumps” (rather than cliff edges) at 125k-250k, and 300k to 425k; as I have said over the past fortnight, 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. This will be prevalent in areas where first time buyer stock is over that 300k mark - which of course is not the case in a lot of the country, c. 60% would expect to be under or around that sort of mark.?

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. I spoke of the auctions in the introduction and I’m still seeing tumbleweed for the vendors right up until Xmas time. Stay keen, keep your eyes open, there’s bargains out there and a ton of lotted stock that isn’t even being viewed, let alone offered on. This window of opportunity won’t last long, but press your advantages if you are buying.?

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% prediction for the year looks like it might settle around 4%, or in the low-4s - I won’t be too unhappy with being less than 1% out if that does transpire. Not much of a bite into inflation for the year though, will it be, in the end?

Get the macrometers out, it’s time for the macro section. The nation saw the inflation, so we will dive into that. The ONS Private Rent and House Prices report is a must. We then had the flash PMIs on Friday and you know how I love them…….and then the gilts and swaps, of course.

Inflation. Some boring people (including me) have spent a lot of time talking about how it isn’t dead, it will tick back up, etc. etc. - I also went into some detail about why September’s print was anomalously low (currency and oil fluctuations at the perfect time). It’s an incredible stroke of luck for the new Government, in fact - because so much hinged on September’s inflation figure and that keeps the cost down (and keeps the people paying the real cost via frozen tax thresholds, and the other choking effects of inflation).?

However, 2.3% in October, with a 10% rise in the household energy cap to contend with (January’s figure looks like 1%, by the way, which is welcomed and lower than previous predictions), would not have been considered a bad result by any means if it wasn’t for that greatest of human fallibilities - benchmarking. Because we saw, we tasted sub-2%, those who only skimmed the top of the metrics wanted to stay at or under target. We knew there was limited chance, unless Labour (and the budget timing) had affected the economy more than we realised. It seems not, and the consensus of 2.2% was missed to the upside as the print was 2.3%.?

In the round, 2.3% is fine. Within tolerances (including the Bank of England tolerance). Low, compared to some estimates from 12 months back. I’d definitely consider it acceptable - but, as I am turning into a broken record on this subject matter (amongst others!) - the new post-covid world sees 3% inflation as much more of the “norm”, or maybe better framed as there being a 1% bump on “old days inflation”. The downside is the bond markets reacting and demanding higher returns which mean higher rates - the upside is higher wages, higher rents, and more erosion of nominal debt.

Then we get into the further detail - the bit that doesn’t make the headlines. CPIH (the metric the ONS prefers, including housing costs) is back over that 3% mark (back to 3.2% from the 2.6% print on CPIH in September). We know the figure including housing is going to be above the overall figure, likely for the next 2 or even 3 years, as we slowly wean ourselves off the cheap money and fewer and fewer landlords enter the market to rent (under the current conditions).?

The month-on-month CPIH increase was 0.6%, which is much more concerning of course. Over half a percent is worrying - but some of this is just adjustment from a low print in September (given the macro landscape). CPI was also 0.6% month-on-month, so that will be being watched closely for next month’s figures (Black Friday theoretically knocks money off the goods side, of course, but only has a very limited impact in the services side which defines half of CPI as it goes.

In arguably one of the best and certainly the most under-published measures of inflation, Core CPIH was up 4.1% in October (from 4% in September) - Core CPI was up 3.3%. You can see why, underneath it all, it’s been easy to call the rebound from September’s numbers and also why I think 3% is the new 2% as inflation goes, for the next several years.?

Those who have read an inflation update before will know that I also like to look at OOH - the owner-occupier measure of housing costs. This still sits about 5% below CPI or CPIH since 2015 (used as the base year by the ONS) - but has gained ground quickly and is likely to move at a faster rate than either of the other two over the next couple of years.

OOH STILL has not found its high in this cycle, moving up from 7.2% to 7.4% in October. This is, once again, a new high since 1992. Services CPI topped 5% again, services CPIH was back up to 5.6%. None of these are particularly helpful for Bank of England cuts and indeed, the headlines this week reflected the fact that December cuts are largely considered as “off the table” and “the next cut is February”.?

Now - on this it does depend. Will markets calm down - bond yields may have found a little top in this cycle. Let’s see when we get to the PMIs.?

Overall, the energy picture also showed a price rise as we knew. The price cap was up 10% - that is the one that makes the headlines. But in October, electricity prices went up 7.7% and gas prices went up 11.7% - and are now 22% and 36% below their peaks of recent years. Gas prices are still 88% higher than March 2021 - electricity prices are still 56% higher - so you can measure the pain in today’s money over that time period (compared to a headline inflation rate of around 25%).?

Enough on inflation - we conclude what has already been being said for the course of 2024. It isn’t over, the battleground is now in the 2-3% (or 2-3.5%) region, and it isn’t moving from there anytime soon looking at the core figures here. There’s a stubborn tail which is often 18+ months long in these situations, particularly after a pandemic-style event (rather than a war-style event, for example).?

The ONS private rents and house prices, then. Rents - unlike in the major headlines, from portals who are telling us that rent rises have calmed right down - are up 8.7% in the 12 months to October 2024. This is up from 8.4% in September. House prices, side by side, increased 2.9% in the 12 months to September 2024 (they are always a month behind the rents). Framed another way, yields increased by 5.3% (so, 7% yield would become 7.375%) over the course of September 2023 to September 2024. Quite an increase.

9.2% is the cycle high, as at March 2024 - so this tick-up is not far off that high point. The pace at which this moves - relatively slowly - suggests that a fair stab for 12 months time would be around 6.5%. Why is this so different from the portals that are publishing rent rises of less than 2%? Because they only measure “new rents” - what they are advertising. The ONS sample contains over 500k private rents, of which nearly 80% are existing rents, and just over 20% are new rents.?

The 2.9% house price rise splits as follows - 2.5% England, 0.4% Wales, 5.7% Scotland and 6.2% Northern Ireland. Within England, the North is pushing forward (as possibly the only “viable” rental market for investors entering the market using leverage), and it travels downwards as we travel down the country in a really quite orderly fashion from North to South.

None of this is outside of the parameters suggested for 2024, and there’s a limited amount of quick change expected in this market. Stable and relatively slow, around-inflation, growth in prices. Rents rising well beyond current inflation and wage increases, based on it being much slower to move in the first place than prices were. It’s “catch-up” time, simply - yields are having to rise to enable leveraged landlords to keep anywhere near pace with the huge increases in mortgage rates that they’ve been facing.

OK - we can move on to the PMIs. Hoping they would pick up after the budget? Before it, I was. I really wasn’t expecting them to after the employers’ national insurance rises though. Guess what?

A terrible print - a 13-month low on the composite index, 49.9 - as any growth is squeezed out of the economy. The expectation for Q4’s growth is now worse than I said last week, at this point - last week I said between 0.1% and -0.1% - that range is better framed now as 0% to -0.2%. What a tragedy after a good start to the year. Services kept pace at 50.0. The strapline said it all, though:

“Sustained drop in private sector employment amid weaker business optimism and rising cost inflation in November”.?

Some businesses will, of course, have responded to the budget quite quickly and started putting prices up in November in preparation for the NI hikes in April 2025. This doesn’t set the scene for a big growth rate next year, unless all that growth is coming from the public sector and Government spending of course (and some of it will be).?

The report points to job losses and falling output. Not hugely - marginal would be a better description - but business optimism is now lower than it has been since the car crash budget of 2022. The very last sentence of the report’s analysis is one more kick in the happy-sacks - “wage-related price and cost growth in the service sector potentially limits scope for rate cuts among the more hawkish policymakers.”

Let’s not be too miserable. Business will recover and buck its ideas up. It will just take a bit of time, perhaps 6 months, perhaps longer, and we will be back on an upward path.?

Come on then, let’s let the gilts cheer us up for a change? Well, Friday was a down day on the back of those PMIs. We opened for the week on the 5-year gilt at a 4.352% yield and closed it at 4.249% - JUST under my range “roof” of 4.25%. The swap accordingly preserved that 30 bps discount, and closed under 4% - at 3.954% on Friday - and is still around 0.2% cheaper than 12 months ago. Slowly, slowly catchy monkey.?

Have we found our bearish top? Or, are the yields falling in the expectation of possible rate cuts in the face of a recession? Well, expect further “bad news” (economically) as we approach Christmas, and thus lower yields - but how much lower? Let’s just enjoy 10 points shaved off the yield and about 6 points shaved off the swap, and hope for more of that, I think! Pricing remains at 6% (or thereabouts) for no-fee 5-year limited company fixes, and around 8.6% for investment grade gross yields on a typical UK house that you might want to buy as an investment property - probably 1% or so above the typical yield right now, which means (IF you accepted that yields were distributed “normally”) that around one-third of the areas in the UK are viable to buy new rentals in (HMO and other more active asset management strategies would open up more areas than that). Quite a frightening conclusion though, isn’t it? Under the PRA guidelines of 125% rent cover on a mortgage, that rate comes down to 7.5% (probably putting around half of the UK housing on the table for viable rentals). I’d suggest that that’s exactly what we will see play out in terms of people entering the rental market - “luckily”, the incumbents will keep on buying in areas where they already have assets/a portfolio and they know what works/they press their own edges. Luckily for the tenants, otherwise there would be no new supply at all in half of the country with the current figures looking like they do.?

OK. Let’s get stuck into one of the topics that is going to remain hot for the rest of this parliament, one way or another. Rent affordability. The ONS snuck out a report (I’m kidding, they were not trying to hide anything, it was just rather busy around that time) at the end of October about this, and there hasn’t been the bandwidth to take a look at it until now. This covers England and Wales (as a lot of the ONS data does).?

The report found that a private renter on a median household income could expect to spend 34.2% of their income on a median-priced rented home in England, compared to 27.2% in Wales. This only - ridiculously - goes up until March 2023. Perhaps a note on why this is SO far behind real-time (and this tells you why the Government moves so slowly).?

The English Housing Survey is the “Bible” as far as the Government is concerned. The 2022-23 (March 2023 being the final date) survey was published in December 2023. Why this report has then taken 10 months I can’t tell you (well, I can have a guess - it is in a pipeline of work, that gets prioritised, and this is the priority that it has been assigned).?

Still - some of this relates back to what’s been said in the private rents and also the inflation section - if we look back to 2015, we see the conclusion that: “Despite private rents increasing since 2015, and at a faster rate since 2022, incomes of private-renting households in England and Wales have increased at a faster rate, leaving affordability at a broadly similar level in FYE 2023 compared with 2015.”

Now, let’s bear something else in mind. Rents have moved up since then - a lot, in the ONS sample data. However, incomes have ALSO moved up quite a lot - so the situation won’t have deteriorated massively from here. It won’t be better - but it won’t be a lot worse. Rents rarely (outside London) reach 35% of household income, even though many affordability tests do allow tenants up to 40% of their income (outside London). London goes into the 50s, of course, particularly in certain areas.

The most affordable rent was North Lincolnshire (18.8% of median income) and the least affordable was Kensington and Chelsea at 52.2%. You can see here the folly of just relying on a percentage. The cost of living in London is higher - of course. They charge you to move and breathe, down there (joking, of course). Strangely, though, some things are cheaper - public transport would be one, simply because of the volume of people moving around. The real marker here would be a base cost remaining each month to live on - because energy is often the same price (there can be regional fluctuations of course), food is not markedly different in pricing - and Netflix costs the same across regions.?

There may be a few other surprising conclusions here as well: “Out of 334 LAs in England and Wales, 233 LAs (69.8%) had a median rent that was affordable (below 30% of income) in FYE 2023, the highest number since this data series began in 2015.” So - the ONS uses 30% as “the number” for affordability (disconnected from a lot of the rest of the industry). There can of course be a debate around this, and you’d suspect the more accurate number might be around 35% - between the industry that pushes things a little, and the ONS.?

The final ONS conclusion won’t surprise anyone - “The LAs with the least "affordable" median rents in each region in 2023 were those in urban centres such as London, Manchester, Brighton and Hove, Bristol, and Bath.” - if you measure on percentage, that’s what is going to happen - but an urban “lifestyle” will also come at a higher cost quite often, because it likely means more social events, eating out/convenience, etc. City centre salaries are better, though, of course - partially to reflect this.

The graph on affordability, which is titled so as to completely miss the monster conclusion from this report, is included as this week’s image. The ONS goes with “Rents in England are on average less affordable than in Wales.” This one is only a workable conclusion if you accept that the percentage methodology is good - which, I believe we have discussed, it isn’t (it can still be the least worst, of course, but that doesn’t make it good).?

What it does show is that, totally contrary to the broader opinion and groundswell out there, that affordability in England has improved really significantly from 39.9% in 2016 (the heady days of the peak rental market, before George’s policies kicked in to make it stall, then fall, in terms of supply) to 34.2% in 2023. A massive 14.29% increase in affordability!?

The Guardians of the world would tell you this is a lie, of course. How can it be true! Because rents didn’t go up much from 2016 to 2021, and also because incomes have moved quite a lot - especially the median income - due to policies from successive Governments to press the minimum wage, and all associated wages, up quite aggressively. Remember - as I said at the start - this only takes us to March 2023.?

It really is quite seismic (as far as data conclusions go) - and will form part of why passionate representations by Generation Rent and the likes, around rent controls, will be rebuffed by the Government in the conversations around the Renters’ Rights Bill currently going through the commons - that, plus the fact that even the Labour Housing Group who are suitably left-wing, accept that rent controls do not work although they would like to see “rent stabilisation”, where rents only go up by inflation during a tenancy (an annual rise at inflation would have been much worse for tenancies up until the previous few years, and even then would have meant increases at the time of huge inflation, rather than lagged increases).?

Their next figure tells a story that backs that up. Since 2015 - in England - median income is up 39.6% (remember that next time someone is moaning!) - compared to inflation at 27.3% and rents at 23.5%. This is CPI and again until March 2023. Considering this report will take another 11 months to appear again (unless it is prioritised more), the next one will show those two figures converge - CPI was down to 3.2% in March 2024 putting that number to 31.4% over the period and rents were up 9.1% according to the ONS index for England over that time (putting that number to 34.7% over the period). Median household income will have moved up 5% or more in that period - the exact number comes from a DWP survey that is not yet available, but that will be an OK proxy or an underestimate - which will move incomes to 46.6% or so.?

Above inflation, but not above income increases. There’s still a couple of years there of headroom even if rents stayed higher than my estimates (I’d imagine March 2025 will be printing around 7.5% rental increases for the year at the ONS, and incomes still around 4.5% or so for the median household, then calming down to 5-5.5% rental increases to March 2025 with incomes moving around 3.5% over that period, but those are only ball-park figures of course).?

The ONS also conclude: “ Another interpretation of these statistics is therefore that there continue to be enough households who earn enough to occupy the private rented housing stock in England and Wales.” I’d suggest, at the moment, there’s more than enough - from what we see in the rental market on a daily basis.

It also won’t surprise you to note that the only regions that, on average, exceed this comparatively arbitrary 30% threshold, are London, the South East…..and also the North West, where rent growth is perhaps more difficult to see versus areas like the East Midlands and Yorkshire. The West Midlands is the most affordable (on the ONS numbers) of all the regions (and so, arguably, has the most rent growth headroom).?

The next couple of years (in the data world, where 75% of it in the real world has already happened) won’t paint a pretty picture, but really this shows aside from anything else why real-time conclusions are so much more important than waiting for the full picture. By the time the Government gets around to concluding what we already know, the situation will be repairing itself and rents will be moving around the 3-3.5% mark (alongside incomes, and potentially alongside inflation). Then any intra-tenancy “controls” that might or might not be introduced (unlikely, but give it 2 more years of bad data - like I said, on stuff that we already know has happened) and political pressures will change, and “rent controls” might well start being actively talked about before the end of this parliament.

By which point, rent controls (if they are intra-tenancy) won’t be a terrible thing, because all rents will have caught up to the level where they need to be in a world with a hostile environment to landlords, 5% stamp duty for new entrants, and a significantly increased interest rate compared to the 2010s when rents actively COULD be lower (but they weren’t!).?

Just my 2p worth - as usual - of course, but I’d be really interested to hear if you agree or disagree!

Zoopla also snuck out an October report on affordability which I wanted to throw into the mixer here. They blend affordability on purchase with rental affordability, which makes it more difficult to directly compare the two, but I do respect the Zoopla real-time data and that makes it worth pursuing as a comparison.

Put next to buying, 40% of workers cannot afford to buy an average 2 or 3 bed home in Great Britain. In spite of “fast growth in rents” (fair), “only” 27% cannot afford rental costs by comparison.

They do make some of the most obvious conclusions you could imagine, as well, of course. Access to housing is worse for single earners and those on low incomes, for example.?

They also, as often, attempt to influence policy. “Building more smaller homes to buy, boosting the supply of rented homes and launching a market for long term fixed rate loans are key focus areas for Government to start improving access to housing”

Really sensible stuff, there. Self-evidently true, some of it. The long term fixed rate loan market - just as rates are right up there with long-term averages and feel really high to many, compared to the previous years, might be a tough sell to the consumers. You do feel that if the market wanted it, the market would have demanded it - but perhaps not. There’s plenty of readers and listeners who will wish they HAD fixed for 10, 20 or 30 years in 2021, but hindsight is indeed 20-20 (and there were no options to do so, outside of larger commercial loans that were still not that cheap at the time!). You can see Zoopla’s point - work on the supply first, then worry about the demand second - create the product and extol the virtues.

The larger report talks about why affordability matters - which I don’t think we need to dwell upon. We know that the most disadvantaged will suffer the most. It is a hugely important area for the future of the economy, aside from anything else, because housing is a basic need.

Zoopla sticks with the “30% of earnings spent on rental costs” that the ONS uses. On the bright side, it does make the reports directly comparable. I think 33.33% might be a better metric, personally, but these boundaries are somewhat arbitrary and it isn’t a fight anyone needs to have. If the big dogs say 30%, we can accept that.?

The starkness of the data shows itself nowhere more than in London, of course. 74% of London workers can’t buy, and 58% can’t buy in Southern England. That looks more like 15-30% across the rest of Great Britain. Most respond by taking longer commutes or buying smaller homes, when they can’t buy what and where they want/need.

The same trend plays out for rentals - 67% of workers in London can’t afford rental costs for a 2 or 3 bed home. 32% can’t afford it across the south. That number is 20% across the rest of Britain (and 14% in the Midlands and the North of England).?

Outside of London, York stands out as particularly unaffordable with 61% not being able to afford to buy. Manchester is the outlier in rental affordability as 56% can’t afford to rent a 2-3 bed. Nottingham also makes the top 7 of unaffordable rental areas with 38% not being able to afford it, which almost certainly offers opportunities “near Nottingham” for more affordable rental stock and people will commute from around the wider East Midlands area. Places that can get into Nottingham quickly (12 mins on the train from Ilkeston, for example……I must declare an interest there as I have some stock there!)

Then, interesting data on the product mix. More than 60% of PRS properties are 1 or 2 bed, with good availability of smaller lower priced homes. More than 75% of owner occupier homes are 3+ beds. This is all well and good but do people WANT to own 1 bed properties (if they are not rentals?). 2 beds - definitely up for discussion - but a 2 bed is only a family home to a small family, of course. It isn’t that people are having fewer children per childbearing woman - more that fewer women are having children at all, when you look at the data.

Zoopla then addresses how to improve affordability. High LTV doesn’t work in the South for example because of regulations in the marketplace. Smaller homes and bigger deposits are “helpful” (of course). They then rely on the English housing survey data (remember, again only up until March 2023) and point out that the stats in there are that full time earners spend 27% of income on rent, and those without any housing benefit element spend 31% on rent.?

If you use 35% as affordable, it makes rent affordable in the South of England to 84% of workers, but if you stick with 35%, still half of the working population of London can’t afford to rent.

Single earners are poorly served - I think the nature of today’s housing market is such that it is pricey to live alone, unless you have paid off a mortgage over time. Only 25% can afford to buy on one income in the South and London.

3-bed family homes are in incredible demand, and undersupplied by the market - but actually 2-bed houses have more of a mismatch with 20% of FTBs looking for them, but only 9% of the new build supply on the market being a 2 bedroom house. The comparison is 49% demanding a 3 bed and 33% of new build stock being a 3 bed. 36% of new build stock is a 4 bedroom house or above (I have spoken about this at great length before) with only 10% of first time buyers looking for a 4 bed or above.?

This can only be resolved by Government subsidy, (or more Government subsidy I should say), because the market is building what is demanded by the secondary sector, and what makes the most profit.

Zoopla makes the point - as they are often keen to - that the PRS hasn’t changed materially in size since 2016. All the figures (up until March 2023) show this to be true. It would be bonkers to contend that this hasn’t changed significantly in the past 18 months, but if we all want the data to be out before drawing that conclusion, then so be it. I’ve pointed out before that Rightmove have stated that 20% of stock to market is ex-rental, and only 10% is bought for rental - ignore it at your peril.

However, this is still ignoring about a 5.5% move upwards in the population from 2016 to 2023, perhaps closer to 6% when compounded, although held back a little by the pandemic. This IS a material shift in new renters, and since March 2023 net migration has also still been particularly high by historical standards. This would really match the minimum growth in the PRS to ensure it is functioning (as it was in 2015/16 - NOT that it was perfect then!)

They also comment on new towns - in the “old” new towns the split was 50/50 own and rent. Now it is 70% owned and 30% for low-cost ownership or affordable rent.?

The report continues looking at mortgage data and what’s very clear is just how much the stress test is holding people back. This is a serious problem and is knocking out a ton of people from the market, quite clearly, when stress tests are as high as they are. Take them out with 30 or 40 year fixes (or whatever is needed) and it would open up a lot of options - the rates would be higher than Zoopla have proposed (this report was clearly done pre-budget and recent gilt yield moves) but with one fell swoop you really COULD create a lot of extra affordability. Rent would still be quite a bit more affordable, though, and these calculations never take into account what else you could do with the deposit (invest it, spend it, etc.) Nonetheless, the conclusions are clearly valid.

All in all, a very interesting pair of reports that will - no doubt - be largely ignored at policy level, which is a shame. Improve the PRS by improving social stock - that’s what the Government is trying to do - but with less than 10% of the money that it will take to achieve it, sadly.

Often in these reports it is what is not said that is the most interesting. For example, what’s not explored are construction costs (and their inflation, and how much that’s changed the viability of many new build sites), or the idea that smaller minimum space standards (this wouldn’t need to be across the board) could mean a much better supply of housing, especially when well-designed. MUCH more thought needs to be put into that, and I will tell you why:

Firstly - it is perfectly fine for a person to live in a 6.6sqm room in an HMO with a living room/kitchen that is shared, but a 1 bed flat for 1 person needs 37.5 sqm. That makes no sense at all and is incongruent. Secondly, excellent design (which is available without going back to the drawing board all over the developed world) means that amenities don’t need to be compromised. Smaller units are the way forward in this world to fit more on a site, and also on larger schemes use some of the saved space for value-adding amenities. This is a conversation that needs to be had - if you could cut space requirements for social homes by 20%, you could build up to 25% more of them for a similar cost.?

That’s a couple of extra thoughts, not designed to be controversial; to solve these problems you need to have the difficult conversations.

Before I call it for this week, 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 five 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!