Supplement 29 Sep 24 - Opportunity knocks?

“Be fearful when others are greedy and be greedy ONLY when others are fearful.” - Warren E. Buffett, legendary investor (emphasis is mine).

Before we get started, it's the last chance saloon for the final Property Business Workshop of 2024 - Tuesday 1st October is the one! I’ve reflected on our choice of subject many times - a strange coincidence (or perhaps some good instinct) to choose this one as the one to cover EXITS. Firstly, planning your own - which people do very poorly, in our experience - and secondly, so that you can understand other people’s exit plans (or lack of them) and assist with them when looking to buy a portfolio, or a business. Help the vendor get what they want, need and deserve - and work towards true win-win situations. 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 if you haven’t bought and you don’t buy today, we know you aren’t coming! bit.ly/pbwfour ?

Welcome to the Supplement, everyone. I’ve had quite a week, and if I extended back to the end of last week, it was a real rollercoaster. I made it to the fringe events of the Labour Party Conference on Monday in Liverpool. I viewed a portfolio last Friday which was a stark reminder of why so many people dislike landlords, although I also made some observations that won’t be liked about the economics of longer-term lets after an interesting conversation. Thursday was the best day for procurement, not necessarily in terms of quantity but in terms of opportunity, for probably 4 years or so I think. Plenty of “coal face” experience to talk about.

That informs the deep dive material. Before we get there, though - we crack on with the macro, after the real-time market info.

The weekly love for Chris Watkin who delivers week in, week out on these real-time market insights, with genuine excitement when he unveils a new stat or an unreported trend.?

Listings still ploughing on, trending down slightly after the beginning of September rush - 37.4k across the UK. Still big numbers. 7.7% higher than pre-pandemic listings numbers, this year.

Net sales still also outperformed - 32% higher than the equivalent week in ‘23 and now over 16% higher than the market for last year.?

Mid-Sept sales agreed figures now see SSTC figures above the year’s high in July. It looks like a summer lull in terms of prices paid is well and truly over and the active market is seeing the direction of travel move upwards - albeit slowly (I think we all prefer slow, sustainable increases from an investment point of view). I’m still not seeing anything to change my 5% prediction for 2024 by the time the dust settles on the ONS figures (and it is a bit late to be changing 2024 predictions now - not that it puts off a lot of the other forecasters out there!).

Listing prices for new stock stay higher, the tailing off of the annual phenomenon - Central London homes going to market when we go “back to school” for real.

Price reductions really moved over the last two weeks to one in 6.5 properties per month being reduced - with such high stock levels, that’s a lot of reductions…..>100,000 a month! (710,000 houses for sale). Nothing to change our conclusion of the moment on this market as yet:

Houses are selling, but they need to be fairly priced and have something to make them stand out.

We are now also around 55k gross sales below 2022, and if you think back to 2022 and what happened from hereon in - there might well be a chance of catching 2022 as a whole for sales agreed. There were a huge amount of fallthroughs in late 2022 (but then a very low amount in early 2022 when the market was still booming) - let’s see where we end up, but it might well, when the dust settles, show very similar transaction numbers but with a very different tale behind it all.

Moving to the macro - this week was a lot quieter. It gives me some room to bring in Friday’s retail sales from the week before, which were squeezed out in a very busy macro week. The flash PMIs for September were out and regulars will know how much I love the insight they give us. The CBI figures - industrial trends and distributive trades - also contribute mixed messages to the puzzle. The last leg is of course the gilts and swaps markets.

So - retail sales. The pleasant surprise was a print that was, for August, well above consensus in a market that has really struggled through a cost-of-living crunch and a pandemic overenthusiasm that turned very cold when people realised they could do real things and have real experiences again, rather than the panacea of Amazon.?

All the figures were well ahead of consensus - month-on-month was a 1% rise, compared to expectations of a 0.4% bump; 1.1% ex-fuel compared to 0.5% expectations; and 2.5% year-on-year instead of the expected 1.4%, a real-terms increase (if you use CPI, anyway) for the first time in some time (mostly because the other rises have not been up to the enhanced inflation figures, though!)

End of woes for retailers, then? Unlikely. There’s still a hefty minimum wage rise slated for next year now. The oil price, which you might have noticed has led to drops at the pumps and the cheapest prices for some time (still plenty expensive enough, I am sure you will agree, but once adjusted for inflation, looking veritably affordable) will also help these figures for next month. For those interested, one of the major contributors to the price movements is Saudi, saying they are going to pump more oil (aside from anything else, they need more revenue for their incredibly ambitious Neom project, which is like something from a science-fiction novel if you haven’t looked into it yet).?

Retail sales volumes are still about 6% below where they were 3 years ago, although as I say pandemic outperformance is not providing the greatest benchmark, perhaps. Volumes are as close to 2022 as they have been, only 0.4% below that less volatile year. The performance was “unseasonably strong” according to the ONS, for food and clothing sales.

The performance will be welcomed by a beleaguered sector and, whilst I always advise against getting carried away with one month’s reporting, the 3-month growth looks good and as prices have started to become competitive again following pay increases as well, there has clearly been some positive impact. A lot more is needed!

PMIs then. A reminder - they are an index, based around 50 as the benchmark for growth (above 50) or contraction (below 50) in much more real time than waiting months for lagging growth figures. They are also valuable in that they capture real-time commentary from large businesses. What we started to see and hear in confidence surveys earlier this month was wobbles, based on the doom and gloom approach of the new Government to the massive task that they face. I think the attitude of business as I’ve heard it has been the same:

“Yep, we heard you. That’s why the country voted them out. Now, get on with it rather than telling us all how hard it is. We’ve got to get on with our businesses - you get on with your business of running the country.”

There was recognition of that message having got too bearish, I think, in the way that the conference speeches were crafted this week - Reeves did a better job than Starmer of deflecting and refocusing, I think, but will they have “landed” and been enough? The initial damage to confidence was done, and the budget is now only a month away - it’s very easy to defer decisions for one month in larger businesses and that’s inevitably what will still happen now, in my view.

Anyway - the PMIs. The flash estimates are then updated in the first week of the following month, but these are “proper” real-time estimates, for September. The spoiler - all were in below consensus expectations, which is exactly what we expected, because of the bearish news. Not disastrously below, though.

The composite output PMI flash was 52.9, which is still fairly healthy - August was 53.8. Services - which basically defines the economy - 52.8 down from 53.7. Manufacturing - which has been improving - back to 51.5 from 52.5.

This does still look consistent with a 0.3% or so growth per quarter, which is good news overall. We’ve outperformed that in both of the first quarters of this year, but a flat July makes it unlikely that we will in Q3 - although there’s still hope. 0.2% looks and feels more likely from what we’ve seen, although August might easily do 0.2% on its own. We will find out in a few months.?

Looking at the positives - this is 11 months in expansionary territory, which is most welcomed. Prices charged inflation also eased to a 42-month low, which is welcome for rate-setters and consumers alike. There’s still a hat-tip to wages being higher and shipping costs being higher too, though.?

Some of the messages are also fairly standard, it seems - stronger exports to the US, weak EU sales, employment growth slowing (but still growth). Marginal increases in services, job cuts in manufacturing. Backlogs of work decreased for the 17th month in a row.

The summary from the Chief Business Economist at S&P, Chris Williamson, is always solid - he cites encouraging news overall, although mentions a soft landing rather than no landing which would be preferable. He suggests 0.3% GDP growth for Q3. He also, of course, cites the budget just as many firms also did (by FAR the most cited concern was fiscal policy uncertainty). Investment plans and hiring “stifled”.?

CW has also been very good in his commentary about rate-setting and I must admit is one of the few people that influences me, because I prefer to think for myself as a rule - he finishes by citing the lowest services inflation since February 2021 bringing the 2% inflation target closer into view - and suggests that there is scope to cut rates in the final months of 2024. With the oil price drop, and the overall slowing of the economy (even if it is mostly for fear reasons), this has dramatically improved the odds of a cut I must say - although at one point there was supposed 100% certainty over it, any of those who have bet on cuts at very short odds for the November meeting look as though they will get away with it.

Or let me put it another way. A big upside miss for inflation next month looks unlikely. My initial read was for cuts on a quarterly basis being desired by the Bank of England - makes them look calm and in control (which isn’t just good for their reputations, it also looks good for our international reputation) - and in spite of an 8-1 vote last time out, it is time to pin the most likely outcome at the next meeting as things stand at 5-4 or 6-3 to cut. It could even be more comprehensive than that but I don’t think Mann or Greene are voting to cut just yet, to be honest.

The meeting is also a week after the Budget - which doesn’t give much time to react to what might be needed there, or not, but you’d expect October to be packed with fear around negative Labour rule changes for workers (from the company perspective) and further hiring freezes and the likes. Anything that looks like an economic slowdown at this fragile time will put some pressure on the Bank of England, who do have responsibility in the jobs market for example (although it is secondary to inflation targeting).?

I have said this at each quarterly meeting for some time - but the important part will be the inflation prediction in 3 years’ time, and if that number is around the 1.5% mark or below it, it massively strengthens the case for cutting rates - and there are real reasons to believe that it might be, especially with the Bank being relatively bearish about the economic performance in 2025 as we continue to slowly absorb the Covid shocks to our economy. The structural inflation argument has waned a little since the last meeting cycle, I think, although Sterling still looks very strong compared to the big rivals who have a lot more certainty at this time in their cutting cycles. I’m definitely not 100% - and wouldn’t be, but I’m getting closer to the 90% camp than the 75-80% camp I’ve spent some time in over recent weeks (for a cut in November). I still see two cuts as unlikely but as I say, there’s budget fallout to consider.

Before I move on from the PMIs, having got somewhere on the resultant path of the base rate; the UK report on jobs I will also touch on, produced for KPMG and REC, the recruitment and employment confederation, by S&P. It pointed to permanent placements falling in August at a greater pace than before, lower demand for temps, and reduced demand for new staff at companies overall. Salaries also rose but at a slower pace than the survey’s historical trend and at the lowest pace since March.?

Things are well entrenched below the 50.0 index for permanents, and sitting at around 50 for temps. There was strong growth in staff availability, but mostly for temp placements. Both the commentators in this index - KPMG’s chief exec and REC’s chief exec - put forward a stronger case for rate-cutting as well, in a clear message (or attempted message) to the MPC and the Bank of England.

So - the CBI numbers and Distributive Trades first. The headline was around marginal growth in September for retailers, after three months of downturns. The +4 print was very welcomed compared to expectations of -19. This looks in line with the retail sales figures for August - and October expectations are for similar growth. Weather’s bound to be wheeled out again though when we get final September figures, with recent flash floods, of course - for which I want to take a brief segue.

Rainfall and the volume of it is not being factored in, correctly, by many people in property and business purchases. This much I am in no doubt about. Let’s recap and be sensible - we need to follow data and trends, not be caught up in any maelstroms. Indeed - making this about climate change, man-made or otherwise, is not sensible. Instead - a quick look at the stats: March ‘24 - headline in the FT referring to the wettest 18 months in England since records began in 1836 (and it hasn’t been dry since then, has it!?)

2012 was the wettest year ever for England, 12 years back.

The wettest day recorded in Britain was 5 December 2015 with 341.4mm recorded in one day in Cumbria (Honister Pass, Storm Desmond).

2011-2020 was 9% wetter than 1961-1990

Six of the 10 wettest years across the UK have occurred since 1998

You see a similar pattern if you look at hottest days, weeks, months etc. on the planet since records began. Surface water is particularly bad - both observationally, and according to the Met Office, who state that both frequency and severity of surface water flooding will continue in urban areas.?

Flood risk and particularly surface water flooding risk should form a large part of what informs you with respect to divesting of existing stock, and also buying new stock.

Segue over.?

The CBIs other important output this week - the industrial trends survey - told a miserable story for manufacturers. Output dropped sharply in the 3 months to September, with expectations of another drop in the final quarter of this year (the first negative expectation since November last year).?

?The CBI lead economist commented around the fragility of 2024’s manufacturing resurgence, and - once again - cited budget caution. I think there’s a very sensible quote here worth repeating: “In the meantime, firms will be looking to the Chancellor to reaffirm the Government’s mission of long-term economic growth, providing them with the confidence and opportunities to invest and grow”.?

A lot of what I was saying, into what it felt like a void at points for fairly obvious reasons - Jeremy Hunt didn’t do a terrible job at all. He played the game with skill. The way to be better than Jeremy Hunt is to change the rules of the game, because the rules are nonsensical at points. Sunak, we know, was a more than capable chancellor, even if he missed a big old opportunity to fix some mega cheap debt for 50-100 years when he could have done that.

There’s a lot of calls from Ben Jones, the CBI lead economist, around delivering on what’s been said - an industrial strategy. We need to see some of this (or at least get some sneak peeks) sooner rather than later to bolster fragile and waning business confidence, simple as that. Do what you said you were going to do - rule one of life, let alone business and politics.

Wrapping up with the gilts, then. The week didn’t move the needle much at all, and the drift, started last week and bolstered by strong sterling as well as others look more “nailed on” to cut rates than we do (in short order at least), just meant a boring and miserable week where we opened at 3.727% on the 5y gilt yield and closed at 3.824%. 10 basis points the wrong way.

Thursday’s close was 3.859% but the much larger discount continued, with the final swap on Thursday being traded at 3.585%. I struggle to explain this sudden 25 basis point discount for the swaps (other than in supply versus demand, of course) aside from a hat-tip to the fact that sterling appears as desirable as it has done for many a long month, I would think. It looks strong and set to stay strong, within the context of recent years anyway. If any investment bankers out there want to set me straight or enlighten me further, I’d appreciate it and will of course share with everyone else!

This 5.6% ish level for mortgages (limited company, no fees - swap rate +2%) would be good to see - I suspect the lenders will remain cautious as this is a new development in terms of the drift between the swaps and the gilts, and are more likely to wait and see although a few are still making headlines by cutting rates.

That’s as upbeat as I ever am in a week where the yields move against the borrowers!

So, the deep dive. Firstly, a throwback to this week’s quote, because the great man is often misquoted in this situation. If you DON’T include the “ONLY” part that I emphasised - be Greedy ONLY when others are fearful - then the whole quote changes direction. I think it often gets misinterpreted about greed - but as with everything Warren does say, it is quite carefully considered.?

Initially, it is about a “caution-first” approach. When everyone thinks it is easy - it isn’t. “The trend is your friend but not at the end”, the traders say. It’s also not to be interpreted as being a contrarian for the sake of it - but as a reminder that you need to think independently and be different in order to get different results.

On Thursday we agreed terms on 9 units - in 7 separate transactions, all under auction terms although some were post-auction or even outside of auction conditions and so effectively are just 28-day completion promises. This sort of day has not occurred in my group since 2019. I also strongly suspected it was coming. Pricing was spot on, and one was at a 20% yield (in the Midlands, no less).?

Why? Well, find the reasons for landlords to be positive at the moment. OK - I’ll do it for you. Rising rents - makes sense as long as there is affordability in the areas you are investing in (no point if you’ve already hit the ceiling). Capital growth highly likely - slow and steady, most likely, but wages are chugging along and credit is getting cheaper from where it was a year ago (or even a few months ago) - it’s relative, but new buyers are getting mortgages around the 4-4.25% level with best buys being even cheaper - an affordable rate in a normalised world.

Also - going one level down - so many people want out. They couldn’t wait to complete before October 30th and the budget. This reminds me very much of post-referendum - the sky was falling according to some, and they reacted by selling at a discount to “get out”. That wasn’t smart, in general.?

But then tune in to the rhetoric. The Renters’ Rights Bill - the end of the AST era. The biggest changes since the HA 1988. True - but no mention as yet of rent controls in any real way, shape or form. “They are coming”, I hear you say - then you need to adopt the institutional mindset to them, and know that that means a rent increase every year of a somewhat guaranteed amount, and factor that into your calculations.?

The budget will ruin all our tax planning ever and take all our money. OK - I haven’t heard anyone actually SAY that, but that does seem to be what I’m hearing from talking to some vendors. I simply refer you to our weekly mantra - Keep Calm and Carry On.

You’d think CGT was already at 40-45% on property, the way people are talking. I think we know with some certainty we are seeing pension reform, but look at the fact that RR is reconsidering the non-dom tax changes, listening to (or playing the game) the OBR - I have said this for some time. If the OBR doesn't like the tax changes and says that changes will put GDP up (which helps with budgeting and tax take, of course) - something that Jeremy Hunt did with a large degree of skill - then RR is unlikely to do it, because it just adds to the Black Hole.

So - hands up, I was greedy. I was greedy ONLY when others were fearful. I’m sleeping pretty well on the back of that. These opportunities - like this one, right now, in the runup to the budget - don’t come along that often. There were 2 in 2016 - the 3% stamp duty market (and what happened immediately AFTER, which was the opportunity, as the lemmings rushed in to complete before 31st March), and post-referendum (in that one, I went to South Wales and bought aggressively - stitching together a few opportunities simultaneously).

You can go a year or more without one. This is a golden time, in my view, if you are staying in the game, going to ride the lightning with more regulation but a stronger business case and more demand than ever - you have to decide. We still feel exactly as we did after George’s budget of 2015, as a group - the message is clear. Go big or go home.

Right. That brings us around, in a roundabout way, to the Labour Party Conference. I’ve said that this iteration of the Labour Party, in spite of some serious scaremongering in some quarters, really aren’t much different to Cameron and Osborne. We’ve mostly forgotten them because of all the events since they were the 1-2 in power (somewhat satisfying to refer to Osborne as a number 2, wonder why).

However - they loved big business. Adored it. You can see why, perhaps - 50% of all business investment is done by the largest 0.5% of companies. We need that investment to have a functioning economy. However, it all looked and looks a bit cosy to me, for lobbying. There needs to be a more arms-length approach in dealing with monstrous powerful organisations such as big Tech, big Food, and the likes. If I was anywhere near the Government I’d be looking at repurposing the “nudge unit” to nudge people economically, with taxes - including the behaviour of firms. The mental health fallout of social media and smartphones - particularly on teenage girls, extremely well documented these days - would be paid for and taxes raised used to fund proper mental health support, for example - or encourage the firms to be more proactive in how they control obsessive usage, content control, and the likes rather than just allowing them to be uncontrollable unaccountable fake dopamine factories (rant over). Just one example.?

Back to the chief point. Starmer and Reeves are, in my view, just as in love with big business as the solution. No more so than in housing. What’s the biggest announcement so far on the deck? I’d suggest it is the Homes England-Lloyds-Barratt MADE Partnership. 1000+ home developments all the way up to 10,000+ homes and new towns, on the slate, over 10-20 years or more.

What do they want from their landlords? Build-to-rent. What’s the problem with BTR? Particularly high rents, and a need therefore to create homes for the demographic that “can afford it” and will pay - a bit like leased cars - premium prices for shiny new things (at the start). The tendency is to focus on London, although the North West also has a fair chunk - the rest is much more sparing. The tendency is also to focus on those earning at or above the median income, young professionals in better-paying jobs.

That’s not the reality of the PRS, as it goes. You can’t replace the PRS with a combination of social housing (under the current framework) because there’s a huge swathe of people who earn too much to be in social housing who still want, need or choose to rent. Remember the stats - average social household earning 25k (household income) - average PRS household earning 34k (household income) - average owner occupier household earning 59k. These are the figures that the Bank of England is working from (or was in a recent report some months ago). It should be very evident where the gap is, in reality.

What are the other problems? Well, the older stock. The first event I attended on Monday included Peabody, one of the UK’s oldest not-for-profit Housing Associations. They have an average rent of ￡137 per week (despite significant presence in London) and spend 80% of their rent roll on maintenance and management.?

Let that sink in. There’s no room for financing there (or very little, let’s face it - although they are geared at 40% of cost of assets - which I suspect is well below 20% LTV). It CAN work, if you’ve built homes at the old prices - but what’s the business case at ￡2,500 per metre or more? They still have 5,800 homes under construction and completed 1381 (1204 affordable) during their last reporting year. ￡371m was spent looking after residents' homes (of their 108,823 homes). They also have a nearly 80% EPC C+ rating (78.6%).?

Of course there are grants, subsidies, and joint ventures. They subsidised rents to their levels, below the market rent by ￡721m per year, last year.?

Mindblowing and incredible, when you look at it. Increased the portfolio by 1.29% in unit numbers (that would assume no disposals, which isn’t correct - but it isn’t numbered in the reports). Net grants for the year were up ￡197m on the year before, which doesn’t translate directly to the units delivered that year, of course, but is ￡142k per new unit added in that year. Just under ￡1.6bn is already committed to these new units and further development - of which ￡133m is cash available - a little over 8% of their capital commitments - the rest is ￡1.2bn from debt funding and a little over ￡250m from future grants, surpluses and further debt funding. That bit I find hard to get my head around as I can’t imagine positive cash contributions given the price of debt that they must be paying at say 0.5% above the gilt yields, even. But there’s about ￡5.6bn of equity all told according to the balance sheet which improved by about ￡50m in the past year. ￡926m is the revaluation reserve (the increase in the price of assets compared to their cost) which is down from ￡1.112bn the month before.

As you can probably tell, I’ve never assessed the financial position of a housing association before, and I found it quite fascinating. They have some long term bonds outstanding - expiring in 2034, 2043, 2048 and 2053 - looking like a long time out before they suffer too much from the change in interest rates, but of course relevant for any new debt they acquire to undertake new projects. Their overall debt maturity is 3% of it maturing in the next year, 5.5% of it between 1 and 2 years, and 23% of it maturing between 2 and 5 years with the rest maturing at an over 5-year point as per those longer bonds above. Looks like their CFO also predicted the changes in the interest rates in 2022 quite well, to have that level of balance and nothing there is going to rock the boat too quickly. 30% of their debt interest is on floating rates, though.

I can’t imagine the level of demand for rents at ￡137 per week on average anywhere near London, since you can barely get a property anywhere in the UK for that sort of money on the private market at this point in time. If you search on Rightmove for rents in London - 39155 results including let agreed - there are 7 which remain if you cap at ￡600 per month and look at 1-beds minimum (to remove the parking spaces and the garages) - which are primarily HMO rooms of course at the very cheapest level.

Anyway - fascination aside - these are the organisations that the Government is looking to to plug the gap. The new units wouldn’t be at ￡137 per week of course, but they also aren’t suddenly going to be at ￡250 per week either. The grant money is significant, particularly when considered per unit, and explains a fair bit. This is the model that they want to use, however, and are willing (at this time) to be extremely discriminatory in favour of the larger institution in order to spearhead delivery of new units, as they see it.

You can’t see that anywhere more clearly than in the current Renters’ Rights Bill and the Student accommodation sector. Landlords with student HMOs will face some really stark choices - much higher rents, much more risk in occupancy terms, or a different tenant type - versus PBSA who will still be allowed to use a 12-month fixed term model, not changing their risk type much if at all.

What’s missing most of all in my view is any understanding at all of the damage, pain and suffering that a poorly managed transition will cause to the tenants in general. In 9+ years since George’s 2015 budget, we’ve seen much less change than expected. We saw the number of PRS units top out in about 2017, which was no coincidence, and a bit of yo-yoing since according to the Government numbers. We now see rocketing rents as everything else has rocketed but particularly mortgage interest, and no real plan for households who earn too much for the social threshold but not enough to buy anywhere near their target areas - a gigantic number of households, realistically.

I also wanted to pass comments on the MPs that I heard speak on various panels at the fringe events. Overall, I was moved and impressed. Really interesting backstories, including childhoods growing up in temporary accommodation, being evicted, being on waiting lists, and the likes. Not with a chip on the shoulder, or an agenda - simply used as an explainer for why they understand the reality of the sector as a consumer. They also had limited time for the calls for things like rent control, repeating the party line that I’ve already discussed - rent controls at this time are not in the plans, after a lack of success with them internationally (and closer to home in Scotland).?

However - the unspoken part was the massive extra cash injection that is going to be needed in order to build the homes stated as and when the planning system does allow for it. That’s before we’ve even started on the construction labour (which did come up, of course, as we’ve lost so much in the past years) - the money will need to come first, and of course we have the budget coming up. There’s positivity at the front end of the funnel, but in order to deliver units we need to get to the end of the process, naturally.

There was limited scope or value in talking to the activists, who seemed to have problem after problem but no real, viable, proposed solution. I had a great conversation with someone from a think tank who was doing crossbench work, and was close to Rayner and her special advisors - I was again a little concerned about where they were concentrating and the points that I see them missing, and they were surprised or without answer to many of the unintended consequences of the Renters’ Rights Bill that I see as an obvious, or given.

It was definitely an informative and educational day - and something different - and it reminded me why politics isn’t for me, on a more permanent level. The final observation I’d have which was my most disturbing, in a way, is that the MPs seemed practical, pragmatic, and pretty stone-faced when it came to calls for “more money” overall. They understand where the Treasury is sitting on all of that! However, the grass roots of the party seemed to be standing with caps in hand or an expectation of a tap being turned on that doesn’t exist (or does exist, in the event of wobbles, crises, etc, but doesn’t exist day-to-day). I was disappointed, most of all, that the mindset was for someone else to pick up the pieces and just provide; the expectation of the Government doing nothing for me (as an individual), primarily, is one that I find the most helpful day to day in terms of just who has to do the work. I guess that’s my membership of the Parliamentary Labour Party in the bin, then.

So let me talk a little about a portfolio I viewed last week, that was a very different experience. I was told the following:

Vendor knows very little about condition

Rents well below market (I could work that bit out for myself)

Limited company available for purchase

Realistic price expectations

No condition reports or inspection reports available, or valuations (unencumbered)

On the face of it, it was an exciting proposition. In reality, you often find in such situations, exactly what I did. I was pre-warned that some were not of legal minimum standard size (i.e. 1-bed flats under 37 square metres). I was suspicious from the get-go when the agent arrived to hand the sourcer a bunch of keys and make themselves scarce, very quickly - you’d expect the potential sale to mean they might want to spend at least 5 minutes opening a conversation with a prospective buyer - but onwards we went.

This was on the south coast, in an expensive area. The first property was a house, in good order, with a pleasant tenant. A promising start. There were then 4 properties we couldn’t get into, which looked like illegal conversions from many years back. Then it really started - dramatically undersized units, properties with no fixed heating systems/plugin heaters - properties with leaks not addressed for years, black mould, a limited programme of maintenance and in one property I couldn’t resist prompting a conversation with the tenant.

“Why don’t you move out if they are just not fixing these things - there’s real health risks here?”

A long pause from the tenant. “The rent would just be so much more elsewhere.”

This is the brutal economics of the sector. A tenant staying put, in spite of poor conditions, making an active choice to stay in a poorly maintained property. A problem without a solution, being honest, because if the landlord WAS forced to fix the problem - as they should be - the inevitable consequence would be a significant hike in the rent. The tenant understood their options in terms of contacting environmental health etc., but also had enough nous to fear the financial consequences - or, was making a conscious decision to keep the rent down.?

This isn’t the typical take on this, of course - but I’m trying to be objective, rather than find victims and those to blame. I didn’t like what I saw - but they were problems I’d be happy to try and solve. The undersizing - frankly, the units were still fine for single person living and were still a lot larger than a small HMO room. The heating systems etc - can be fixed, as can the ventilation, damp and leaky issues. However, the vendor, being happily disconnected by their agent who must operate under an ethical code that most readers and listeners would find unacceptable, had no real clue or evidence of any of this, and simply thinks that offers being received are derisory without good reason. There’s no point looking at comparables in these situations - to an extent - because there’s a large programme of works that needs to go on to make a deal like this stack up.?

It also provided a good reminder of why landlords can be disliked. On the face of it you’ve got someone with an unencumbered portfolio worth 7 figures, offering substandard accommodation, and the nuances around choices being made by tenants to participate in the whole thing are likely to fall mostly on deaf ears outside of this audience. They live abroad whilst their tenants (or some of them - not all of them) live in relative squalor. Their other tenants benefit from the policy of not putting rents up - ever - even when they live in properties with a much higher market value.?

Ultimately, moral dilemmas aside, the commercials always dictate what to do - and with unreasonable expectations, this vendor is just one for the pipeline with follow ups in the future.?

You can probably put together the threads from the above and figure out that one of the things that keeps me calm is the underlying economics. Creating this weekly is a panacea, with the goal of being as objective as possible.

In late 2022, I said that the market would adjust to higher mortgage rates in order to keep functioning. Right on cue, there are a dozen or more local authorities where, between Jan 2023 and July 2024, rents are up over 18% (in the ONS sample) - not new rents, but all rents. It hasn’t even taken that long. The ceiling is affordability - not anything else. The substitute good - buying a house - not an easy option for many renters, but definitely an option that many renters are being priced into considering - is also up very significantly, with monthly mortgage payments up 30-60% (on a repayment basis) from where they were a few years ago. Then there’s the deposit, if the Bank of Mum and Dad aren’t delivering/providing.

Other solutions are likely to take more than this parliament - and we are still in a position where it will get worse before it gets better - we have not seen the bottom of the well just yet. If you list those who are better off versus those who are worse off in the face of the recent and proposed economic and legislative changes: Landlords and tenants are both worse off in the short run. Landlords will be looked after by the market in the long run - tenants, it is no certainty. They need growth, which we have all been promised, time and again. Banks are also worse off - savers and investors are better off, in terms of real returns being on offer for the first time with a bit of margin in many years. However, those returns at gilt yield levels are still not particularly meaningful, nor are they enough to retire on unless cash piles are significant and/or retirees are willing to live a really quite austere lifestyle, whilst preserving capital.

One of the very biggest, and unspoken problems which only has one realistic solution, is the EPC situation and (more broadly) existing older stock in general. Not many aside from the private sector are willing and able to own buildings over 25 years old, let alone over 50 years old. Organisations like Peabody, or even larger operators, have very large expected bills coming and the same 2030 deadline, in current form, as the PRS do. I have heard quotes of ￡39k per property for retrofitting for the larger players.?

There’s only one organisation footing the bill here, and the real question is “how much of the bill” - and that’s the Government. We can do the dance, but we could do with getting on with it, because works need to start in 2025 to have the remotest chance of getting even 80% compliant by 2030. Peabody, and the likes, really would prefer to dispose of this older stock - and shuffling the chips around is fine, but someone buys it, and most likely buys it to rent out rather than to live in.?

There seems to be a genuine sense of purpose, and an appetite for change, in the positive side of the Labour conference when it comes to housing. However, the actual solutions and the road to the goal are not understood to the level we might hope they would be, in my view - and that will be the largest challenge that housing faces in this parliament and beyond.

And so, we end up where we always do - at the end for another week.

Before I go, don’t forget you can still BOOK your last minute tickets for the fourth Property Business Workshop of the year at https://bit.ly/pbwfour on Tuesday 1st October!! If you miss it you will regret it, there are no recordings………

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!