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A TENANT in Leeds, a young man in a fashionable city centre apartment, recently asked his landlord to find him a new home in the suburbs. He hated being in a half-empty building and couldn’t tell the difference between a neighbour and a burglar.

City living wasn’t for him. But who is it for? The growing consensus is that city centres are turning into 21st-century bedsit-land, transitory places for singles to live for a year or so before moving on. Worse, weakening confidence in the property market is leaving many city developments exposed. The property data company Hometrack disclosed this week that house prices had fallen for the first time in two years, and experts claim that overbuilding has made smaller new-build flats vulnerable to further declines.

“The tragedy for our cities,” says Chris Town, the former chairman of the Residential Landlords Association, “is that there’s no going back. Building patterns, nationally, have shifted from houses to apartments.”

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Investors control about 70 per cent of the flats market, up from 40 per cent a few years ago, and signs are that there are too many flats and not enough buyers – or tenants – to go round. Knight Frank research shows that investors’ yields on new-build flats have fallen to their lowest levels in cities as diverse as Ipswich, Lincoln, Guildford, Brighton and Horsham.

Returns are holding up in Newport, Hull, York and Leeds, but the headline figures can disguise disturbing realities. Mr Town says: “Demand from owner-occupiers has fallen. There are 10,000 flats due for construction in Leeds. I can’t see them getting built now.” He tells of one landlord forced to reduce a monthly rental from £1,200 to £800, and points out that the bigger the scheme, the more landlords (and therefore investors) will be squeezed.

These flats might be marketed as “pods” or “crash-pads”, but in fact apartments have become ever smaller to fit in as many as possible, and keep prices down. Expansive apartments with fittings that will last seem increasingly to be restricted to the luxury market. “The traditional-sized flat (650 sq ft) has become too expensive for many buyers so developers have shrunk the product to fit the buyer’s wallet,” notes Family-Friendly Cities – Reality or Myth?, a Knight Frank report on Birmingham.

This restricts potential occupants to those without too many possessions – or children. Single people who have never married account for about 75 per cent of the adults in central Liverpool and Manchester, yet these “crash-pads” will be counted towards the Government’s target of 3 million new homes by 2020, designed to help families priced out of home ownership. But put concerns about what this means for the future of our cities – or the sustainability of the rental market – to developers and they blame government rules on high-density building, In Cardiff, City Lofts, with its reputation for multi-storey apartments, will soon hear whether a planning amendment for Bay Pointe, on Cardiff Bay, is approved. The outline permission is for 997 private residential properties (comprising 142 townhouses and 855 apartments) and 130 affordable units. City Lofts wants to put up 2,400 studio, one, two and three-bedroom apartments instead. Why? Sales and marketing director Andy Hurst says: “Broadly speaking, you would tend to find more apartments in a location like this than townhouses. The bias will be towards investors and those looking for a second home.”

Unsubstantiated reports suggest that up to 70 per cent of apartments in the centre of Leeds are empty. David Ireland, the chief executive of the Empty Homes Agency, dismisses this as lurid speculation, but his theory about empty flats is interesting. “One of the reasons why this has come about is because a lot of people are getting caught out buying off-plan in a flooded market,” he says. “They have ended up saddled with it because they couldn’t offload it before it was completed.” Savills estimates that in London as many as 50 per cent of new flats, which are concentrated in the regenerating East London area, are sold to investors who intend to sell on before completion or “flip” them.

Such figures indicate trouble ahead. Lee Dribben, the chairman of the Residential Landlords Association, believes that “buy-to-leave” is already over. “Where is the logic [of keeping a place to sell on as a virgin property] in relation to the current oversupply? You have all your oncosts, your insurance, to pay, and the fear that your capital investment might be going down. And no rent coming in. It’s over, definitely.”

EXPERTVIEW

Richard Donnell, director of research, www.hometrack.co.uk: “The current uncertainty appears to be resulting in a decline in the numbers of homes coming on to the market, which is likely to support underlying prices in the coming months.”

Ed Stansfield, property economist, www.capitaleconomics.co.uk: “Recent falls in new-buyer inquiries signal a further fall in mortgage demand in the months ahead. With the Bank of England monetary policy committee seemingly in no rush to lower interest rates, we expect a much weaker house price picture to emerge over the next few months.”

Max Ziff, chief executive, www.humberts.co.uk: “We need a half a percentage point interest rate cut by the end of the year to stabilise the market. If rates are not cut, we could be down 5 per cent next year. If bonuses are really bad, the falls in Central London could be greater, though I don’t put it in crash territory.”

Fionnuala Earley, chief economist, www.nationwide.co.uk: “Homeowners may well need to content themselves with less spectacular returns on their houses over the next decade.”

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