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here to see housing forecast and prices for 2008
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.”
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.”
I have a number of buy to let properties. None of them have been purchased for more than 80% of their valuation and none of them are glitzy new build "luxury" apartments. The speculators who buy them are going to get what they deserve for being stupid enough to think the so called discounts were actually discounts and not just clever packaging by builders and financial advisors, however, the huge price increases are very little to do with buy to let and all to do with greedy banks. Ten years ago a married couple would get 3 times the first salary and 1 times the second for mortgages now they get 4 or even 5 times joint. Ten years ago nobody had an interest only mortgage, now many do. People can only pay for a property what the lender lends so instead of blaming buy to let buyers for the problem, do the maths and put the blame where it deserves to be with banks like the Northern Rock. Buy to let accounts for 8% of mortgages so ask yourselves what is pushing up the prices of the other 9%
JOHN ROBBINS, dundee, tayside
tony, birmingham, uk. I'm generally anti-BTL because I believe many people are renting only because they can't afford to buy. They can't afford to buy because BTL investors are hoarding property and so pushing up prices. However, your point is valid to the extent that a healthy UK economy does need a certain stock of rental property to allow workers to move around etc. My solution is simple, the UK govt implements a system such as the one used in Germany, where tenants have much stronger rights - essentially a tenant can't be evicted without good reason. This would sort out those who see BTL as a genuine business from those who are just speculating on future property prices. Personally, given the numbers of people who now rely on renting because they can't afford to buy, I think we will soon see tenants' rights increased - because there will be votes for any political party which promises to do this.
George, Brighton, UK
lets hope that the buy to let crowd do loose out (excepting the ones who are investing for pension reasons) it is in part they who have made it imposible for young people to buy their own homes . speculation moves prices of property out of proportion to the TRUE worth, read pension reasons in the same context as affordable housing NOT the pensions of the already rich.
m e coxson, market harborough, leicestershire
All these doom mongers are great too. I left the country to work aborad coz I couldnt afford a place on a UK salary. I didnt want to leave. I now have a flat, no savings and no pension. I am 36 with family, and these guys gloat over the theory that b2let investors are manipulating everybody. Some are some are not.
So do I believe the property vested interests or the theorists who prefer falls and damage to thousands of peoples little investments? The market is complicated and a crash will benefit some and ruin others.
This shouldnt be an ideology discussion, its a people one. "I hope b2l reap the downside" - not a helpful analysis. Just my penny's worth ;)
p, ad, uae
Bob Dawes is obviously anti BTL, but has he considered where all the tenants (one n) would live if we didn't exist?
Our tenants have no wish or cannot afford to buy, and local councils either have no houses available as they are all sidelined for asylum seekers, or the local housing stock has all been sold off to housing associations to avoid costs to the council.
Stop knocking BTL owners, we provide a necessary service.
tony, birmingham, uk
There are no first time buyers to start the resulting selling chain. The market will have to collapse by at least 20% to bring these people back into the marketplace.Hopefully this will start with the rush of BTL investor's taking to the market in the near future.
Nick Dixon, Sutton Coldfield, England
Leeds City Centre is indeed saturated with property that no-one wants. "Tomorrow's slums" as one of our civic sage's predicted not long ago.
Think of the glossy brochures Leeds City Council produced telling us how wonderful the city is, regeneration the great success story of a great city. I think not.
The whole character of Leeds has now changed; just like the identikit high street in Britain, we now have the identikit city centre - just as bland, boring, impersonal thanks to easy money and thoughtless bureaucrats.
The tragedy is that the properties are so undesirable to most people that even if prices drop dramatically, they will not attract traditional families. The logic is that they will fill up with poor immigrant families and the unemployable (thus guaranteeing an income from the government for the landlords) and Voila! - the slums of tomorrow are here.
Mark Harris, Leeds,
If you want to control house prices regulate the mortgage industry. 50 years ago mortgages were limited to 2.5 times husband's income with a 20% deposit. Consequently an expensive house cost around £3,000.
If BTL continues there will eventually be substantial landlord / tenant problems and the possibility of the politicians legislating for greater control over lettings.
Obvioiusly we need more dwellings but building thousands of chicken boxes will not provide a solution, and will contribute furher to social problems when families don't have enough space in their homes.
Philip Bowcock, Reading, Berks
Yet again, all of your 'experts' have a vested interest in the property market. Doesn't the Times have the contact details of anyone who is not in the property business? Surely our universities have plenty of economists who could give a counter-balancing view?
Anyway, notwithstanding the fact that none of your so called experts could bring themselves to say that the property market would go down the tubes next year, that is what will happen. “crash-pads†will take on a wholly different meaning!
Clint Walker, Staffordshire, UK
This could be an economics text. An oversupply of capital to the markets caused by low interest rates results in an asset boom followed by self delusion and a valuation of assets based on increasing appreciation rather than revenue stream (I don't need tennants the value of the property will always go up). This has been visible for years.
Add in some re-inforcement of the trend by government complacency and a poorly thought out regulatory environment designed to pander to the masses and what do you have! a completely avoidable mess.
Conventional history (i.e. repeated examples over thousands of years) suggests that the feedback loop when this stops is an unavoidable collapse. And good thing too - it's really time we used this countries economic greatness for something other than BTL profits. I hope all those buy to let investors reap the down-side that complements the risk they have taken for the up-side. Please don't bail them out Brown!
Bob Dawes, London,