Sunday, Jun 24, 2007
Cash cow is dead - or at least dying!
Observer: The signs are bad for buy-to-let amateurs
The price of new homes (a BTL favourite) in London had fallen by 3.7 per cent in just one month.
Posted by nearly30 @ 10:00 AM (149 views) Add Comment
20 Comments
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1. royston said...
"The price of new homes in London had fallen by 3.7 per cent in just one month."
Wow! Was that posted here? If so, I missed it. - Just....Wow!
2. nearly30 said...
As an aside - some posters have tried to state that BTL is a minority issue - I dispute this assertion because although the proportion is small there is a concentration of 'impact' in society.
For example - housing tends to be an aggregation of property types - estates of semis, streets of terraces, estates of new builds etc.. - so housing in this country is neither 'socially' mixed or varied in any one postcode - it tends to be more areas of equality and reflects local needs.
As for the 'sinister' property investors (inc. holiday homes) - they go for what they 'think' is profitable or they want as a liestyle (sorry lifestyle) and so have a major influence on specific regions/areas:
* Holiday homes - obvious demand due to location (sun, sea, prettyness etc.)
* Rural villages in.c 2nd homes - lifestyle, prettyness...
* Terraces - traditionally cheaper and good for 'flipping' (poor old FTB!)
* New builds - purchase perks (discounts etc..)
* Flats - easy to rent (or so they think)
The official figures say BTL makes up 11% of the market - but that is not a ubiquitous average - but an aggregation of 'pockets' of investment.
IMHO - they are competing with FTBs, 'in situ' local populations [with equity that reflects local income and opportunities] and having 'outsiders' (regionally [from other wealthier local areas] and nationall) unemcumbered by local wage issues - is a major issue.
There are plus points to BTL and investing - but when the system favours/gives perks to those with capital and equity - this has got to be a major negative.
3. Planning4acrash (previously Pr) said...
The person here says that amateur investors are a small part of the market, so, them leaving the market will not precipitate falls. This is misleading, because a small fall in demand from BTL'rs combined with a small fall in demand from first time buyers + a small increase in supply = a yawning gap between supply and demand. This is why sentiment can change very quickly, people forget, during a boom, that markets are very sensitive to change, when those causing supply and those causing demand change tack at the same time. This is what we will see in the coming months, and it will take many by surprise, but people will kick themselves in retrospect and we can say "I told you so"!
4. Stillthinking said...
BTL push demand over supply even if they are small in numbers. Ten houses, eleven buyers with a 10% reduction in buyers makes a big difference.
For a house crash to occur surely an economic event needs to happen though, as BTL need to stop buying -and- also firesale. Presumably we need all this food inflation to arrive. If there is a big crash I think that BTL will be able to get out as most have bought early. The real punishment will be the overstretched FTBs who lose their primary dwelling.
Brown will, I think, sneakily try to disguise inflation so there are no obvious problems, aside from the transfer of wealth to the propertied class from those without a 'portfolio'.
5. glen said...
The economics are quite simple. There is a certain cost to build a house. If the eventual sale price of the house is less than the cost of building, the house will not get built. If the eventual sale price of the house is greater than the cost of building, the house will be built.
If only a few houses are built and there is a demand, the price will rise because of a lack of supply. Kate Barker in her report identified that 200,000 new houses are required every year and the Government appears to have revised these figure to 230,000 new houses every year.
A fall in new house prices will reduce the margins that will be made in building houses and take the position closer to where the eventual sale price of the house is less than the cost of building and reduce the number of new houses being built.
The house builders are currently building between 160,000 and 175,000 new houses each year. With lower margins it is possible that the figure will fall below 160,000. Irrespective of the social impact of high housing costs may have, the worse scenario is an inadequate supply decent housing in which people can live.
I believe that the only way an adequate supply of decent housing can be maintained is by the continued increase in house prices. Consequently, if we want to live in a community that is properly housed, the cost is the rise in house prices. Thus I view a fall in house prices as a threat to the provision of the supply of decent housing in which people can live.
6. Scott said...
I have been in London now for over a year. My work has taken me to many places on this island. Some very nice, others very bad. Believe me when I say that London is over-rated, over-populated, dirty, dangerous, full of ethnic majorities and over-rated celebrities and crooked bankers. Once my contract is up I am leaving for good.
7. Blindleadtheblind said...
Glen a very simplistic view I must say. The number of unoccupied homes is? Sizes of new homes and how many people live in them is? Rental versus buying ratio and rents remaining staic would suggest your theory flawed, never mind the fact of the content of this article. Perhaps the biggest factor of all, what is the cost of borrowing to enable people to 'get on the ladder'?
8. nearly30 said...
For a local example - new builds at the bottom of my road (and they are cack!) have already lost £1 Million. As have the plethora less than 1 mile away. Many are those 'prison-esque' terraces and tiny flats.
Incidentally - does anyone have any info on the fact that builders now build houses to a 0.8 scale - in comparison to say a terrace circa 1900?
9. Planning4acrash (previously Pr) said...
Nearly 30, London authorities usually have room size and flat size policies based on old GLC figures that were used for social housing during the 1970's. These haven't changed. Council's often go against them in big developments because the sizes are set by supplementary planning guidance, so aren't statutory, and planning authorities are rarely supported on appeal, for big developments, if they object for reasons such as, single-aspect flats with no outlook or smaller than standard flats. In reality, there should be regulations for these things set in the building regulations. However, there are no building regulations on this issue, to take the issue even further, there are no regulations on the minimum height of a cieling. Sometimes you get an application for a block of flats, then they come in just before construction and fit in a couple more storeys within the same envelope. I've added a link to the mimumum requirements set by my council. See page 9:
http://www.hackney.gov.uk/spg1
10. enuii said...
Nearly30, I have two sets of books on 'Modern Building and Construction' that were both written in the early edwardian period (1902 & 1905) and cover working class housing and workmens cottages. Properties of the mid-terrace type have living rooms between 14' x 11' and 15' x 12' with larger end-terrace houses having living rooms of up to 19' x 14' and both have slightly smaller second rooms (termed scullerys) what we would know as a kitchen-diner with a downstairs internall loo as a separate room off it.
Don't know what size your average living room is nowadays in a small house though I imagine they are at least 25% smaller in most cases.
11. wiltshire said...
Still Thinking - "If there is a big crash I think that BTL will be able to get out as most have bought early". Sorry to contradict you but I think you'll find the vast majority of BTL's have been bought over the past 3 or 4 years when prices have been at their highest. I can't find the relevant figures right now but this comment is from the Guardian in February 2007 -
"The number of mortgages taken out by landlords shot up by almost 50% last year, figures showed today.
During 2006, banks, building societies and other lenders handed out 330,000 buy-to-let loans worth a total of £38.4bn.
The Council of Mortgage Lenders (CML) said the figure represented a 48% increase in volume and a 57% increase in value over 2005 levels.
In all, the number of buy-to-let mortgages outstanding now stands at around 850,000, worth a total of £94.8bn."
Source - http://money.guardian.co.uk/property/buyingtolet/story/0,,2012835,00.html
12. confused76 said...
Glen,
my God! please do not mention economics of house building (aahhhhaagggg!!)
Ever heard about land rationing and builders' cartel? Ever heard that land price is 60% building cost and land is not freely traded (there are construction permits). So please refresh your studies of Economics
As per the BTLers being a minority.
1. Yes they are just 200,000, owning circa 1m properties (avg 5 properties / each)
2. A large number of BTLers ane non-Brits, non voters, non tax domiciled etc,
3. So we are really lining the pockets of half the oil producing countries with our rentals
4. I foresee the government will not hesitate to disappoint 200,000 mostly non voters as soon as the opposition starts barking
As per the Barker's report, be ready to read the sequel, courtesy of the OFT
13. Planning4acrash (previously Pr) said...
Scott, whilst London isn't for everybody and whilst I don't think that censure is appropriate on the web, I'd advise you to keep your forked toungue to yourself. It is highly inappropriate to make passing racist comments about the ethnicity of London that have no basis other than your own prejudice. Next you will be blaming Jews for house price inflation, it has no place here. Don't you know that we are all immigrants if you look back far enough? Many Londoners believe that the ethnic diversity of London is its strong point. It is the most diverse city in the world with more inter race marraiges than anywhere else. I can go out and visit a Ghanain, Ethiopian, Afghani restaraunt at my pleasure, I can see the wonders of Bangla town in Brick Lane, I can see the fantastic bustle of China town. All that London needs is a purge of are closed minded zealots such as yourself. You are welcome to the dull, white middle class enclaves of the home counties.
14. royston said...
Glen,
Sorry, mate! You're an idiot!
15. speculatorone said...
12. royston correct..........
16. bingo said...
Just scanned the 'propertysnake' website at property in my area, NE1. It is crammed with potential BTL property literally crashing before my eyes... If you have any doubts at all as to the direction of the market, just check it out for yourselves.. OH, and Glen, you are clueless mate. It costs a builder about 100 grand to build a property which would sell for around 350k in Suburbs of Newcastle (more in SE), there are a lot of scavengers taking their lb of flesh out of the deal also; the land owner, developer, speculator, estate agent, broker, FSA, mortgage company, stamp duty etc. etc. Ask yourself this Glen, what does the guy who works in the local sausage factory or carphone warehouse buy? what can he afford? how does he get married and start a family? the market will find its own level eventually, if you think the only way is up for property prices, good luck to you... Personally, I think you are deluded. Let's wait and see...
17. dohousescrashinthewoods said...
THREE POINT SEVEN PERCENT IN ONE MONTH?!?
WTF? What is the reference (can't find it on ths smartnewhomes site)? Is it asking prices?
If this is true, surely it is tantamount to HPC right here right now?
18. tyrellcorporation said...
Don't shout too loud guys otherwise the MPC might delay July's hike!
I actually reckon just another 0.25% will kill it dead in most regions of the country with London coughing and it's eyes rolling around for a little longer!
19. enuii said...
Nice one tyrell, 'coughing and it's eyes rolling around for a little longer' (lol) brings a touch of visual comedy to the subject.
20. Maggots said...
bingo local estate agents in the consett area tell me the house market is slugish and only by dropping prices do many properties sell.this is desbite a strong influx of money from the irish being spent on btl..falling prices to fall further.i guess