April 2, 2025 • 22 mins
We're kicking off our special series on how to navigate the UK housing market. Professor Yolande Barnes at University College London joins host Merryn Somerset Webb to discuss the market as a whole: what’s the outlook for home prices, what’s the best strategy when purchasing your first property and why the UK is at risk of an oversupply in houses.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:14):
Welcome to Meren Trogs Your Money, the Personal Finance, a
vision of Merin Talg's Money. In these bonus podcasts, we
talk about the best strategies for making the most of
your money. I'm Marin sumsat Wet with Bloomberg UK Wealth
Editor at Large and with me senior reporter and author
of the award winning, Yes Award winning newsletter Money Distilled.
John Steppeck Hi, John, Hi, special day. Right, We're about
(00:36):
to do something we don't normally do, a mini series,
and this one is going to be on the one
thing apart from Golden Bitcoin, that our listeners really really
care about. Yeah, it's housing, heday, I know. And every
week we're going to look at a different topic. We're
going to cover everything you need to know, from what
(00:57):
the market looks like at the moment, how we expected
look or raunther, how other people expect it to look,
and everything you need to know about how to get
on that ladder. Yeah, that's right.
Speaker 3 (01:07):
We're really excited about this, showing we can handle the
commitment to plan in our head that far from the
entail series, I'm just seeing.
Speaker 2 (01:16):
I'm a planner. I can plan anyway we have to plan,
because there's a whole series. I'm going to cover every
single topic that you need to know about when it
comes to looking for a house in the UK, looking
at the UK property market and figuring out how to
deal with it. And we're going to start with the
most important episode in one that talks about the market
as a whole, where it is right now and how
to look at it, and the next couple of weeks
(01:37):
we're going to cover everything from how to get a
mortgage broker, whether you should have a mortgage broker, whether
you need a buying agency. Probably spoiler alert you do,
shared ownership? Is it worth it? You've got a spoiler
alert on that one. John, it's not. It's not. You're
going to guess is buying a new property always a mistake? Again?
Make sure spoiler alert there. Freehold versus lease hold? Which
(01:59):
is better? Why is it better? I think we all
instinctively know the answer to that, but we will tell
you about it in detail, and a couple more topics aside.
So there is a lot. John is so excited about this.
Speaker 3 (02:10):
I just cannot we and I just wanted to.
Speaker 2 (02:12):
See you say it in that voice. But it's not true.
You don't mean you really are in it every time,
every time more property numbers come out, You're always mad
to write a property, a column about property. You know
it's going to be read by everybody, right.
Speaker 3 (02:24):
Yeah, I do. I do love to cligbit.
Speaker 2 (02:27):
So on the show today you're going to be hearing
a conversation I had with professor of real estate Yolanda Barnes.
Professor Barnes teaches at University College of London and is
an expert in, as she puts it, thinking about things
that people in the real estate industry aren't yet thinking about.
We discuss why the enormous rise of house prices in
the UK except to page so that'll be nice, while
(02:48):
your first home should actually be your forever home, and
why she thinks it's possible that quite soon the UK
will not have too few homes, but too many homes
here first for it.
Speaker 3 (02:59):
John, She's that seems great. Yeah, I'm forty, isn't that one?
Speaker 2 (03:03):
Listening? Yo, Landon, Thank you and welcome to this podcast.
You are our first guest in our property series, so
we really appreciate you coming in.
Speaker 4 (03:14):
It's a real pleasure to be here, it's not honor great.
Speaker 2 (03:18):
Well, we're going to try and cover a massive topic
in a relatively short amount of time. So what I
would love it if you could do for us, just
as a starter, is give us a very general overview
of what's happening in the UK residential property market at
the moment. In prices, as we know, have been relatively
flat for quite a long time now, so it looks
(03:39):
like the bubble at least is over, but there is
no crash. Obviously, there's lots of regional variation, lots of
variation between different types of housing, but things are kind
of flat. Is that fair?
Speaker 4 (03:50):
I think that's very fair. I actually say we've come
to the end of the sort of late twentieth century
Great inflation, which of course included asset price inflation. So
by my reckoning, about half of the six hundred percent
or so growth that we've seen since the nineteen nineties
has been down simply to the reduction in interest rates,
(04:11):
which means we're capitalizing the value of housing at a
lower rate than we did, and that caused automatic house
price inflation. So that's out of the system now. We
can't rely on that. The housing market escalator isn't going
up anymore. And the only way I think we're going
to see values rise in housing is through genuine value
(04:33):
add There are market forces at play where basically a
lot of people want a house and there's limited supply
of that type of house.
Speaker 2 (04:41):
Okay, so we still have very high demand for housing
in the UK, although we always say on this show
we have to be careful to distinguish between genuine economic
demand and stuff people want but can't afford, because that's
a different thing altogether.
Speaker 4 (04:53):
Right, Yeah, I mean you could say demand for housing
is almost infinite. I mean, the way I think of
it is until everybody living in a mansion, probably none
of us are fully housed.
Speaker 2 (05:03):
But that's not real demand. That's not economic demand. That
stuff people want, which really doesn't have any impact on
the market.
Speaker 4 (05:10):
Well, it has impact on consumer markets, of course, if
we were talking about a consumer good, we would be
talking about demand for luxury goods or whatever. It's not
quite a straight relationship between one household equals demand for
one home. And actually we've been occupying larger and larger
homes over the years. When we're talking about supply, we've
(05:32):
got to consider strong qualitative element of that supply.
Speaker 2 (05:37):
Okay, So when you look out, let's say over the
next decade, you would expect to see house prices flat
ish in nominal terms, possibly falling slightly in real terms.
Is that fair?
Speaker 4 (05:51):
Yeah? I suppose in the long run you would expect
housing to pretty much follow inflation in other goods and services,
which means no real growth.
Speaker 2 (06:04):
And that's even though we're seeing fairly strong wage growth
in the UK. So you might say that if wages
grow more strongly than inflation, and over the next ten
year period, you could expect to see house prices rise
along with wages as opposed to a long with inflation.
Speaker 4 (06:17):
If demand exceeds supply, and with the big sort of
emphasis on the quality of demand and the quality of supply,
then you would expect to see house prices rise. However,
I think there are big questions around both demand and
supply going forward as well. I think that come next year,
(06:38):
we're actually going to start to see a surplus in
the market. This goes completely against a lot of the
thinking that's sort of driving the supply side issues. But
the plain fact is that we have been aging, but
we've become aged, so the rate of death is going
to go up and homes are going to be vacated
through executive sales. At the same time, because of demographic
(07:02):
changes and particularly fertility rates and so forth, the rate
of household formation is going down. So through simple demographic effects,
you've got simultaneously a rising number of homes being vacated
by older people downsizing or becoming deceased, and at the
same time you've got still growing household numbers, but at
(07:24):
a much lower rate than we've been.
Speaker 2 (07:26):
Used to in the past.
Speaker 4 (07:28):
And so the two lines are kind of moving away
from each other, and in the middle you get a surplus. Now,
bear in mind that ninety percent of the market is
supplied from second hand stock, is not supplied by the
speculative housebuilders, who are kind of a specialist niche building
about ten percent of stock in any one year. That
means that the second hand market has the biggest impact
(07:51):
on prices, and speculative housebuilders of price takers, not price makers.
So regardless of how much new stock, there is going
to be much greater surplus of the stock that most
people buy any given year.
Speaker 2 (08:06):
Interesting, and that sounds like if you're talking about that
housing free up because of the older people dying. That
suggests that the surplus will be at the higher end
of the market, larger home, rural homes, etc. As opposed
to say, the two bedroom flat end of the market.
Speaker 4 (08:21):
Absolutely, it will tend to be what you might call
street properties, the single family homes, rather than the multi
family housing.
Speaker 2 (08:28):
So you learned to here. I am, I'm coming to you.
I'm a young person, well youngish, and maybe I've got
a small family. Maybe I've married and I've got two kids.
What do you recommend I buy? What do you recommend
I do in a market like this? I mean, maybe
I should just rent. Maybe I should just rent.
Speaker 4 (08:46):
I still think there are very good reasons to buy.
I suppose my biggest concern and I think I think
one of the ways that we've sort of been characterizing
affordability in relation to incomes isn't very helpful, because, of course,
if you could be exactly the same young person with
the same family and have access somehow to capital, to equity,
(09:11):
or you could be somebody who doesn't. So a lot
of whether you enter the conventional housing market depends on
whether you have equity for housing. So usually that's called
the bank of Mum and Dad or it might increasingly
be inheritance, but the world kind of divides into equity
haves and equity have nots. Before you even start to
think about the type of property you buy, you're having
(09:33):
to think about the nature of your finance, and that's
going to affect the affordability. But let's assume you've managed
to save a sufficient deposit to obtain a mortgage. I
think the first tip is to think very carefully about
all those other costs of what you're buying, and that
(09:54):
you could not only afford the mortgage, but you could
you can also afford the energy costs and the mainintenance
and upkeep. I suspect your mortgage supply will increasingly be
asking that question. One home is always going to be
worth one home to you, so I think I think
the trick, and this is something that people have been
(10:15):
doing anyway, is when you do buy your forever home
or the home you're going to stay longest in. Because
the costs of trading, there's no longer the option really
to trade up every long rung of the so called
housing ladder. It doesn't work like that. The costs of
trading are just too too high to make that worthwhile
(10:35):
so what you want to do is just buy the home.
Buy the home in the location that you can see
yourself being happy to be in for the next thirty years.
You know, the place where you're happy to raise those children.
And so neighborhood is becoming much much more important, I
think than just the individual sort of property. It really
(10:59):
is the most important choice you'll make. I mean, the
old adage by the worst house in the best street
is sometimes a good one because I suppose this comes
back to the fact that when you're buying a home,
actually what you're buying is land. It's the land value
that's going to take up the most of the value
of a lot of properties throughout the country. It's very
(11:21):
rare that the costs of building the home are greater
than the value of the home. So the remainder is
land value. That's the locational value. And that's why neighborhoods
so important. So look at the neighborhood and the liveability
and what you want to get out, the utility and
amenity you want to extract, as it were, from your
(11:43):
own over a substantial period of time. And then actually
what happens to house prices doesn't matter very much. Because
you're housed at a price you can afford in a
place you love, and that's the name of the game.
And that means quite possibly taking a lot longer to
purchase a home than maybe we've been used to.
Speaker 2 (12:04):
Okay, interesting, So the key advice there is to buy
assuming you're not moving.
Speaker 4 (12:08):
Yeah, I think so.
Speaker 2 (12:10):
Do you see divisions in the market, regional divisions between
London where prices have in certain segments of London have
definitely been falling faster than in other areas. And we've
seen some big problems in prime London, right, depending on
how you view a problem, obviously, but prime London prices
have been struggling and flat prices in London have been struggling.
But there have been some areas in the North where
we've seen quite impressive price prices, right, So there's quite
(12:32):
a lot of regional disparity in here as well.
Speaker 1 (12:35):
Yeah.
Speaker 4 (12:35):
I think this is what most as will call a
late cycle play. This is exactly what you'd expect after
the immense rises that we saw in London and the
South after COVID. I think it's the North playing catch up.
Speaker 2 (12:50):
Okay. I was vaguely hoping you might tell us that
it was excitement about the reindustrialization of the UK and
house prices moving in advance of a productivity boom in
the Midlands. In the North. I'll keep hoping for that one.
So from what you're saying, it rather suggests that the
(13:11):
UK government plan to build, build, build, which everyone knows
that won't happen. But nonetheless it's a plan, like it
is for all governments. As you that plan isn't strictly
speaking necessary.
Speaker 4 (13:20):
It is not only not necessary, it could be quite
damaging in certain respects. One of the things that I'm
most conscious of is that actually the sort of fuel
poverty or energy poverty of many households means that we
could much more productively, I think, concentrate house building, as
it were, home building to the retrofit of homes to
(13:43):
reduce energy costs, and quite simply making existing homes better
would supply the market. We don't necessarily have to build
from scratch, and because it's a very expensive thing, you
have problems of land supply if you're building completely new
homes on bear field land. So we set ourselves a
(14:04):
very very difficult thing to do, and in particular very
difficult thing to do given the paucity of sort of
business models and economic models to actually deliver the housing.
Britain is really really odd amongst any certain European nation
in completely relying on speculative housebuilders to create new supply
(14:25):
of housing. The rate of self procurement, community build, self
build is much much higher elsewhere, so there's much greater
diversity of ways of getting yourself a home than buying
off a house builder.
Speaker 2 (14:37):
And that's kind of a planning problem in the UK,
isn't it. Pot planning part cultural.
Speaker 4 (14:42):
Ims a planning problem so much as we need to
create new industries, I mean, this is a growth story
in my view that if you really want to expand
the economy to construction, you need to actually create more
ways of owning and stewarding and developing and maintaining and
(15:03):
repairing land and buildings than we currently have.
Speaker 2 (15:07):
I've really enjoyed you calling the house builders the speculative housebuilders.
By the way, I think we need to do another
podcast on that, not for this one, but let's do
that one another time. The other thing I wanted to
ask you about is that when people go out into
the market, particularly first time buyers and maybe last time buyers,
as well, they often think that what they need is
a flat, not a house. So they look at the
(15:28):
market and they go, well, I'm buying something quite small,
maybe thousand square foot or smaller, whatever it is, because
I'm a young person or I'm an old person, down sizing,
so I should definitely only be looking at flats as
opposed to houses. But you have spoken quite interestingly about
the mistake that we make when we want to live
in smaller spaces or we want to live in dense spaces,
(15:50):
in thinking that if we want to live in a
high density way, we need to live in a high
rise way. And this doesn't necessarily correlate.
Speaker 4 (15:58):
Yes, spell the myth that high rise means high density,
you can get just as high density with mid rise
sort of townhouses or modern mansion blocks. You certainly don't
have to go high rise to get density. And where
we have built not only high rise buildings but what
I call massive buildings big block flatted housing. So a
(16:23):
mid rise would be the mansion block. It's also slim block,
a street based building that is not deep. Whereas, because
of peculiarities and planning laws and various other things, we
have been building massive blocks, which maybe let's say ten
store is high so not high rise in the conventional
(16:44):
sense of towers, but also very deep buildings with a
lot of communal sort of distribution space internally, and that
causes problems because the cost of maintenance and up keep
of those buildings is significantly higher, I mean really, in
(17:05):
some cases problematically higher than simpler buildings on a street
based sort of brid So the sort of things that
apartments that we've been building over the last thirty years
or so are inherently more expensive to run. And Loco
Bossier talked about towers being machines for living in, and
(17:26):
these are expensive machines for living in, so apart from
anything else you might want to say, the lift and
all that plant and machinery replaced after say thirty years,
that's a very expensive undertaking. Even where you don't have
those sorts of problems, you've got a lot of corridors
and lobbies, communals, faces to heat, light, decorate and refurbish
(17:50):
over time.
Speaker 2 (17:51):
Well, I was thinking earlier you lend it about windows.
I was thinking about it. You know, let's look at
this very simply. In a two or three story house,
is not that hard to clean the windows once you
get about four or five six stories, you're talking about
proper scaffolding or men dangling from the roof, etc. EXCEA.
Pretty much everything becomes significantly more expensive.
Speaker 4 (18:10):
Yes, And if we built buildings with say these A
pod bathrooms that were craned into place as they were built,
everyone got very excited about modern, modern methods of construction.
But what happens when that bathroom needs replacing becomes quite
a difficult technical issue because you're sure as heck, I
aren't going to be able to get a crane up
there to replace the porn. So I think there are
(18:33):
all sorts of costs associated with some of the things
that we've been built that will start to exacerbate that
polarization that you started to talk about in the market.
That between the simple terraced house or street property versus
the two bedroom flat in the twelfth floor of a
(18:57):
big block, there's quite a world of difference and the
sort of lifetime costs of running those two homes.
Speaker 2 (19:03):
Yeah, we've heard a lot recently about people buying flats
lease holes, and that that's changing obviously with the new regulations,
but the cost will remain the same, and seeing their
service charges ratchet up over and over at levels that
they certainly didn't expect when they bought. And it's kind
of an interesting example of how these costs keep moving
in directions to people simply didn't expect because they didn't
understand how much more expensive it is at per square
(19:26):
foot to maintain a whooping great building like this relative
to a three bedroom terraced house.
Speaker 1 (19:31):
Yeah.
Speaker 4 (19:31):
I think we're going to see a lot of angst
and problems starting to come up around service charges. And
these service charges are in some cases artificially low right
now because they haven't got what's called the sinking fund
to pay for the future repair and maintenance and replacement
(19:53):
of plant, for example, so they look reasonable and artificially low.
They can only go up as time goes on. And
of course, maybe people didn't mind paying a big service
charge when the value of the home was rising by
many times more than that service charge every year. But
I think if we're into a very low growth, relatively
(20:17):
low growth period for home prices, then you'll really get
to start noticing the cost of maintenance and upkeeper and
service charges.
Speaker 2 (20:25):
Yeah, and that should make a long term difference to
the value of the flats and the price at which
they can sold, which presually you can already see people
getting instinctively because the prices of leasehold flats are lower
than you might have expected a decade ago.
Speaker 4 (20:38):
Exactly, you're going to have to somehow capitalize your costs
over the time you expect to occupy the home, and
you're going to want to get that knocked off the
capital value. That just simple as that. This is what
I mean by the qualitative nature of supply. There's going
to be these big sort of qualitative differences between the
(20:59):
good homes and the expensive homes, expensive to run homes.
Speaker 2 (21:03):
I think we've covered the basics of the housing market,
how it looks, and have people should be looking at
it at the moment. Is there anything you can think
of that we've missed on that conversation.
Speaker 4 (21:13):
The housing market, I've often said, is not a single market.
It's a series of submarkets or waving in different ways.
So there are big global influences, like the reduction in
interest rates, which has a really powerful effect. But what
it means is that there are just so many caveats
and conditions on what I've just said that it's very
(21:37):
difficult to talk in general terms. But I think the
main point is that we've got to get used to
the twenty first century being a different environment. I think
the more we look back on it, the more we
all see the late twentieth century as an abnormal period
in history when inflation and interest rates and growth and
prices went crazy, and we're in for something quite different.
(22:00):
I think going.
Speaker 2 (22:00):
Forward orlanda thank you so much for joining us today.
Speaker 4 (22:03):
It's been a real pleasure.
Speaker 2 (22:04):
Thank you. Thanks for listening to this week's Meren Talks
Your Money. If you like our show, rate review, and
subscribe wherever you listen to podcasts also be showed. Follow
me and John on x or Twitter at meren sw
and John underscore stepech. This episode was produced by Summersidi
and Moses and sound designed by Blake Maples. Special thanks
(22:25):
to Professor Yolanda Barnes. Questions and comments on this show
and all our shows are always welcome. Our show email
is Meren Money at Bloomberg dot net.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:14):
Welcome to Meren Trogs Your Money, the Personal Finance, a
vision of Merin Talg's Money. In these bonus podcasts, we
talk about the best strategies for making the most of
your money. I'm Marin sumsat Wet with Bloomberg UK Wealth
Editor at Large and with me senior reporter and author
of the award winning, Yes Award winning newsletter Money Distilled.
John Steppeck Hi, John, Hi, special day. Right, We're about
(00:36):
to do something we don't normally do, a mini series,
and this one is going to be on the one
thing apart from Golden Bitcoin, that our listeners really really
care about. Yeah, it's housing, heday, I know. And every
week we're going to look at a different topic. We're
going to cover everything you need to know, from what
(00:57):
the market looks like at the moment, how we expected
look or raunther, how other people expect it to look,
and everything you need to know about how to get
on that ladder. Yeah, that's right.
Speaker 3 (01:07):
We're really excited about this, showing we can handle the
commitment to plan in our head that far from the
entail series, I'm just seeing.
Speaker 2 (01:16):
I'm a planner. I can plan anyway we have to plan,
because there's a whole series. I'm going to cover every
single topic that you need to know about when it
comes to looking for a house in the UK, looking
at the UK property market and figuring out how to
deal with it. And we're going to start with the
most important episode in one that talks about the market
as a whole, where it is right now and how
to look at it, and the next couple of weeks
(01:37):
we're going to cover everything from how to get a
mortgage broker, whether you should have a mortgage broker, whether
you need a buying agency. Probably spoiler alert you do,
shared ownership? Is it worth it? You've got a spoiler
alert on that one. John, it's not. It's not. You're
going to guess is buying a new property always a mistake? Again?
Make sure spoiler alert there. Freehold versus lease hold? Which
(01:59):
is better? Why is it better? I think we all
instinctively know the answer to that, but we will tell
you about it in detail, and a couple more topics aside.
So there is a lot. John is so excited about this.
Speaker 3 (02:10):
I just cannot we and I just wanted to.
Speaker 2 (02:12):
See you say it in that voice. But it's not true.
You don't mean you really are in it every time,
every time more property numbers come out, You're always mad
to write a property, a column about property. You know
it's going to be read by everybody, right.
Speaker 3 (02:24):
Yeah, I do. I do love to cligbit.
Speaker 2 (02:27):
So on the show today you're going to be hearing
a conversation I had with professor of real estate Yolanda Barnes.
Professor Barnes teaches at University College of London and is
an expert in, as she puts it, thinking about things
that people in the real estate industry aren't yet thinking about.
We discuss why the enormous rise of house prices in
the UK except to page so that'll be nice, while
(02:48):
your first home should actually be your forever home, and
why she thinks it's possible that quite soon the UK
will not have too few homes, but too many homes
here first for it.
Speaker 3 (02:59):
John, She's that seems great. Yeah, I'm forty, isn't that one?
Speaker 2 (03:03):
Listening? Yo, Landon, Thank you and welcome to this podcast.
You are our first guest in our property series, so
we really appreciate you coming in.
Speaker 4 (03:14):
It's a real pleasure to be here, it's not honor great.
Speaker 2 (03:18):
Well, we're going to try and cover a massive topic
in a relatively short amount of time. So what I
would love it if you could do for us, just
as a starter, is give us a very general overview
of what's happening in the UK residential property market at
the moment. In prices, as we know, have been relatively
flat for quite a long time now, so it looks
(03:39):
like the bubble at least is over, but there is
no crash. Obviously, there's lots of regional variation, lots of
variation between different types of housing, but things are kind
of flat. Is that fair?
Speaker 4 (03:50):
I think that's very fair. I actually say we've come
to the end of the sort of late twentieth century
Great inflation, which of course included asset price inflation. So
by my reckoning, about half of the six hundred percent
or so growth that we've seen since the nineteen nineties
has been down simply to the reduction in interest rates,
(04:11):
which means we're capitalizing the value of housing at a
lower rate than we did, and that caused automatic house
price inflation. So that's out of the system now. We
can't rely on that. The housing market escalator isn't going
up anymore. And the only way I think we're going
to see values rise in housing is through genuine value
(04:33):
add There are market forces at play where basically a
lot of people want a house and there's limited supply
of that type of house.
Speaker 2 (04:41):
Okay, so we still have very high demand for housing
in the UK, although we always say on this show
we have to be careful to distinguish between genuine economic
demand and stuff people want but can't afford, because that's
a different thing altogether.
Speaker 4 (04:53):
Right, Yeah, I mean you could say demand for housing
is almost infinite. I mean, the way I think of
it is until everybody living in a mansion, probably none
of us are fully housed.
Speaker 2 (05:03):
But that's not real demand. That's not economic demand. That
stuff people want, which really doesn't have any impact on
the market.
Speaker 4 (05:10):
Well, it has impact on consumer markets, of course, if
we were talking about a consumer good, we would be
talking about demand for luxury goods or whatever. It's not
quite a straight relationship between one household equals demand for
one home. And actually we've been occupying larger and larger
homes over the years. When we're talking about supply, we've
(05:32):
got to consider strong qualitative element of that supply.
Speaker 2 (05:37):
Okay, So when you look out, let's say over the
next decade, you would expect to see house prices flat
ish in nominal terms, possibly falling slightly in real terms.
Is that fair?
Speaker 4 (05:51):
Yeah? I suppose in the long run you would expect
housing to pretty much follow inflation in other goods and services,
which means no real growth.
Speaker 2 (06:04):
And that's even though we're seeing fairly strong wage growth
in the UK. So you might say that if wages
grow more strongly than inflation, and over the next ten
year period, you could expect to see house prices rise
along with wages as opposed to a long with inflation.
Speaker 4 (06:17):
If demand exceeds supply, and with the big sort of
emphasis on the quality of demand and the quality of supply,
then you would expect to see house prices rise. However,
I think there are big questions around both demand and
supply going forward as well. I think that come next year,
(06:38):
we're actually going to start to see a surplus in
the market. This goes completely against a lot of the
thinking that's sort of driving the supply side issues. But
the plain fact is that we have been aging, but
we've become aged, so the rate of death is going
to go up and homes are going to be vacated
through executive sales. At the same time, because of demographic
(07:02):
changes and particularly fertility rates and so forth, the rate
of household formation is going down. So through simple demographic effects,
you've got simultaneously a rising number of homes being vacated
by older people downsizing or becoming deceased, and at the
same time you've got still growing household numbers, but at
(07:24):
a much lower rate than we've been.
Speaker 2 (07:26):
Used to in the past.
Speaker 4 (07:28):
And so the two lines are kind of moving away
from each other, and in the middle you get a surplus. Now,
bear in mind that ninety percent of the market is
supplied from second hand stock, is not supplied by the
speculative housebuilders, who are kind of a specialist niche building
about ten percent of stock in any one year. That
means that the second hand market has the biggest impact
(07:51):
on prices, and speculative housebuilders of price takers, not price makers.
So regardless of how much new stock, there is going
to be much greater surplus of the stock that most
people buy any given year.
Speaker 2 (08:06):
Interesting, and that sounds like if you're talking about that
housing free up because of the older people dying. That
suggests that the surplus will be at the higher end
of the market, larger home, rural homes, etc. As opposed
to say, the two bedroom flat end of the market.
Speaker 4 (08:21):
Absolutely, it will tend to be what you might call
street properties, the single family homes, rather than the multi
family housing.
Speaker 2 (08:28):
So you learned to here. I am, I'm coming to you.
I'm a young person, well youngish, and maybe I've got
a small family. Maybe I've married and I've got two kids.
What do you recommend I buy? What do you recommend
I do in a market like this? I mean, maybe
I should just rent. Maybe I should just rent.
Speaker 4 (08:46):
I still think there are very good reasons to buy.
I suppose my biggest concern and I think I think
one of the ways that we've sort of been characterizing
affordability in relation to incomes isn't very helpful, because, of course,
if you could be exactly the same young person with
the same family and have access somehow to capital, to equity,
(09:11):
or you could be somebody who doesn't. So a lot
of whether you enter the conventional housing market depends on
whether you have equity for housing. So usually that's called
the bank of Mum and Dad or it might increasingly
be inheritance, but the world kind of divides into equity
haves and equity have nots. Before you even start to
think about the type of property you buy, you're having
(09:33):
to think about the nature of your finance, and that's
going to affect the affordability. But let's assume you've managed
to save a sufficient deposit to obtain a mortgage. I
think the first tip is to think very carefully about
all those other costs of what you're buying, and that
(09:54):
you could not only afford the mortgage, but you could
you can also afford the energy costs and the mainintenance
and upkeep. I suspect your mortgage supply will increasingly be
asking that question. One home is always going to be
worth one home to you, so I think I think
the trick, and this is something that people have been
(10:15):
doing anyway, is when you do buy your forever home
or the home you're going to stay longest in. Because
the costs of trading, there's no longer the option really
to trade up every long rung of the so called
housing ladder. It doesn't work like that. The costs of
trading are just too too high to make that worthwhile
(10:35):
so what you want to do is just buy the home.
Buy the home in the location that you can see
yourself being happy to be in for the next thirty years.
You know, the place where you're happy to raise those children.
And so neighborhood is becoming much much more important, I
think than just the individual sort of property. It really
(10:59):
is the most important choice you'll make. I mean, the
old adage by the worst house in the best street
is sometimes a good one because I suppose this comes
back to the fact that when you're buying a home,
actually what you're buying is land. It's the land value
that's going to take up the most of the value
of a lot of properties throughout the country. It's very
(11:21):
rare that the costs of building the home are greater
than the value of the home. So the remainder is
land value. That's the locational value. And that's why neighborhoods
so important. So look at the neighborhood and the liveability
and what you want to get out, the utility and
amenity you want to extract, as it were, from your
(11:43):
own over a substantial period of time. And then actually
what happens to house prices doesn't matter very much. Because
you're housed at a price you can afford in a
place you love, and that's the name of the game.
And that means quite possibly taking a lot longer to
purchase a home than maybe we've been used to.
Speaker 2 (12:04):
Okay, interesting, So the key advice there is to buy
assuming you're not moving.
Speaker 4 (12:08):
Yeah, I think so.
Speaker 2 (12:10):
Do you see divisions in the market, regional divisions between
London where prices have in certain segments of London have
definitely been falling faster than in other areas. And we've
seen some big problems in prime London, right, depending on
how you view a problem, obviously, but prime London prices
have been struggling and flat prices in London have been struggling.
But there have been some areas in the North where
we've seen quite impressive price prices, right, So there's quite
(12:32):
a lot of regional disparity in here as well.
Speaker 1 (12:35):
Yeah.
Speaker 4 (12:35):
I think this is what most as will call a
late cycle play. This is exactly what you'd expect after
the immense rises that we saw in London and the
South after COVID. I think it's the North playing catch up.
Speaker 2 (12:50):
Okay. I was vaguely hoping you might tell us that
it was excitement about the reindustrialization of the UK and
house prices moving in advance of a productivity boom in
the Midlands. In the North. I'll keep hoping for that one.
So from what you're saying, it rather suggests that the
(13:11):
UK government plan to build, build, build, which everyone knows
that won't happen. But nonetheless it's a plan, like it
is for all governments. As you that plan isn't strictly
speaking necessary.
Speaker 4 (13:20):
It is not only not necessary, it could be quite
damaging in certain respects. One of the things that I'm
most conscious of is that actually the sort of fuel
poverty or energy poverty of many households means that we
could much more productively, I think, concentrate house building, as
it were, home building to the retrofit of homes to
(13:43):
reduce energy costs, and quite simply making existing homes better
would supply the market. We don't necessarily have to build
from scratch, and because it's a very expensive thing, you
have problems of land supply if you're building completely new
homes on bear field land. So we set ourselves a
(14:04):
very very difficult thing to do, and in particular very
difficult thing to do given the paucity of sort of
business models and economic models to actually deliver the housing.
Britain is really really odd amongst any certain European nation
in completely relying on speculative housebuilders to create new supply
(14:25):
of housing. The rate of self procurement, community build, self
build is much much higher elsewhere, so there's much greater
diversity of ways of getting yourself a home than buying
off a house builder.
Speaker 2 (14:37):
And that's kind of a planning problem in the UK,
isn't it. Pot planning part cultural.
Speaker 4 (14:42):
Ims a planning problem so much as we need to
create new industries, I mean, this is a growth story
in my view that if you really want to expand
the economy to construction, you need to actually create more
ways of owning and stewarding and developing and maintaining and
(15:03):
repairing land and buildings than we currently have.
Speaker 2 (15:07):
I've really enjoyed you calling the house builders the speculative housebuilders.
By the way, I think we need to do another
podcast on that, not for this one, but let's do
that one another time. The other thing I wanted to
ask you about is that when people go out into
the market, particularly first time buyers and maybe last time buyers,
as well, they often think that what they need is
a flat, not a house. So they look at the
(15:28):
market and they go, well, I'm buying something quite small,
maybe thousand square foot or smaller, whatever it is, because
I'm a young person or I'm an old person, down sizing,
so I should definitely only be looking at flats as
opposed to houses. But you have spoken quite interestingly about
the mistake that we make when we want to live
in smaller spaces or we want to live in dense spaces,
(15:50):
in thinking that if we want to live in a
high density way, we need to live in a high
rise way. And this doesn't necessarily correlate.
Speaker 4 (15:58):
Yes, spell the myth that high rise means high density,
you can get just as high density with mid rise
sort of townhouses or modern mansion blocks. You certainly don't
have to go high rise to get density. And where
we have built not only high rise buildings but what
I call massive buildings big block flatted housing. So a
(16:23):
mid rise would be the mansion block. It's also slim block,
a street based building that is not deep. Whereas, because
of peculiarities and planning laws and various other things, we
have been building massive blocks, which maybe let's say ten
store is high so not high rise in the conventional
(16:44):
sense of towers, but also very deep buildings with a
lot of communal sort of distribution space internally, and that
causes problems because the cost of maintenance and up keep
of those buildings is significantly higher, I mean really, in
(17:05):
some cases problematically higher than simpler buildings on a street
based sort of brid So the sort of things that
apartments that we've been building over the last thirty years
or so are inherently more expensive to run. And Loco
Bossier talked about towers being machines for living in, and
(17:26):
these are expensive machines for living in, so apart from
anything else you might want to say, the lift and
all that plant and machinery replaced after say thirty years,
that's a very expensive undertaking. Even where you don't have
those sorts of problems, you've got a lot of corridors
and lobbies, communals, faces to heat, light, decorate and refurbish
(17:50):
over time.
Speaker 2 (17:51):
Well, I was thinking earlier you lend it about windows.
I was thinking about it. You know, let's look at
this very simply. In a two or three story house,
is not that hard to clean the windows once you
get about four or five six stories, you're talking about
proper scaffolding or men dangling from the roof, etc. EXCEA.
Pretty much everything becomes significantly more expensive.
Speaker 4 (18:10):
Yes, And if we built buildings with say these A
pod bathrooms that were craned into place as they were built,
everyone got very excited about modern, modern methods of construction.
But what happens when that bathroom needs replacing becomes quite
a difficult technical issue because you're sure as heck, I
aren't going to be able to get a crane up
there to replace the porn. So I think there are
(18:33):
all sorts of costs associated with some of the things
that we've been built that will start to exacerbate that
polarization that you started to talk about in the market.
That between the simple terraced house or street property versus
the two bedroom flat in the twelfth floor of a
(18:57):
big block, there's quite a world of difference and the
sort of lifetime costs of running those two homes.
Speaker 2 (19:03):
Yeah, we've heard a lot recently about people buying flats
lease holes, and that that's changing obviously with the new regulations,
but the cost will remain the same, and seeing their
service charges ratchet up over and over at levels that
they certainly didn't expect when they bought. And it's kind
of an interesting example of how these costs keep moving
in directions to people simply didn't expect because they didn't
understand how much more expensive it is at per square
(19:26):
foot to maintain a whooping great building like this relative
to a three bedroom terraced house.
Speaker 1 (19:31):
Yeah.
Speaker 4 (19:31):
I think we're going to see a lot of angst
and problems starting to come up around service charges. And
these service charges are in some cases artificially low right
now because they haven't got what's called the sinking fund
to pay for the future repair and maintenance and replacement
(19:53):
of plant, for example, so they look reasonable and artificially low.
They can only go up as time goes on. And
of course, maybe people didn't mind paying a big service
charge when the value of the home was rising by
many times more than that service charge every year. But
I think if we're into a very low growth, relatively
(20:17):
low growth period for home prices, then you'll really get
to start noticing the cost of maintenance and upkeeper and
service charges.
Speaker 2 (20:25):
Yeah, and that should make a long term difference to
the value of the flats and the price at which
they can sold, which presually you can already see people
getting instinctively because the prices of leasehold flats are lower
than you might have expected a decade ago.
Speaker 4 (20:38):
Exactly, you're going to have to somehow capitalize your costs
over the time you expect to occupy the home, and
you're going to want to get that knocked off the
capital value. That just simple as that. This is what
I mean by the qualitative nature of supply. There's going
to be these big sort of qualitative differences between the
(20:59):
good homes and the expensive homes, expensive to run homes.
Speaker 2 (21:03):
I think we've covered the basics of the housing market,
how it looks, and have people should be looking at
it at the moment. Is there anything you can think
of that we've missed on that conversation.
Speaker 4 (21:13):
The housing market, I've often said, is not a single market.
It's a series of submarkets or waving in different ways.
So there are big global influences, like the reduction in
interest rates, which has a really powerful effect. But what
it means is that there are just so many caveats
and conditions on what I've just said that it's very
(21:37):
difficult to talk in general terms. But I think the
main point is that we've got to get used to
the twenty first century being a different environment. I think
the more we look back on it, the more we
all see the late twentieth century as an abnormal period
in history when inflation and interest rates and growth and
prices went crazy, and we're in for something quite different.
(22:00):
I think going.
Speaker 2 (22:00):
Forward orlanda thank you so much for joining us today.
Speaker 4 (22:03):
It's been a real pleasure.
Speaker 2 (22:04):
Thank you. Thanks for listening to this week's Meren Talks
Your Money. If you like our show, rate review, and
subscribe wherever you listen to podcasts also be showed. Follow
me and John on x or Twitter at meren sw
and John underscore stepech. This episode was produced by Summersidi
and Moses and sound designed by Blake Maples. Special thanks
(22:25):
to Professor Yolanda Barnes. Questions and comments on this show
and all our shows are always welcome. Our show email
is Meren Money at Bloomberg dot net.
Host
Merryn Somerset Webb
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