May 29, 2025 • 23 mins
Today's show features a special episode from Bloomberg's Merryn Talks Your Money mini-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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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Hi.
Speaker 2 (00:08):
There it's me friend scene. Instead of hearing your usual
in the city episode, today, we're bringing you something a
little bit different. For the last few months, our Bloomberg
colleagues Maren Somerset Web and John Steppeck from the Merrin
Talks Your Money podcast have been working on a personal
finance mini series focused on the UK housing market. The
series will help listeners get to groups with where the
(00:31):
UK housing market is right now and where it might
be heading.
Speaker 1 (00:42):
Welcome to Merendrogs Your Money, the personal finance vision of
Merendrog's Money. In these bonus podcasts, we talk about the
best strategies for making the most of your money. I'm
Maren thums at Webb Bloomberg UK Wealth Editor at Large
and with me senior reporter and author of the award winning, Yes,
award winning newsletter Money to Still John Steppeck, Hi, John, Hi,
(01:02):
special day. Right. We're about 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,
I know. And every week we're gonna look at a
different topic. We're going to cover everything you need to know,
(01:24):
from what the market looks like at the moment, how
we expect it to look rounther, how other people expect
it to look and everything you need to know about
how to get on that ladder. Yeah, that's right. 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 I'm a planner. I can plan anyway
(01:47):
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 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 we're going to cover everything from how
to get a mortgage broker, whether you should have a
(02:08):
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 going have guest. Is buying a new
property always a mistake? Again? Make sure spoiler alert the
freehold versus lease hold? Which is better? Why is it better?
(02:28):
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. I just cannot wait
and I just want to see you say in that voice,
but it's not true. You don't mean it. You really
are every time, every time more property numbers come out,
you are always mad to write a property, a column
about property. You know it's going to be read by everybody, right, yeah,
(02:51):
I do.
Speaker 2 (02:52):
I do love the cligbit.
Speaker 1 (02:55):
So onto the show today, you're going to be hearing
a conversation I had with professor of real Estate your
Land of Barnes. Professor Marnes 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 praises in the UK except to phase so
that'll be nice while your first home should actually be
(03:17):
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. Head here first for it, John,
She seems great. Yeah, I'm looking forty one listen in
y'r landon. Thank you and welcome to this podcast. You
(03:38):
are our first guest in our property series, so we
really appreciate you coming in.
Speaker 3 (03:42):
It's a real pleasure to be here. It's not honor great.
Speaker 1 (03:45):
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
(04:06):
like the bubble at least is over. But there is
no crash. Obviously, there's lots of regional variation, lots of
variations between different types of housing, but things are kind
of flat. Is that fair?
Speaker 3 (04:17):
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,
(04:38):
which means we're capitalizing the value of housing at a
lower rate than we did and that's caused automatic house
price inflation. So that's out of the system.
Speaker 1 (04:48):
Now.
Speaker 3 (04:48):
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 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 1 (05:09):
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. Right, Yeah, I.
Speaker 3 (05:21):
Mean you could say demand for housing is almost infinite.
I mean, the way I think of it is until
everybody is living in a mansion, probably none of us
are fully housed.
Speaker 1 (05:31):
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 3 (05:38):
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, I've
(06:00):
got to consider strong qualitative element of that supply.
Speaker 1 (06:04):
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 2 (06:19):
Yeah?
Speaker 3 (06:19):
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 1 (06:31):
Yeah. 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 long with inflation.
Speaker 3 (06:44):
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 but both demand
and supply going forward as well. I think that come
(07:05):
next year, we're actually going to start to see a
surplus in the market. This goes completely against a lot
of the thinking that 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
(07:29):
demographic 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,
(07:51):
but at a much lower rate than we've been used
to in the past. 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.
It's not supplied by the speculative housebuilders who are kind
of a specialist niche building about ten percent of stock
(08:13):
in any one year. That means that the second hand
market has the biggest impact on prices and speculative housebuilders
of price takers, not price makers. So regardless of how
much new stock we add, there is going to be
much greater surplus of the stock that most people buy
any given year.
Speaker 1 (08:34):
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 3 (08:48):
Absolutely, it will tend to be what you might call
street properties, the single family homes, rather than the multi
family housing.
Speaker 1 (08:56):
So your lander here, I am, I'm coming to you.
I'm a young person, well young, 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 3 (09:14):
I still think there are very good reasons to buy.
I suppose my biggest concern and 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,
(09:39):
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 not. Before you even start to
think about the type of property you buy, you're having
(10:00):
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
(10:21):
you could not only afford the mortgage, but you can
also afford the energy costs and the maintenance 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 the trick, and this is
something that people have been doing anyway, is when you
(10:44):
do buy your forever home or the home you're going
to stay longest in because the costs of trade, 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 high
to make that worthwhile. So what you want to do
is just buy the home. Buy the home in the
(11:07):
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 is the most
(11:27):
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 rare that the
(11:49):
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 home over a
(12:12):
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 1 (12:32):
Okay, interesting, So the key advice there is to buy
assuming you're not moving.
Speaker 3 (12:36):
Yeah, I think so.
Speaker 1 (12:37):
Do you see divisions in the market, A 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, there's
(13:00):
quite a lot of regional disparity in here as well.
Speaker 3 (13:02):
Yeah, I think this is what most and 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 a North playing catch up.
Speaker 1 (13:18):
Okay. I was vaguely hoping you might tell us that
it was excitement about the reindustrialization of the UK and
house price is 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 suggest
that the UK government's plan to build, build, build, which
(13:41):
everyone knows that won't happen, but nonetheless it's a plan
like it is for all governments. Actually that plan isn't
strictly speaking necessary.
Speaker 3 (13:47):
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
(14:11):
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
(14:32):
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
(14:52):
of housing. The rate of self procurement, community build, self
build is much much higher elsewhere, much greater diversity of
ways of getting yourself a home than buying off a housebuilder.
Speaker 1 (15:05):
And that's kind of a planning problem in the UK,
isn't it? Pop planning? Pop cultural?
Speaker 3 (15:09):
I think it's 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
(15:29):
maintaining and repairing land. And buildings than we currently have.
Speaker 1 (15:34):
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. It's 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
(15:55):
at the 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 downsizing,
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,
(16:18):
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 3 (16:26):
Yes, let's dispel 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
(16:50):
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
(17:12):
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 upkeep of
those buildings is significantly higher, I mean really, in some
(17:32):
cases problematically higher than simpler buildings on a street based
sort of grid. 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 Boissier
talked about towers being machines for living in, and these
(17:54):
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,
communal spaces to heat, light, decorate, and refurbish over time.
Speaker 1 (18:18):
Well, I was thinking earlier, you Leanda, about windows. I
was thinking about, 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, etcetera, etcetera. Pretty much everything
becomes significantly more expensive.
Speaker 3 (18:37):
Yes, and if we built buildings with say these pod
bathrooms that were craned into place as they were built,
everyone got very excited about 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 all
(19:01):
sorts of costs associated with some of the things that
we've been built that will 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
(19:24):
big block. There's quite a world of difference in the
sort of lifetime costs of running those two homes.
Speaker 1 (19:31):
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 to 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 a per square
(19:54):
foot to maintain a whooping great building like this relative
to a three bedroom terraced house.
Speaker 3 (19:59):
Yeah, 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
(20:20):
replacement 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,
(20:43):
relatively low growth period for home prices, then you'll really
get to start noticing the cost of maintenance and upkeeper
and service charges.
Speaker 1 (20:52):
Yeah, and that should make a long term difference to
the value of the lats and the price at which
they can sold, which presumbly you can already see people
getting instinctively because the prices of leasehold flats are lower
than you might have expected a decade ago.
Speaker 3 (21:06):
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.
Speaker 1 (21:18):
That just simple as that.
Speaker 3 (21:20):
This is what I mean by the qualitative nature of supply.
There's going to be these big sort of qualitative differences
between the good homes and the expensive homes, expensive to
run homes.
Speaker 1 (21:30):
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 3 (21:40):
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 acts
and conditions are on what I've just said that it's
(22:04):
very 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 you know, inflation and interest rates,
of growth and prices went crazy, and we're in for
(22:26):
something quite different. I think going.
Speaker 1 (22:28):
Forward landa thank you so much for joining us today.
Speaker 3 (22:31):
It's been a real pleasure.
Speaker 1 (22:32):
Thank you. Thanks for listening to this week's Merin 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 ex or Twitter at Merin sw
and John Underscore Stepic. This episode was produced by Someersidi
and Roses, and sound designed by Blake Maple's special thanks
(22:52):
to Professor Yolanda Barnes. Questions and comments on this show
and all our shows are always welcome. Our show email
is Merrin Money at blue burg dot net MHM
Bloomberg Audio Studios, Podcasts, Radio News. Hi.
Speaker 2 (00:08):
There it's me friend scene. Instead of hearing your usual
in the city episode, today, we're bringing you something a
little bit different. For the last few months, our Bloomberg
colleagues Maren Somerset Web and John Steppeck from the Merrin
Talks Your Money podcast have been working on a personal
finance mini series focused on the UK housing market. The
series will help listeners get to groups with where the
(00:31):
UK housing market is right now and where it might
be heading.
Speaker 1 (00:42):
Welcome to Merendrogs Your Money, the personal finance vision of
Merendrog's Money. In these bonus podcasts, we talk about the
best strategies for making the most of your money. I'm
Maren thums at Webb Bloomberg UK Wealth Editor at Large
and with me senior reporter and author of the award winning, Yes,
award winning newsletter Money to Still John Steppeck, Hi, John, Hi,
(01:02):
special day. Right. We're about 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,
I know. And every week we're gonna look at a
different topic. We're going to cover everything you need to know,
(01:24):
from what the market looks like at the moment, how
we expect it to look rounther, how other people expect
it to look and everything you need to know about
how to get on that ladder. Yeah, that's right. 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 I'm a planner. I can plan anyway
(01:47):
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 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 we're going to cover everything from how
to get a mortgage broker, whether you should have a
(02:08):
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 going have guest. Is buying a new
property always a mistake? Again? Make sure spoiler alert the
freehold versus lease hold? Which is better? Why is it better?
(02:28):
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. I just cannot wait
and I just want to see you say in that voice,
but it's not true. You don't mean it. You really
are every time, every time more property numbers come out,
you are always mad to write a property, a column
about property. You know it's going to be read by everybody, right, yeah,
(02:51):
I do.
Speaker 2 (02:52):
I do love the cligbit.
Speaker 1 (02:55):
So onto the show today, you're going to be hearing
a conversation I had with professor of real Estate your
Land of Barnes. Professor Marnes 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 praises in the UK except to phase so
that'll be nice while your first home should actually be
(03:17):
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. Head here first for it, John,
She seems great. Yeah, I'm looking forty one listen in
y'r landon. Thank you and welcome to this podcast. You
(03:38):
are our first guest in our property series, so we
really appreciate you coming in.
Speaker 3 (03:42):
It's a real pleasure to be here. It's not honor great.
Speaker 1 (03:45):
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
(04:06):
like the bubble at least is over. But there is
no crash. Obviously, there's lots of regional variation, lots of
variations between different types of housing, but things are kind
of flat. Is that fair?
Speaker 3 (04:17):
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,
(04:38):
which means we're capitalizing the value of housing at a
lower rate than we did and that's caused automatic house
price inflation. So that's out of the system.
Speaker 1 (04:48):
Now.
Speaker 3 (04:48):
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 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 1 (05:09):
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. Right, Yeah, I.
Speaker 3 (05:21):
Mean you could say demand for housing is almost infinite.
I mean, the way I think of it is until
everybody is living in a mansion, probably none of us
are fully housed.
Speaker 1 (05:31):
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 3 (05:38):
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, I've
(06:00):
got to consider strong qualitative element of that supply.
Speaker 1 (06:04):
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 2 (06:19):
Yeah?
Speaker 3 (06:19):
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 1 (06:31):
Yeah. 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 long with inflation.
Speaker 3 (06:44):
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 but both demand
and supply going forward as well. I think that come
(07:05):
next year, we're actually going to start to see a
surplus in the market. This goes completely against a lot
of the thinking that 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
(07:29):
demographic 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,
(07:51):
but at a much lower rate than we've been used
to in the past. 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.
It's not supplied by the speculative housebuilders who are kind
of a specialist niche building about ten percent of stock
(08:13):
in any one year. That means that the second hand
market has the biggest impact on prices and speculative housebuilders
of price takers, not price makers. So regardless of how
much new stock we add, there is going to be
much greater surplus of the stock that most people buy
any given year.
Speaker 1 (08:34):
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 3 (08:48):
Absolutely, it will tend to be what you might call
street properties, the single family homes, rather than the multi
family housing.
Speaker 1 (08:56):
So your lander here, I am, I'm coming to you.
I'm a young person, well young, 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 3 (09:14):
I still think there are very good reasons to buy.
I suppose my biggest concern and 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,
(09:39):
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 not. Before you even start to
think about the type of property you buy, you're having
(10:00):
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
(10:21):
you could not only afford the mortgage, but you can
also afford the energy costs and the maintenance 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 the trick, and this is
something that people have been doing anyway, is when you
(10:44):
do buy your forever home or the home you're going
to stay longest in because the costs of trade, 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 high
to make that worthwhile. So what you want to do
is just buy the home. Buy the home in the
(11:07):
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 is the most
(11:27):
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 rare that the
(11:49):
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 home over a
(12:12):
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 1 (12:32):
Okay, interesting, So the key advice there is to buy
assuming you're not moving.
Speaker 3 (12:36):
Yeah, I think so.
Speaker 1 (12:37):
Do you see divisions in the market, A 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, there's
(13:00):
quite a lot of regional disparity in here as well.
Speaker 3 (13:02):
Yeah, I think this is what most and 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 a North playing catch up.
Speaker 1 (13:18):
Okay. I was vaguely hoping you might tell us that
it was excitement about the reindustrialization of the UK and
house price is 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 suggest
that the UK government's plan to build, build, build, which
(13:41):
everyone knows that won't happen, but nonetheless it's a plan
like it is for all governments. Actually that plan isn't
strictly speaking necessary.
Speaker 3 (13:47):
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
(14:11):
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
(14:32):
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
(14:52):
of housing. The rate of self procurement, community build, self
build is much much higher elsewhere, much greater diversity of
ways of getting yourself a home than buying off a housebuilder.
Speaker 1 (15:05):
And that's kind of a planning problem in the UK,
isn't it? Pop planning? Pop cultural?
Speaker 3 (15:09):
I think it's 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
(15:29):
maintaining and repairing land. And buildings than we currently have.
Speaker 1 (15:34):
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. It's 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
(15:55):
at the 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 downsizing,
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,
(16:18):
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 3 (16:26):
Yes, let's dispel 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
(16:50):
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
(17:12):
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 upkeep of
those buildings is significantly higher, I mean really, in some
(17:32):
cases problematically higher than simpler buildings on a street based
sort of grid. 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 Boissier
talked about towers being machines for living in, and these
(17:54):
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,
communal spaces to heat, light, decorate, and refurbish over time.
Speaker 1 (18:18):
Well, I was thinking earlier, you Leanda, about windows. I
was thinking about, 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, etcetera, etcetera. Pretty much everything
becomes significantly more expensive.
Speaker 3 (18:37):
Yes, and if we built buildings with say these pod
bathrooms that were craned into place as they were built,
everyone got very excited about 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 all
(19:01):
sorts of costs associated with some of the things that
we've been built that will 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
(19:24):
big block. There's quite a world of difference in the
sort of lifetime costs of running those two homes.
Speaker 1 (19:31):
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 to 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 a per square
(19:54):
foot to maintain a whooping great building like this relative
to a three bedroom terraced house.
Speaker 3 (19:59):
Yeah, 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
(20:20):
replacement 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,
(20:43):
relatively low growth period for home prices, then you'll really
get to start noticing the cost of maintenance and upkeeper
and service charges.
Speaker 1 (20:52):
Yeah, and that should make a long term difference to
the value of the lats and the price at which
they can sold, which presumbly you can already see people
getting instinctively because the prices of leasehold flats are lower
than you might have expected a decade ago.
Speaker 3 (21:06):
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.
Speaker 1 (21:18):
That just simple as that.
Speaker 3 (21:20):
This is what I mean by the qualitative nature of supply.
There's going to be these big sort of qualitative differences
between the good homes and the expensive homes, expensive to
run homes.
Speaker 1 (21:30):
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 3 (21:40):
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 acts
and conditions are on what I've just said that it's
(22:04):
very 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 you know, inflation and interest rates,
of growth and prices went crazy, and we're in for
(22:26):
something quite different. I think going.
Speaker 1 (22:28):
Forward landa thank you so much for joining us today.
Speaker 3 (22:31):
It's been a real pleasure.
Speaker 1 (22:32):
Thank you. Thanks for listening to this week's Merin 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 ex or Twitter at Merin sw
and John Underscore Stepic. This episode was produced by Someersidi
and Roses, and sound designed by Blake Maple's special thanks
(22:52):
to Professor Yolanda Barnes. Questions and comments on this show
and all our shows are always welcome. Our show email
is Merrin Money at blue burg dot net MHM
Host
Francine Lacqua
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