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In this week’s article I talk about the Council house waiting list over the last eight years and how that would affect the property market for Luton homeowners and landlords in the future!
In 1979, more than 4 in 10 British people lived in a council house, yet today that figure is only 1 in 12, whilst according to Shelter 65% of families on the Council House waiting lists had been on those lists for more than a year and 27% had been waiting for more than five years.
One solution to the housing crisis has always been for the local authority to build more homes, yet should the state provide people with secure and dependable places to live – or is that an out-dated point of view? To look at this objectively, let’s take a step back.
After WW2, both Tory and Labour governments were building council houses in massive numbers, yet it might surprise you to know that more Council houses were built per year under Tory Governments than Labour ones between the years 1945 and 1970.
Everything changed in 1979, when Margaret Thatcher delivered the right for Council tenants to buy their Council House (called the Right To Buy Scheme). Interestingly, Right To Buy was a Labour Party idea from one of Labour Manifestoes of the late 1950’s (although they lost to the Tory’s). Mrs Thatcher’s idea was based on massive discounts and 100% mortgages for those buying … but this was the real issue that has come back to bite us all these years later! Half the proceeds of the property sales went back to Westminster and the other half went back to the local authority – but the Councils half could only be spent on reducing their debt – not to be spent on building more Council houses.. hence why we have a shortage of council houses.
Today, in Luton, the Council House Waiting List has increased by 168.4% since 2011, meaning
13,150 families are waiting for a Council House
Interestingly though, if our local Council House Waiting List had changed by the same amount as the national one, the waiting list figure would be 2,993 instead, because nationally Council House waiting lists are 38.6% lower than 2011.
So where are these Luton families all living and what does this mean for Luton homeowners and Luton Landlords?
Quite simply, private landlords have taken up the slack and housed all those people that were on the waiting list. This is important as more and more tenants are stopping longer in the Private Rented Sector - the average length of time of a tenant stays in the same property is now 4 years. Renting is becoming a choice for many, as the years of this Millennium roll on. So much so, would it surprise you to know that renting a house can be more expensive than buying it as we have these ultra-low mortgage rates and 95% mortgages freely available?
Rents in the Rental Sector in Luton will increase steadily during the next five to ten years. Even though the Council House Waiting List has decreased, the number of new council and housing association properties being built is at a 75-year low. The government campaign against buy to let landlords together with the increased taxation and the banning of tenant fees to agents will restrict supply of private rental property, which in turn using simple supply and demand economics, will mean private rents will rise – making buy to let investment a good choice of investment vehicle again (irrespective of the increased fees and taxation laid at the door of landlords).
..and for home owners (and landlords) Luton property values will remain strong and stable in the medium term, as the number of people moving to a new house (and selling their old property) will continue to remain limited, meaning that due to lack of choice and supply Luton buyers will have to pay decent money for any property they wish to buy (especially ones in good locations and presented well).
Interesting times ahead for the Luton Property Market!
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I talk about the type of properties that are currently built in Luton, whether we’re building the right sort of properties to meet the current levels of demand in Luton and what the future holds for both landlords and homeowners in Luton with this information.
Would it surprise you to know that in some parts of Luton, predominantly prosperous areas with high proportions of mature residents, the housing crisis is not one of supply so much as dispersal of that supply? Theoretically, in Luton there are more than enough bedrooms for everyone - it’s just they are disproportionately spread among the population, with some better-off and more mature households living in large Luton homes with many spare bedrooms, and some younger Luton families being over crowded.
Yet it is not the fault of these well-off mature residents that this is the current situation. Let’s be frank, Luton doesn’t have enough housing full stop (otherwise we wouldn’t have the large Council House waiting list and all the younger generations renting instead of buying), but up until now it hasn't been clear that Luton actually also has the wrong types of properties.
We're not building the smaller homes in Luton that are needed for the starter homes and we aren’t building enough bungalows for the older generations, so they can be released from their larger Luton homes, thus allowing those growing Luton families to move up the ladder.
Looking at the stats for Luton, and LU1 in particular...
When I compared Luton (LU1) with the regional stats of the LU postcode, the locality has proportionally 44.9% more apartments, yet 46.4% less detached homes. Looking nationally, Luton (LU1) has proportionally 41.2% more terraced/town houses and proportionally 64.6% less detached houses.
I am finding that there has been a shortage of smaller townhouses and smaller apartments being built in Luton over the last 20 years, because most of the new builds in the last couple of decades seem to have been either large executive houses or the apartments that have been built were of the larger (and posher) variety, even though demand for households (as life styles have changed in the 21st Century) have been more towards the lower to middle sized households.
The builders do want to build, but there's a deficiency of building land in Luton, and if there's a shortage of building land, then of course new homes builders build whatever gives them the biggest profit. The properties that give them the largest profit are the biggest and most expensive properties and they certainly are not bungalows as they take up too much land. So who can blame them?
Yet would it surprise you to know that it’s not a lack of space (look at all the green you see when flying over the UK), it’s the planning system. Green belts must be observed, but only 1.2% (yes 1.2% - that isn’t a typo) is built on in this country as a whole with homes - we need the planners to release more land (and then force/encourage builders to build on it - not sit on it). Another problem is that of the smaller new homes that have been built, most of them have been snapped up for renting, not owning.
So, what’s the answer? Build more Council houses? Yes, sounds great but the local authority haven’t enough money to cut the grass verges, let alone spend billions on new homes in Luton. The Government did relax the planning laws a few years ago, for example for changing office space into residential use, yet they could do more as currently new homes builders have no incentive to build inexpensive homes or bungalows that the system needs to make a difference.
So, what does this mean for Luton homeowners and Luton landlords?
Changing the dynamics of the Luton, regional and national property market will only change in decades, not years. The simple fact is we are living longer, and we need 240,000 to 250,000 houses a year to stand still with demand, let alone start to eat into 30 years of under building where the average has been just under 170,000 households a year.
That means, today as a country, we have a pent-up demand of 2.25m additional households and we need to build a further 4.2m households on top of that figure for population growth between 2019 and 2039. So, irrespective of whether we have short term blip in the property market in the next 12/18 months, investing in property is, and always will be, a great investment as demand will always outstrip supply.
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What does that mean for local Landlords and Homeowners?
The balancing act of being a Luton Buy To Let landlord is something many do well at. Talking to numerous Luton landlords, they are very aware of their tenants’ capability to pay the rent and their own need to raise rents on their rental properties. Despite the ‘perceived ‘dark clouds of Brexit, evidence suggests many landlords feel more confident than they were in the Summer and Autumn of 2018 about aiming to push rents higher on their Luton Buy To Let properties.
Looking at the data for the last 7 years, this shows that throughout the Summer months, the rents new tenants have had to pay on move in have increased at a higher rate than during the colder months of Winter. This is because the Summer months are normally a time when renters like to move, meaning demand increases for rental properties yet supply remains pretty ridged.
Yet the Winter stats buck that trend and this is great news.
Rents in Luton on average for new tenants moving in have risen 1.6% for the month, taking overall annual Luton rents 0.3% higher for the year
However, several Luton landlords have expressed their apprehension about a slowing of the housing market in Luton and I believe, based on this new evidence, they may be overstated. Before we get the bubbly out though, the other part of investing in property is what is happening to capital values (which will also be of interest to all the homeowners in Luton as well as the Luton Buy To let landlords). I believe the Luton property market has been trying to find some form of balance since the New Year. According to the Land Registry….
Property Values in Luton are 0.6% lower than they were 12 months ago
Yet, these figures reflect the sales of Luton properties that took place in the late Autumn of 2018 and now are only exchanging and completing during the Winter / early Spring months of this year.
The reality is the number of properties that are on the market in Luton today has risen by 2% since the Autumn
and that will have a dampening effect on the property market. As tenants have had less choice, buyers now have more choice .. and that will temper Luton property prices as we head into the middle of 2019.
Be you a Luton landlord or Luton homeowner, if you are preparing to sell your Luton property in 2019, it’s important, especially with the rise in the number of properties on the market, that you are pricing your property realistically when you bring it to the market. With the likes of Rightmove, Zoopla and OnTheMarket on everybody’s mobile phones and laptops, buyers have access to every property on the market and they will compare and contrast your home with other properties like yours – and will more than likely dismiss your property rather than view it.
To all the Luton homeowners that aren’t planning to sell though – this talk of price changes is only on paper profit or loss. To those that are moving .. most people that sell, are buyers as well, so as you might not get as much for yours, the one you will want to buy won’t be as much. Look at the deal as a whole, the difference between what you sell yours for and what you buy at. Finally, all the Luton landlords – keep your eye’s peeled – I have a feeling there may be some decent Luton buy to let deals to be had in the coming months.
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Nationally, the number of new homes created in 2018 was 222,194, the highest since 1989. Yet since 2002, the average number of properties built in the UK has only been 146,700 per year. You would think, seeing all the new homes sites around, you could ask are we building too many houses, especially off the back of those impressive 2018 build figures? However, to keep up with the ever-growing population, lifestyles and people living longer, official reports state the Country actually needs 240,000 new homes built every year to just stand still.
It is estimated, by the Chartered Institute of Housing, that the current national backlog of new homes required is in the order of 4.7 million (i.e. because of the bottled-up household formation by younger adults living with parents, shared housing and unaffordability). As a Country, we cannot meet all these needs immediately and it will take time to build up an effectual plan to address these issues.
Looking closer to home, you will also see from the graph below the long-term trend of new homes building (the yellow dotted line) has been going in an upward direction. In fact, the 2018 new homes build stats for Luton are 103.4% above the post Millennium average.
But, we still need more homes… yet who is going to build (and pay) for them. Some Luton people will say why can’t the local authority build most of them?
In 2018, 873 new dwellings were created in the Luton Council area and of those 873; interestingly 138 were Council and Housing Association homes
So, if our local authority had a more ambitious annual target of say an additional 500 homes on top of those figures, where could they be built and how would they be paid for? Of course, there are the normal apprehensions about infrastructure issues such as roads, schools, hospital capacity and doctors’ surgeries but our local authority has a Local Plan and that has the locations of where they envisage the new housing will be built (and the infrastructure that goes with it).
The Tories lifted the cap on what local authorities could borrow to build Council houses in late 2018 meaning Councils could borrow more money to build more Council houses. Let’s say we built those 500 homes a year for the next 5 years in Luton, that would cost the local authority £375 million to build, which would produce in total £17.4 million in rent. At current interest rates, the interest would be £9.5m per year leaving a surplus of £7.9m for property maintenance and management – meaning the Council houses pay for themselves!
Therefore, what does all this mean for Luton homeowners and Luton buy-to-let landlords?
Well, the chances of our local authority getting the full funding for an extra 500 homes a year is slim as there is only so much money to borrow. If every UK local authority got funding for 500 additional homes a year for the next 5 years, an impressive 867,500 homes would be built in those 5 years but that would require the councils to borrow £130.1bn – and Central Government doesn’t have that kind of money for Councils to borrow (more like £10bn to £15bn).
The 4.7million long term housing shortage means house prices will remain strong in the long term (despite blips like Brexit etc). Demand for private rental properties will continue to grow and if you read my recent article on Luton rents, this can only be good news for Luton landlords. This attention on the housing crisis by the Government is good news for all Luton homeowners and Luton buy to let landlords, as it will encourage more fluidity in the market in the longer term, sharing the wealth and benefits of homeownership for all. However, in the short term, demand still outstrips supply for homes and that will mean continued upward pressures on rents for tenants and stability on house prices.
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Many Luton people ponder the best places to invest their hard-earned savings and the best piece of advice I can give you is to do your homework and speak to lots of people. It depends on your attitude to risk versus reward. Normally, the lower the risk, the lower the reward whilst a higher risk is normally associated with the possibility of higher returns, yet nothing is guaranteed. At the same time, higher risk also means higher possible losses on your investment - yet if one looks at the bigger picture, the biggest threat to investing, predominantly when the investment is made in the short term, isn’t risk but actually volatility.
So where should you invest? Building society, the stock market, gold or property are options. This article isn’t designed to give you advice – just show you how different investments have performed over the last decade.
Let me start with the humble semi-detached house in Luton ... which in 2009 was worth £173,700 … so assuming I bought that property for that figure, then I looked at what if I had invested the same amount of money in a building society, into gold and finally the stock market…
Putting your money into the stock market (FTSE100) would have brought a return of 30.2% on your capital over those 10 years and an average of 3.79% a year in dividends (making an overall increase of 74%).
Gold doesn’t earn interest – yet it has increased in value by 26.9% over the same 10 years whilst putting your money in the building society, the money hasn’t increased in value, but would have earned you interest of 24.46% or the equivalent of 2.21% per year.
Investing in an average semi-detached house in Luton over the last 10 years has seen the capital increase by 64% (an equivalent of 5.07% per annum) and the income (i.e. the rent) has provided a return, based on the original purchase price, of 138.51% or the annual equivalent of 9.08% … meaning the overall return, based on the original purchase price of an average semi-detached property in Luton, is 14.15% per annum.
Notwithstanding No.11 Downing Street’s grab at the profits of buy to let landlords by hitting the buy to let sector with several fiscal punishments with a 3% stamp duty level, a decrease in high rate tax relief for landlords and an increase in rate of CGT on residential property profits, the facts remain that ‘bricks and mortar’ is still one of the preeminent and most constant investments available.
The bottom line is, the buy to let investment remains the mainstay of the British property market, serving to support aspiring homeowners as they work to conquer the, sometimes difficult, financial obstacles of home ownership. With Central Government over the last 30 years only paying lip service to address the lack of new homes being built or tackling the affordability on a consequential scale, it is highly probable this will continue for the next 5/10/15 years as there will always be a call for a respectable, and above all, honest buy to let landlords delivering decent housing to those that need it.