Hidden Truths

At the risk of appearing “too clever by half” I want to pop a few balloons and lay a few ghosts about the current housing crisis, as it specifically affects the Home Counties - note I have not included London.
Last week the media reported that average house prices had fallen by 1% over the past 12 months. Just what is the point in publishing such a useless statistic unless it is to gratify the “I told you so” folk, or to induce unnecessary worry and panic? How is the ‘average’ house price this year and last year calculated? Unless it is based on near-identical properties in similar neighbourhoods, it is meaningless even as a national trend, let alone a reliable indicator here in the South East.
Remember that the South East has alway been a ‘high value’ region. During the past 3 or 4 years, the highest percentage growth in value has been elsewhere and it is in those areas that the increases may prove to be unsustainable. Also it is vital not to be influenced by attention-grabbing headlines. Pause for a moment. A 1% reduction in value for a £250,000 property is £2,500. This is substantially less than the negotiating margin that most vendors and their agents build into the asking price.
The single factor which is currently influencing the Home Counties market at the moment is volume. The discretionary (wouldn’t it be nice to move) buyers are sitting tight and the present vendors are mainly from the 3D’s (death, divorce and debt), where there is an obvious incentive to give way on the negotiating margin. As soon as the discretionary buyers realise that, despite the adverse publicity, mortgages are available to anyone with a reasonable credit rating, the volume will recover.
Last week even Mervin King (the nation’s bank manager) said that he wanted banks to be more willing to offer mortgages and the Government has said that it hoped banks and building societies would help borrowers by passing on the reductions in interest rates. I suppose it would be too much to expect them to have lead by example, as they are the current owners of Northern Rock. But hey - just another missed opportunity proving yet again that politicians are strangers to common sense.
At the start of this article, I made the distinction that I was talking about the Home Counties, because I am firmly of the opinion that there are some special and unique factors that underpin property values in this region and that when the mortgage tap is opened up again, prices will rise.
Amongst a whole raft of reasons, is a fundamental scarcity of housing for both rent and purchase. This scarcity is being compounded by many developers putting new schemes ‘on ice’ and going slow on existing projects. Additionally building costs are rising at an unprecedented rate, due to shortages as a result of the vast amount of basic building materials being absorbed by India and China. Lastly, even if the developers decide to bring schemes back on stream later this year, there is an increasing shortage of all building tradesmen, because the ground work and basic infrastructure of the 2012 Olympic facilities is now largely complete and the above ground construction is needing and attracting large numbers of builders, plasterers, carpenters, plumbers, electricians etc. So when housing schemes restart accumulated interest charges, higher material costs and increased labour costs will combine to force sale prices up.
For these reasons, amongst many others, I remain confident that property is one of the safest long-term investments and will continue to offer the almost unique opportunity for owners to influence its value by personal effort.
©May 2008

NOTE:
The writer is an independent chartered surveyor and has no connection with any firm of estate agents or surveyors. For reasons of client confidentiality he writes under a pseudonym. Comments and enquiries are welcome and may be sent c/o Wealden Advertiser Property, Gardens & Interiors.

Print this page