Extra Funding Is Required for Affordable Homes in Rugby

In my blog about the Rugby Property Market I mostly only talk about two of the three main sectors of the local property market, the ‘private rented sector’ and the ‘owner occupier sector’. However, as I often stress when talking to my clients, one cannot forget the third sector, that being the ‘social housing sector’ (or council housing as some people call it).

In previous articles, I have spoken at length about the crisis in supply of property in Rugby (i.e. not enough property is being built), but in this article I want to talk about the other crisis – that of affordability. It is not just about the pure number of houses being built but also the equilibrium of tenure (ownership vs rented) and therein, the affordability of housing, which needs to be considered carefully for an efficient and effectual housing market.

An efficient and effectual housing market is in everyone’s interests, including Rugby homeowners and Rugby landlords, so let me explain ..

An average of only 146 Affordable Homes per year have been built by Rugby Borough Council in the last 9 years

The requirement for the provision of subsidised housing has been recognised since Victorian times. Even though private rents have not kept up with inflation since 2005 (meaning tenants are better off) it’s still a fact there are substantial numbers of low-income households in Rugby devoid of the money to allow them a decent standard of housing.

Usually, property in the social housing sector has had rents set at around half the going market rate and affordable shared home ownership has been the main source of new affordable housing yet, irrespective of the tenure, the local authority is simply not coming up with the numbers required. If the local authority isn’t building or finding these affordable homes, these Rugby tenants still need housing, and some tenants at the lower end of the market are falling foul of rogue landlords. Not good news for tenants and the vast majority of law abiding and decent Rugby landlords who are tarnished by the actions of those few rogue landlords, especially as I believe everyone has the right to a safe and decent home.

Be it Tory’s, Labour, SNP, Lib Dems, Greens etc, everyone needs to put party politics aside and start building enough homes and ensure that housing is affordable. Even though 2017 was one of the best years for new home building in the last decade (217,000 home built in 2017) overall new home building has been in decline for many years from the heady days of the early 1970s, when an average of 350,000 new homes were being built a year.  As you can see from the graph, we simply aren’t building enough ‘affordable’ homes in the area.

The blame cannot all be placed at the feet of the local authority as Council budgets nationally, according to Full-Fact, are 26% lower than they have been since 2010. 

So, what does this mean for Rugby homeowners? Well, an undersupply of affordable homes will artificially keep rents and property prices high. That might sound good in the short term, but a large proportion of my Rugby landlords find their children are also priced out of the housing market. Also, whilst your Rugby home might be slightly higher in value, due to this lack of supply of homes at the bottom end of the market, as most people move up the market when they do move, the one you want to buy will be priced even higher.

Problems at the lower end of the property market will affect the middle and upper parts. There is no getting away from the fact that the Rugby housing market is all interlinked .. it’s not called the Property ‘Ladder’ for nothing!

Rugby Millennials Have Spent £102,010 On Rent By The Age of 35

The Millennials were born between the mid 1980’s and late 1990’s thus making them between the age of around 22 to late 30’s. They are the imaginative, artistic youngsters who grew up with the newest tech and computers and who are huge aficionados of music festivals, gourmet pizzas, emoji’s, selfies and old school nostalgia. Also known as Generation Rent, many Millennials have discovered that renting is a good choice for their shelter and accommodation needs without the hassle that comes from buying a home. Nonetheless, that is not the only reason they don’t buy property. When they should be concentrating on their profession, putting down roots and starting a family, Millennials are still going through the pressure and strain of student loan liabilities whilst, at the same time, finding it tough to pay rent.

The hot topic at the moment is the cost of renting, as both political parties have seen mileage in wooing these Millennial Generation Renters. The average rent in Rugby is currently £544 per month making this a big-ticket item on the monthly budget. I was inquisitive to find out 721 how much Rugby Millennials will spend on rent by the time they reach their mid 30’s. The average age people leave home in the UK is 22; so looking at a Rugby 22-year-old (or Millennial) who left home in 2005 then between 2005 and today that Rugby Millennial will have shelled out £102,010 in rent.

It’s no wonder local Millennials can’t afford to buy a Rugby home given their tremendous debt. This means younger Rugby Millennials will probably carry on renting for the foreseeable future, simply because the prospect of buying a home is not yet achievable.. that is until you look more deeply at the numbers…

Looking at the chart above, the average rent of a Rugby property in 2005 was £605 per month (pm)  … if it had risen by inflation, today, that would be £852 pm. As I have already mentioned in the article, today it only stands at £721 per month. Looking over the last 12 years, adding up all the differences between what the average actual rent was compared to what it should have been if rent had gone up by inflation, the average Rugby Millennial tenant would have paid £114,432.

This means that an average 35-year-old Rugby Millennial tenant, who has been renting since 2005, is better off by £12,422 when comparing the actual rent paid compared to what it would have been if it had risen by inflation. In a nutshell, tenants have done well due to the sub-inflation growth in rents.

In fact, if you recall I mentioned in an article a few weeks ago, the older Rugby Millennials are starting to use those savings and are gradually shifting towards home ownership. They are finally catching up with the British homeownership dream as Bank of Mum and Dad help with the deposit. Also, the scrapping of Stamp Duty from the Government starts to kick in together with the realisation that if the 5% mortgage deposit can be scrapped together (yes, 95% first time buyer mortgages have been available since 2009), it is still a lot cheaper to buy than rent, meaning this will unquestionably drive demand for Rugby homes for sale – good news for Rugby homeowners.

… and what does this mean for Rugby landlords?

Well the vast majority of younger Millennials are still renters and I foresee this to be the case for at least the next ten to fifteen years. Landlords will need to keep improving their properties to ensure they get the best tenants and they will see a much higher rent achieved. Millennials will pay top dollar for a top dollar property. It is important to do things correctly as making money won’t be as easy as it has been over the last twenty years.  With a greater number of properties on the market .. comes greater choice. Don’t buy the first thing you see, buy with your head as well as your heart … because as I promised a few weeks ago, the first rule of Buy To Let Investment ….. “You are not going to live in the property yourself”

Rugby Property Market – Which Houses are Actually Selling?

Beast from the East, Russia, Facebook, Brexit, Trump, House prices up, House prices down … the Press is full of column inches on Brit’s favourite subjects of politics, scandal, weather and not forgetting (and I appreciate the irony of this!) the property market. As an agent belonging a national group of letting and estate agents, talking to my fellow property professionals from around the UK, the one thing that is immediately apparent is the UK does not have one property market. It is a hodgepodge patchwork (almost like a fly’s eye) of lots of small property markets all performing in different ways.  

… And that made me think … is there just one Rugby Property Market or many?

I like to keep an eye on the property market in Rugby on a daily basis because it enables me to give the best advice and opinion on what (or not) to buy in Rugby, be that a buy-to-let property for a Rugby landlord or an owner occupier house for a home owner.  So, I thought, how could I scientifically split the Rugby housing market into segments, so I could see which part of the market was performing the best and the worst.

I decided the best way was to split the Rugby property market into four equal size price bands (into terms of households for sale). Each price band would have around 25% of the property in Rugby, from the lowest in value (the Lowest Quartile or 25%) all the way through to the highest 25% in terms of value, the Upper Quartile.  Looking at the market, I have calculated that these are the price bands in Rugby are as follows:

· Lowest Quartile (lowest 25% in terms of value) … Up to £160,000

· Lower/Middle Quartile (25% to 50% Quartile in terms of value) …  £160,001 to £230,000

· Middle/Upper Quartile (50% to 75% Quartile in terms of value) … £230,001 to £325,000

· Upper Quartile (highest 25% in terms of value) … £325,001 Upwards

So, having split the Rugby Property Market approximately into four equal sizes, the results in terms what price band has sold (subject to contract or stc) the most is quite enlightening –

The best performing price range in Rugby is the middle market. As I would expect, the upper quartile (the top 25%) is finding things toughest. Interestingly for Rugby landlords, the lower market is also selling well, meaning there are plenty of Rugby landlords buying properties to add to their buy to let portfolios. Even though the number of first time buyers did increase in 2017, it was from a low base and the vast majority of 20 something’s cannot buy, so need a roof over their head (hence the need to rent somewhere).

It is a fact that British (and Rugby’s) housing markets have ridden the storms of Oil crisis in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly the Credit Crunch together with the various house price crashes of 1973, 1987 and 2008. No matter what happens to us Brexit or anything else … unless the Government starts to build hundreds of thousands extra houses each year, demand will always outstrip supply … so maybe a time for Rugby landlord investors to bag a bargain?

Want to know where those Rugby buy to let bargains are?  Follow my Rugby Property Blog or drop me an email because irrespective of which agent you use, myself or any of the other excellent agents in Rugby, many local landlords ask me my thoughts, opinion and advice on what (and not) to buy locally … and I wouldn’t want you to miss out on those thoughts … would you?

39% More Rugby Home Owners Wanting to Move Than 12 Months Ago

As I have mentioned a number times in my local property market blog, with not enough new-build properties being built in Rugby and the surrounding area to keep up with demand for homes to live in (be that tenants or homebuyers), it’s good to know more Rugby home sellers are putting their properties on to the market than a year ago.

At the start of 2007 there were 682 properties for sale in Rugby but by September 2008, when the credit crunch was really beginning to bite, that number had risen to 1,068 properties on the market at a time when demand was at an all-time low, thus creating an imbalance in the local property market.

Basic economics dictates that if there is too much supply of something and demand is poor (which it was in the Credit Crunch years of 2008/9) … prices will drop. In fact, house prices dropped between 15% and 20% depending on the type of Rugby property between the end of 2007 and Spring 2009.

However, over the last five years, we have seen a steady decrease in supply of properties coming onto the market for sale and steady demand, meaning Rugby property prices have remained robust.  A stable housing market is one of the foundations of a successful British economy, as it’s all about getting the healthy balance of buyer demand with a good supply of properties. Nevertheless, if you had asked me a couple of years ago, I would have said we were beginning to see there was in fact NOT enough properties coming on to the market for sale … meaning in certain sectors of the Rugby property market, house prices were overheating because of this lack of supply.

So, it is pleasing to note, looking at the recent numbers …

There are 39% more properties for sale in Rugby today than a year ago

There were 176 properties for sale 12 months ago, and today that stands at 245. Definitely a step in the right direction to a more stable property market.

Even better news, since the Chancellor announced the stamp duty rule changes for first time buyers (FTB), my fellow agents in Rugby say that the number of FTB’s registering on the majority of agent’s books has increased year on year. That has still to follow through into more FTB’s buying their first home, however, with the heightened levels of confidence being demonstrated by both Rugby house sellers and potential house buyers, I do foresee the Rugby Property Market will show steady yet sustained improvement during the first half of 2018.

What does this mean for Rugby landlords or those considering dipping their toe into the buy to let market for the first time? Landlords will need to keep improving their properties to ensure they get the best tenants. It is true that demand amongst FTB’s is increasing, albeit from a low base. Even with the new landlord tax rules, buy to let in Rugby still looks a good investment, providing Rugby landlords with a good income at a time of low interest rates and a roller coaster stock market.

If you are thinking of investing in bricks and mortar in Rugby, it is important to do things correctly as making money won’t be as easy as it has been over the last twenty years.  With a greater number of properties on the market .. comes greater choice. Don’t buy the first thing you see, buy with your head as well as your heart … and don’t forget the first rule of Buy To Let Investment …..

I will tell you that 1st rule in a couple of weeks!

Rugby Property Market Worth More Than British Land Co

The value of all the homes in Rugby has risen by more than 262% in the past two decades, to £6.619bn, meaning its worth more than the stock listed company British Land Company, which is worth £6.505bn.

Those Rugby homeowners and Buy-to-Let landlords who bought their homes twenty or more years ago have come out on top, adding thousands and thousands of pounds to the value of their own Rugby homes as the younger generation in Rugby continue to be priced out of the market.  This is even more remarkable because, in those twenty years, we had the years of 2008 and 2009 following the global financial crisis, where we saw a short term drop in Rugby house prices of between 15% and 20% (depending on the type of property). And although there have been a number of consecutive years of growth in property values recently in Rugby it hasn’t been anywhere near the levels seen in the early 2000’s.

Twenty years ago, the total value of Rugby property was worth £1.827bn. Over those twenty years, total property values have increased by £4.792bn, meaning today, the total value of all the properties in Rugby is worth £6.619bn. Even more remarkable, when you consider the FTSE100 has only risen by 40.84% in the same time frame. Also, when I compared it with inflation, i.e. the UK Retail Price Index, inflation had risen by 72.2% during the same twenty years.

So, what does this all mean for Rugby?  Well as we enter the unchartered waters of 2018 and beyond, even though property values are already declining in certain parts of the previously over cooked central London property market, the outlook in Rugby remains relatively good as over the last five years, the local property market has been a lot more sensible than central London’s.

Rugby house values will remain resilient for several reasons. Firstly, demand for rental property remains strong with persistent immigration and population growth.  Secondly, with 0.25% interest rates, borrowing has never been so cheap and finally, the simple lack of new house building in Rugby. Not even keeping up with current demand, let alone eating into years and years of under investment mean only one thing – yes it might be a bumpy ride over the next 12 to 24 months but, in the medium term, property ownership and property investment in Rugby has and always will, out ride out the storm.

In the coming weeks, I will look in greater detail at my thoughts for the 2018 Rugby Property Market. As always, all my articles can be found at the Rugby Property Market Blog https://rugbypropertyblog.co.uk/

 

Rugby’s ‘Millennials’ set to inherit £366,555 each in property!

That got your attention … didn’t it!

But before we start, what is Generation X, let alone Generation Z, Millennials, Baby Boomers  … these are phrases banded around about the different life stages (or subcomponents) of our society. But when terminologies like this are used as often and habitually as these phrases (i.e. Gen X this, Millennial that etc.), it appears particularly vital we have some practical idea of what these terms actually mean. The fact is that everyone uses these phrases, but often, like myself, they are not exactly sure where the lines are drawn …until now…

So, for clarity …

Generation Z:         Born after 1996
Millennials:             Born 1977 to 1995
Generation X:         Born 1965 to 1976
Baby Boomers:      Born 1946 to 1964
Silent Generation:  Born 1945 and before

My research shows there are 9,006 households in Rugby owned by Rugby Baby Boomers (born 1946 to 1964) and Rugby’s Silent Generation (born 1945 and before). It also shows there are 15,231 Generation X’s of Rugby (Rugby people born between 1965 to 1976). Looking at demographics, homeownership statistics and current life expectancy, around two-thirds of those Rugby 15,231 Generation X’s have parents and grandparents who own those 9,006 Rugby properties.

… and they will profit from one of the biggest inheritance explosions of any post-war generation to the tune of £2.363bn of Rugby property or £232,597 each but they will have to wait until their early 60’s to get it!

However, it’s the Millennials that are in line for an even bigger inheritance windfall.

There are 10,504 Millennials in Rugby and my research shows around two thirds of them are set to inherit the 9,788 Rugby Generation X’s properties. Those Generation X’s Rugby homes are worth £1.2.568bn meaning, on average, each Millennial will inherit £366,555; but not until at least 2040 to 2060!

While the Rugby Millennials have done far less well in amassing their own savings and assets, they are more likely to take advantage of an inheritance boom in the years to come. This will probably be very welcome news for those Rugby Millennials, including some from poorer upbringings who in the past would have been unlikely to receive gifts and legacies.

However, inheritance is not the magic weapon that will get the Millennials on to the Rugby housing ladder or tackle growing wealth cracks in UK society, as the inheritance is unlikely to be made available when they are trying to buy their first home…but before all you Rugby Millennials start running up debts, over 50% of females and around 35% of men are going to have to pay for nursing home care. Interestingly, I read recently that a quarter of people who have to pay for their care, run out of money.

So, if you are a Rugby Millennial there potentially will be nothing left for you.
Of course, most parents want to give their children an inheritance, the consideration that what you have worked genuinely hard for over your working life won’t go to your children to help them through their lives is a really awful one … maybe that is why I am seeing a lot of Rugby grandparents doing something meaningful, and helping their grandchildren, the Millennials, with the deposit for their first house.

One solution to the housing crisis in Rugby (and the UK as a whole) is if grandparents, where they are able to, help financially with the deposit for a house. Buying is cheaper than renting – we have proved it many times in these articles … so, it’s not a case of not affording the mortgage, the issue is raising the 5% to 10% mortgage deposit for these Millennials.

Maybe families should be distributing a part of the family wealth now (in the form of helping with house deposits) as opposed to waiting to the end… it will make so much more of a difference to everyone in the long run.

Just a thought?

Rugby’s £120,047,520 “Rentirement” Property Market Time Bomb

Yes, I said ‘rentirement’, not retirement … rentirement and it relates to the 653 (and growing) Rugby people, who don’t own their own Rugby home but rent their home, privately from a buy to let landlord and who are currently in their 50’s and early to mid-60’s.

The truth is that these Rugby people are prospectively soon to retire with little more than their state pension of £155.95 per week, probably with a small private pension of a couple of hundred pounds a month, meaning the average Rugby retiree can expect to retire on about £200 a week once they retire at 67.

The average rent in Rugby is £766 a month, so a lot of the retirement “income” will be taken up in rent, meaning the remainder will have to be paid for out their savings or the taxpayer will have to stump up the bill (and with life expectancy currently in the mid to late 80’s, that is quite a big bill …  a total of £120,047,520 over the next 20 years to be paid from the tenant’s savings or the taxpayers coffers to be precise!

You might say it’s not fair for Rugby tax payers to pick up the bill and that these mature Rugby renters should start saving thousands of pounds a year now to be able to afford their rent in retirement.  However, in many circumstances, the reason these people are privately renting in the first place is that they were never able to find the money for a mortgage deposit on their home in the first place, or didn’t earn enough to qualify for a mortgage …and now as they approach retirement with hope of a nice council bungalow, that hope is diminishing because of the council house sell off in the 1980’s!

For a change, the Rugby 30 to 40 somethings will be better off, as their parents are more likely to be homeowners and cascade their equity down the line when their parents pass away.  For example, that is what is happening in Europe where renting is common, the majority of people rent in their 20’s, 30’s and 40’s, but by the time they hit 50’s and 60’s (and retirement), they will invest the money they have inherited from their parents passing away and buy their own home.

So, what does this all mean for buy to let landlords in Rugby?
Have you noticed how the new homes builders don’t build bungalows anymore … in fact some would said the ‘bungalow storey’ is over.  The waning in the number of bungalows being built has more to do with supply than demand.  The fact is that for new homes builders there is more money in constructing houses than there is in constructing bungalows.  Bungalows are voracious when it comes to land they need as because bungalow has a larger footprint for the same amount of square meterage as a two/three storey house due to the fact they are on one level instead of two or three.

That means, as demand will continue to rise for bungalows supply will remain the same.  We all know what happens when demand outs strips supply … prices (i.e. rents) for bungalows will inevitably go up.