Prices Through the Roof!

Housing in the South East region is notoriously expensive. But do the costs weigh up to their worth, where is the housing market headed and do government initiatives actually help or worsen the situation?

Predicting the housing market can be a tricky business. According to a recent – and fairly depressing – statement from the Liberal Democrats, the average property price in the UK will reach £650,000 within a decade. This is a dismal view for the future, especially with many first time buyers struggling to even make that first step onto the property ladder, let alone climb it.

The number of first time buyers has reduced substantially in the past decade, impacting largely on the age of current homeowners. In 1991, 67% of the 25 to 34 age group were homeowners. By 2011/12, this had declined to 43%. There were also reductions in home ownership over the same period for the 16 to 24 age group (from 36% to 10%) and for the 35 to 44 age group (from 78% to 64%). By contrast, home ownership has increased among older age groups. A likely contributing factor to the decline in numbers of first time buyers is the rise in the value of deposits paid to secure a mortgage. For first time buyers, the average deposit as a percentage of purchase price increased by almost 10 percentage points between 1988 and 2013, standing at 22% of the price of the house. Year on year, we see this trend develop. In November 2015, prices paid by first-time buyers were 7.4% higher on average than in November 2014 and the gap between wages and living costs seems to also be growing. Nationwide data shows that the earnings-house-price ratio in the final quarter of 1995 was 2.1 times earnings. In the final quarter of 2015, this ratio had reached 5.2 times. To make matters worse for London buyers, by the end of 2015 the ratio in London had become 10.1 times average wages, compared to 2.7 times earnings for first-time buyers in 1995.

Clive Janes, Owner of CRJ Lettings in Chichester, has seen this trend within the area in particular: “The growing anomaly between house prices and salaries could be the reason why the number of people renting privately in Chichester increased a whopping 51% between 2001 and 2011. Even with this increase, it seems there is room for further growth as the number of householders renting privately (12.8%) in Chichester is lower than the national average of 15%.”

“With Chichester’s average salary being £25,739 (less than the U.K’s £26,500 average salary) the ‘average’ worker will find it hard to afford the ‘average’ property in Chichester (currently valued at £390,411). Making this even more difficult is the fact that the average property in Chichester has risen 8.6% in the past 12 months, whilst salaries nationally have increased just 3.4% in the private sector.”

London and the South East see some of the highest property prices in the country, and the costs are ever-building. According to the Office for National Statistics, in Brighton, the average asking price on detached houses has increased by 51% since September 2006, with semi-detached houses increasing by 52% and terraces housing by 78%. Detached houses in Eastbourne are up +41%, with semi detached up 26% and terraced houses up 67% whilst average asking prices for terraced houses in Lewes since September 2006 are now up by a whopping 95% – nearly matching the average house prices in Brighton (a notoriously expensive area to buy and rent). In close second is Chichester, with an average increase of 90% for terraced housing since 2006.

Clive has seen first hand the increase in house prices: “Recent research from the National Housing Federation named Chichester amongst the most expensive places to buy in the country,” commented Clive. “It cites that at £215,000, the average lower quartile property is some 20 times the local average lower quartile salary (£10,989).”

Clive added: “In August 2009 a similar report named Chichester as the second least affordable place in the country and yet since then, Chichester property prices have risen 40% compared to 21% nationally. Similarly, in August 2013, Chichester was labelled the ‘worst’ place to buy because it had become the least affordable area of the country. Since then, Chichester property prices have defied the naysayers by rising 20% compared to 14% nationally.”

This seems to be a region-wide trend, with the overwhelming majority of house prices across East and West Sussex unrepresentatively high. The UK Residential Market survey 2015 found that 62% of respondents thought that homes in the South East were either expensive or very expensive given the relative benefits they offered, with 57% of contributors in the capital taking the same view. By way of contrast, 100% of Northern Irish respondents and 92% from the North of England believe that homes in their areas offer fair value for money, showing an imbalance within southern regions that isn’t seen in the north of the country. The people of the South East clearly don’t see the cost of their homes as matching their worth – and it seems that the price increases aren’t about to slow either. According to the RICS housing forecast for 2016, house prices in the UK will see an average increase of 6% over the course of next year, with a shortfall in supply continuing to push prices ever higher.

The UK Residential Market survey findings also warned that house prices in London, the South East and East Anglia look set to rise – their findings estimated a rise by a further 5% per annum in each of the next five years, compared to a UK average of 4.5%. Not quite Nick Clegg’s overzealous estimate, but close by.

Is there usually a reason for such high prices, excluding value for money in terms of the actual bricks and mortar quality? Clive Janes commented on getting value for money in Chichester, and the South East in general: “Yes, it’s true that you can get more ‘bricks for your buck’ elsewhere but that’s not comparing apples with apples in regards to the lower than average crimes rates, better than average schooling and superb local culture we enjoy in Chichester and West Sussex.”

Clive added: “One big contributing factor towards this continual rise in house prices in the city and the south east overall is the low level of local unemployment. As of December 2015, Chichester had 508 Jobseeker’s Allowance claimants; a drop of 29% compared to the year before and, at 0.8% of the local population, nearly half the average rate throughout the U.K.”

Housing has clearly leapt up the Government’s agenda, but despite the raft of initiatives announced over the past year, the lags in development mean that we’re not confident that we will see much change. One issue the sheer difference in government priorities to market trends and public demand. The government seems to be overly focused on promoting home ownership at the expense of other tenures, which we are now seeing as much more of a viable option. Clive commented: “At a time when more people are actively choosing to rent, rather than buy, the government seems intent on promoting home ownership and investment from large institutions at the expense of the smaller landlord (and ultimately tenants, as supply will decrease causing rents to increase). Did you know that 40% of ex-council flats sold through Right To Buy are now being rented out? Any government sponsored (i.e. taxpayer funded) scheme, which is used as political posturing, rather than dealing with the actual problems, should be abhorred.”

In his Autumn Statement, Chancellor George Osborne announced that, from April, buy-to-let investors will be required to pay 3% more in stamp duty charges than residential buyers looking to purchase the same home and a lower initial threshold of £40,000 will be introduced. This has certainly had a large impact on the UK housing market, and will continue to affect rental properties (not only landlords, but their tenants).

Clive says: “Private rental prices paid by tenants in Great Britain rose by 2.5% in the 12 months to December 2015. Rental prices increased in all the English regions during this time, with rental prices increasing the most in London (3.9%). Discouraging buy-to-let could see private rents take even more of the strain if institutional investment doesn’t increase significantly, particularly given the likely reduced flows of social rent property going forward.”

There has been a huge change in the way we view property, and a clear rise in renting over buying. Clive explains: “It seems to me there is less of a stigma attached to renting than there used to be. There’s also been a change in attitude from potential first-time buyers, who would rather rent a nicer home than they could otherwise afford to buy, whilst not having to sacrifice the latest gadgets or nice holidays to save for the (ever-growing) mortgage deposit.

“Bear in mind that until around fifty years ago, more people rented than owned their own home and I don’t think it is unrealistic to see us move towards a more ‘Continental’ housing market (around 55% of homes in Germany are rented).”

Perhaps instead of focusing so much on buying, seemingly against the current trend, the government should be trying to make the process of renting more affordable, more long-term and generally a more viable option. Unfortunately, as an economic think tank has claimed, the new rise in stamp duty from April this year will most likely only bring with it increased rental costs, and in turn slow the building of news home.