If you walked down Kings Square in York, just off Colliergate this week, you may have happened upon the rather sobering piece of artwork created by Matthew Plummer Fernandez called ‘Token Homes’ which effectively represents the scourge of any first-time buyer in today’s property market. Given my mutually affinity for York as well as the property market, I felt compelled to take a closer look.
A rather thought-provoking piece of art, as I stood there on Kings Square, I found myself wondering, how did we get to this position, in the UK property market, let alone York? I could get quite Political here but will refrain so for fear of alienating 50% of my audience!
Property prices, although cyclical, have always tended to follow an upward trajectory outperforming inflation, at least over the last twenty years. Case in point, according to the Land Registry House Price Index, York property prices averaged around £56,382 as at January 1995, with a York detached house costing you just over £93,000 and a York flat costing just shy of £41,000.
As at today, property prices in York have increased by an eye watering 342% as recorded by the Land Registry, July 2018. At this time, and as per the below graph illustrated by the Bank of England and the Office of National Statistics, the average UK salary equated to circa £20,000. Nowadays, the average UK salary is in the region of £27,600, a 38% uplift only. Therefore, not only is York property an inflation-beating asset, but the rise in property prices over the last 20-odd years exceeds uplift in average salaries nine times over.
This provides some explanation as to why levels of owner/occupiers have decreased, renting has increased, and average age expectancy of first-time buyers has increased to between 30-44 years old (subject to locality of course).
So what could have brought this on? Well one reason could certainly be argued that a lack of housing stock is to blame. Back in 2004, the government, at the time, consulted on Economist, Kate Barker to assess the level of properties that need to have been built to meet the levels of unprecedented demand in the property sector, hence the Barker report was born. This report summarised that to meet demand, the government needs to have built approximately 250,000 new homes each year. Since the report was drafted, not once have we attained this number as indicated in the graph below taken from the Ministry of Housing, Communities and Local Government’s (formerly the Department for Communities and Local Government).
As York property prices have increased exponentially faster than average salaries, the growing York population are forced into renting. One school of thought is that this increase in demand in the rental sector may cause rents to increase. However, unlike property sales, rentals is more sensitive to consumers earnings and their availability of disposable income. Ergo, if rents in the centre of York were to increase, renters would likely just live further out and commute in, creating a micro-London market.
Interestingly, I read a BBC News Article this week which touched on this very point and detailed the average proportion of income on 22-29 year olds in certain localities, was taken up by their monthly rent. When I went into a little granularity, according to the BBC News website, in the YO1 postcode, the average rent of a one bed property is £721pcm, which takes up 45% of the average 22-29 year old’s income. Two beds, were said to rent for £847pcm, making up 53% of income, three beds, £966pcm, 60% and for four beds, £1,296pcm taking up 80% of their income.
This takes us back to the concept of ‘Generation Rent’ which Fernandez’s artwork conveys and from the below graph, taken from the same BBC News article, renting is quite clearly becoming more prevalent, owning your own home, less so as property prices continue to rise and they are unable to save for a deposit to get their foot on the bottom rung of the property ladder.
I did say I wasn’t going to get Political at the beginning of this article but the government’s initiatives over the last few years to cool the buy to let sector may be short-sighted as landlords will be forced to sell their properties, putting added demand/supply pressure on the rental market or as some of them have done, find alternative means of investing in property to mitigate their tax liability. These initiatives have come under great scrutiny from various parties, landlords being one of them of course. Time will tell how the government plan on dealing with this element of the property market and it will be interesting to see what the Chancellor of the Exchequer Philip Hammond has in store in the Autumn Budget at the end of this month, but arguably, attacking the buy to let sector any further is not the answer. Time will tell…