Wednesday 28 December 2016

Average Rent Paid by Tenants in Stoke on Trent on the rise

Back in the Spring, there was a surge in Stoke on Trent landlords buying buy to let property in Stoke on Trent as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1st April 2016. To give you an idea of the sort of numbers we are talking about, below are the property statistics for sales either side of the deadline in ST1. 

Jan 2016 – 25 properties sold

Feb 2016 – 30 properties sold

March 2016 – 73 properties sold

April 2016 – 30 properties sold

May 2016 – 35 properties sold 

Normally, the number of sales in the Spring months is very similar, irrespective of the month. However, as one can see, this year was a completely different picture as landlords moved their purchases forward to beat the stamp duty increase. You would think that even with a basic knowledge of supply and demand economics, rents would be affected in a downwards direction?
 
 

However, there appears to be no apparent effect on the levels of rent being asked in Stoke on Trent - and more importantly achieved - and this direction of rents is not likely to inverse any time soon, particularly as legislation planned for 2017 might reduce rental stock and push property values ever upward. The decline of buy to let mortgage interest tax relief will make some properties lossmaking, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, reducing rental stock at a time of severe property shortage. 

.. but it’s not all bad news for tenants. Whilst average rents in Stoke on Trent since 2005 have increased by 14.8%, inflation has been 38.5% over the same time frame, meaning Stoke on Trent tenants are 23.7% better off in real terms when it comes to their rent (which is a sizeable chunk of most people’s monthly household budgets) 

Year
Average Rent in Stoke on Trent per month
2005
343
2006
351
2007
363
2008
374
2009
377
2010
375
2011
381
2012
387
2013
393
2014
397
2015
403
2016
410


I found it particularly interesting looking at the rent rises over the last five years in Stoke on Trent, as it was five years ago we started to see the very early green shoots of growth of the Stoke on Trent economy.  As a whole, following the Credit crunch (2011), rents in Stoke on Trent have risen by an average of 1.4% a year – fascinating don’t you think? 

The view I am trying to portray is that while renting is often portrayed as the unfavourable alternative to home ownership, many young Stoke on Trent professionals like renting as it gives them adaptability with their life. Rents will continue to rise which is good news for landlords as buy to let is an investment but, as can be seen from the statistics, tenants have also had a good deal with below inflation increases in rents in the past. It’s a win-win situation for everyone although on a very personal note, it’s imperative in the future that tenants are not thwarted from saving for a deposit by excessive rental hikes – there has to be a balance.

Monday 26 December 2016

Stoke-on-Trent Property Values increase by 0.2% ... good or bad news?

“How's the Stoke-on-Trent housing market doing?” asked an upbeat Stoke-on-Trent landlord last week.  “Quite strange”, I replied. Our landlord was perplexed! Let me explain... 

Even the Brexit vote has not hindered Stoke-on-Trent’s steady rise in property value, as Stoke-on-Trent property values went up 0.2% last month alone, leaving Stoke-on-Trent values 6.79% higher than a year ago. An increase in demand from buyers and an uninspiring level of supply (i.e. the number of properties on the market) has driven up the value of the Stoke-on-Trent’s housing.

...And that is where the issue is. With Brexit, the coalition of the 2010-15, a double-dip recession and post credit crunch fallout – I was perplexed that the Stoke-on-Trent property market (and values) has remained so strong, still 12.5% higher than 20 months ago. That is until you start to look into the real reasons why we find ourselves in such a great place. 

The Stoke-on-Trent (and the UK) housing market is built on the foundations of basic economic rules that any GCSE Economics student should understand. However, at a time when, as a country, we seem eager to uncouple ourselves from all manner of proven facts, anything is up for grabs.  

Even the wary RICS said throughout the UK, most of its Chartered Surveyors anticipated house prices to increase in the next six months, which seems contradictory given economic cautions from Mr Hammond and HM Treasury. Even though inflation will rise to around 2% to 3% in 2017 and perhaps a little more in 2018 because of Sterling’s devaluation, together with a high probability of a decelerating GDP and a slight rise in unemployment, how can the RICS and most of my landlords be so confident about the value of our homes?

Well, look at from where we are starting. Nationally, a base of low unemployment, low inflation and preposterously low interest rates. Confidence also plays a part. Confidence can supersede basic economic facts for a short time at least, which is why actual property market changes tend to be more exaggerated, as confidence can turn both positive and negative very quickly. The fact is, there is a long-term relationship between property values, wages and unemployment. For example, looking at the graph below, you can quite clearly see the ratio of property values to earnings is nowhere near as high as it reached in 2008 and currently is in the middle of the range for the last 30 years. As a country, we are in a good place.

 

By April 2017, Article 50 will be invoked. This will bring additional political tomfooleries and economic ups and downs. With both purchasers and vendors predisposed by the 24-hour news cycle, which let’s face it, gets more haphazard by the day, it is likely to prove a challenging couple of years … and yes, Stoke-on-Trent property values might drop slightly in 2017, but based on what we know of the UK plc now, the UK and Stoke-on-Trent property values are not projected to move that much over 2017 or 2018.  Going into the next two years, we are in much better financial shape as a country compared to the last two crashes of 1987 and 2008. 

But, on the other side of the coin, what we also know is that we don't know much about the form of our economic future or indeed many other facets of our lives. Confidence will continue to be the key player in the Stoke-on-Trent housing market for a while longer - yet this may spur some much needed second-hand market activity? Now, where is my crystal ball?

Friday 16 December 2016

Stoke-on-Trent Housing Crisis? Only 1.4% of Stoke-on-Trent Homes Are For Sale

The Stoke-on-Trent Property Market continues to disregard the end of the world prophecies of a post Brexit fallout with a return to business as usual after the summer break. 

The challenge every Stoke-on-Trent property buyer has faced over the last few years is a lack of choice – there simply hasn't been much to choose from when buying (be it for investment or owner occupation). Levels are still well down on what would be considered healthy levels from earlier in this decade, as there is still a substantial demand/supply imbalance. Until we start to see consistent and steady increases in properties coming on to the market in Stoke-on-Trent, the market is likely to see upward pressure on property values continue.
 
 

For example, last month St1 saw 123 new properties coming on to the market, not bad when you consider for the last year the average has been in the 60 to 80 range. With the average Stoke-on-Trent property value hitting a record high, reaching almost £141,200 according to my research, this shortage of properties on the market over the last two years has contributed to this ‘fuller' average property figure.

As I write this article, 1.40% of Stoke-on-Trent properties are up for sale. In terms of actual chimney pots, that equates to 1,236 properties on the market in Stoke-on-Trent (within 3 miles of the centre of Stoke-on-Trent) – which, when compared to only a year ago when that figure stood at 1,386, is a slight decrease in the number of properties available to buy. Split down into the type of property, it makes even more fascinating reading...

·         Detached Properties in Stoke-on-Trent  - 178 on the market a year ago compared to 145 on the market now – a decrease of 19%
·         Semi Detached Properties in Stoke-on-Trent - 420 on the market a year ago compared to 338 on the market now – a decrease of 20%
·         Terraced Properties in Stoke-on-Trent - 459 on the market a year ago compared to 502 on the market now - an increase of 9%
·         Flats / Apartments Properties in Stoke-on-Trent  - 176 on the market a year ago compared to 151 on the market now – a decrease of 14%

This is evidence of strength in the Stoke-on-Trent housing market that many didn't expect. Many believed that the Stoke-on-Trent property market wasn't going to be strong enough post Brexit - as what was a sellers' market before the Brexit vote and Buyers' market in the early months after it, may now be somewhere in between and the market might just be coming back into balance. 

However, all this will mean property values won't continue to grow at the same extent they have been over the last 12 to 18 months, and in some months (especially on the run up to Christmas and early in the New Year), values might dip slightly. This won't be down to Brexit but a re-balancing of the Stoke-on-Trent Property Market – which is good news for everyone.

Friday 9 December 2016

Private Renting set to grow by 6,900 Stoke on Trent households by 2025

I was having a most interesting chat the other day with a Stoke on Trent landlord when we were looking at a property. As I am sure you are aware, I am always happy to cast my eye over any potential buy to let purchase in Stoke on Trent, be that you emailing me a Rightmove link, a brochure in the post or even treading the carpet and seeing it together. I don't charge for that, and you don't even need to be a client of mine. We got talking about the Stoke on Trent Property Market and this landlord brought up the subject of a report he had read from the Royal Institution of Chartered Surveyors (RICS) and PricewaterhouseCoopers (PwC) that stated almost 1.8m new rental homes are needed by 2025 to keep up with current demand from tenants. He wanted to know what this meant for Stoke on Trent. 

Well my blog reading friends, some commentators said last Winter that buy to let was about to die, what with the new stamp duty changes and how mortgage tax relief will be calculated. Others even said 500,000 rental properties would flood the market nationally in the 12 months after the new Stamp Duty rules came into force on the 1st April 2016 as landlords left the rental market. Well, all I can say is, I wish all the landlords of those half a million properties would hurry up and put them on the market – because I have plenty of other potential landlords wanting to buy them! 

Back to the matter in hand.. if the RICS and PwC are indeed correct, what does this mean for Stoke on Trent? The fact is, as a country, we are facing a precarious rental shortage and need to get Stoke on Trent building in a way that benefits a cross-section of Stoke on Trent society, not just the fortunate few. I call on the Prime Minister to drop the higher stamp duty tax on buy to let purchases to ease the pressure on the rental market.  

Of the 116,800 households in Stoke on Trent, currently 36,700 tenants live in 16,000 private rented properties. If we apportion those 1.8m households equally around the Country, that means in nine years’ time, the number of rental properties in Stoke on Trent needs to rise by 6,900 (i.e. 42.8%) .. taking the total number of rented properties in the city to 22,900. 
 

That means Stoke on Trent landlords need to buy around 800 properties a year between now and 2025 to meet that demand – because according to my calculations, an additional 15,700 people will want to live in all those 'additional' Stoke on Trent rental properties – so why is the government penalising landlords? 

Thankfully the new housing minister Gavin Barwell detached Teresa May's new administration from the Cameron/Osborne laser-like focus of just home ownership to solve our housing issues, saying "we need to build more homes for every single type of person needing a home and not focus on one single tenure". The private rented sector became a stooge under David Cameron's watch and still, with increasingly unaffordable Stoke on Trent house prices, the majority of new Stoke on Trent households will be relying on the rental sector in the future to house them. I can only say Westminster must put in place the measures that will allow the rental sector to flourish. Any restrictions on the supply of rental property will push up rents (bad news for tenants), thus side-lining those members of Stoke on Trent society who are already struggling. Let's hope this new Government continues to see the contribution landlords give to the country as a whole.

Friday 2 December 2016

6.1% of Stoke on Trent People live in Shared Households

I had an interesting chat the other day with a Stoke on Trent landlord. He said he had been chatting with an architect friend of his who said back in the mid 2000’s, the developments he was asked to draw were a balance of one and two bed properties, compared to today where the majority of the buildings he is designing are more towards two and sometimes three bedrooms. Now of course, this was all anecdotal but it made me think if similar things were happening in the Stoke on Trent property market?

This is a really important point as I explained to this landlord, as knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in Stoke on Trent, Stoke on Trent property prices, Stoke on Trent yields and Stoke on Trent rents.  

In 2001, there were 103,200 households with a population of 240,600 in the Stoke on Trent City Council area. By 2011, that had grown to 107,600 households and a population of 249,000.

.. meaning, between 2001 and 2011, whilst the number of households in the Stoke on Trent City Council area grew by 4.24%, the population grew by 3.48%

 


Nothing surprising there then. But, as my readers will know, there is always a but! My analysis of the 2011 Census results, using the most recent in-depth data on household formation (eg ‘one person households’, ‘couples/ family households’ or ‘couple + other adults households and multi -adult households’), has displayed a sudden and unexpected break with the trends of the whole of the 20th Century. There has been a seismic change in household formation in Stoke on Trent between 2001 and 2011.

Between 2001 and 2011, the population of Stoke on Trent grew, as did the number of Stoke on Trent properties (because of new home building). However, the growth rate of new properties built in Stoke on Trent was much lower than expected though, but still the population has grown by what was expected, meaning the average household size was larger than anticipated in Stoke on Trent. In fact, average household size (ie the number of people in each property) in 2011 was almost exactly the same as in 2001, the first time for at least 100 years it had not fallen between censuses. (Since 1911, household size has decreased by around 20% every decade).

Looking at figures specifically for Stoke on Trent itself,

·         One person households - 32.2%         

·         Couples/family households – 61.7%

·         Couple + other adults/multi-adult households – 6.1%

This decline was reflected in large scale shifts in the mix of household types. In particular, there were far more “couple + other adults households and multi -adult households” than expected (6.1% is quite a lot of households). It can be put down to two things; increased international migration and changes to household formation. A particularly important reason for the difference can probably be attributed to the evidence that migrants initially form fewer households (ie two couples share one property) than those who have lived in the UK all their lives. Also, changes to household formation patterns amongst the rest of the population, including adult children living longer with their parents and more young adults living in shared accommodation (as can be seen in the growth of HMO properties (Homes of Multiple Occupation). 

So, what does all this mean for Stoke on Trent Homeowners and Landlords? Quite a lot in fact. There has been a subtle shift to slightly larger households in the last decade, meaning smart landlords might be tempted to buy slightly larger properties to rent out – again good news for homeowners who will get top dollar for their home as they sell on. But now with Brexit, household formation might swing the other way in the next decade? Who knows? Watch this space!