Monday, October 15, 2007

My hot tip for property investors

Here’s an interesting little graph, which I gleaned from the Oct 07 edition of Housebuilder magazine. It shows the extraordinary transformation in the supply of new homes in Britain over the past decade. In 1998, nearly half of all new homes were detached. Today, the figure is just 20%. In contrast, flats have gone from around 18% of the total to just under 50%. Effectively, the positions of detached houses and flats have swapped over, whilst terraced houses and semis have stayed much as they were, at least in terms of proportions of overall mix.

Now there are well-known reasons for this turnaround. 1998 marked the start of the brownfield land building campaign and the move towards densification. Or put another way, it marked the beginning of the end of developers being able to buy green fields and plonk estates of detached houses on them at very low densities.

Nevertheless, I am still struck by this graph. The turnaround really is quite dramatic. And it does make you wonder whether this emphasis on building flats is sustainable (in the economic sense). It would seem that, all other things being equal (i.e. pre 1998), housebuilders would be knocking out masses more detached houses than they are, but the constraints of the planning policies have more or less put a stop to this. Presumably the underlying demand for detached homes is as large as ever: given the choice, most people would probably rather bring up a family in a detached house with a garden rather than a flat. And most young flat dwellers would probably envisage themselves moving into a detached house if and when they start families. That looks as though it’s going to become an increasingly difficult aspiration to meet. So if this new housing mix remains in place — or even becomes more pronounced over the coming years — then expect to see the relative value of detached houses increase, and flats to decrease.

How’s that for a bit of financial forecasting? Revisit this blog in 2017 and see if my prediction works out.


Anonymous Anonymous said...

Absolutely on the button! Spain, as you well know, is flat land. The premium for anything that can be described as a chalet, including mind numbing rows of terraces, each with a handkerchief garden is more than a 100% over a flat, and increases as you approach city centres. Median price for a good flat where I live is 300,000 euros. My best option for a plot 6 km further out to build detahed home is 300,000 euros for 700 m2. And yes, aspirations here are similar to those you describe in the UK, everyone wants to get shot of noisy neighbours.

By the way limeys, get ready to be taken to the cleaners by the 'Boks! :-)


11:17 am  
Anonymous Anonymous said...

Rugby aside....

The brownfield/densification policy ties in quite nicely with the new PMs desire to tame the housing market (increase suuply, reduce demand).

As a resident of one of the brownfield flats, I have seen a relatively flat flat market as more and more (smaller) flats spring up around, me whilst the value of detatched properties continues the upward march. The stumbling block for flats in this area being the stamp duty threshold at £250k.

So maybe we'll see a two tier market appearing here over the next few years wherein flats stop at £250k and detatched properties (or at least those with a bit of space) hit the £500k barrier and stop there; the tax cost of moving is becoming such a disincentive to move (£10k a pop at £250k) that the market may well grind to a halt. The influx of more affordable housing (60k house anyone?) will then tend to reduce the value of both. As least thats the plan.

Where this leaves pensions, inheritances, savings and investment portfolios is anyones guess...

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