Tales of the unexpected: 2022 property sector review
This time last year, everything looked relatively rosy, and we looked forward to another 12 months of doomster-defying trend-bucking. Little did we know what 2022 would hold. What were the key highlights, and how did everything play out? Find out in our 2022 property sector review.
Well, we didn’t see that one coming. Who did? 2022 wasn’t just a rollercoaster; it was like every ride at the world’s biggest theme park rolled into one. It began with Russia invading Ukraine, promised the biggest shake-up in the private rented sector for generations in the middle, saw off two prime ministers by the autumn, and witnessed the highest inflation and interest rate levels for 25 years by Christmas. Heaven knows what our dearly departed Lilibet would’ve made of it all.
This time last year, of course, everything looked relatively rosy. We even titled our 2021 review Still On The Up and looked forward to another 12 months of doomster-defying trend-bucking, albeit with the caveat that rising interest rates could throw a spanner in the works. Little did we know, however, that Vladimir Putin, Liz Truss and Kwasi Kwarteng would have other ideas. Sigh.
Fortunately, we weren’t the only ones whose predictions proved overly optimistic, though. The nation’s largest property portal had predicted a steady year with house prices rising nationally by 5%. Wrong move, Rightmove.
The calm before the storm
During the first quarter of 2022 there was little indication of the chaos to follow. Rishi Sunak, who could only dream of being Prime Minister at this point, announced a relatively low-key Spring Statement most notable for his promise to cut income tax from 20% to 19% by 2024. He also raised the national insurance threshold from £9,600 to £12,570.
There were some dark clouds on the horizon, however. Russian tanks were pushing towards Kyiv and the cost of energy, which was already rising faster than one of Putin’s Topal missiles, was becoming increasingly unaffordable for many homeowners and tenants. We tried to help our customers by offering tips on how to make homes more energy efficient. However, it was becoming obvious that the government would eventually need to intervene at some point.
The summer shakeup
The summer began with the launch of our new Residential Expert podcast series. And boy, didn’t we time it right? We recorded our first episode just as the government’s long-awaited A Fairer Private Rented Sector white paper finally landed. This meant that we were able to pick the brains of our Residential Expert, former CEO of Propertymark Mark Hayward, about the big shakeup straight away, not to mention the summer heat wave and how it impacted the property sector. Mark was also on hand to guide us through the shocks that reverberated around the property sphere thereafter. More about those later…
Let’s start, though, with that all-important Renters Reform Bill. Was it needed? Yes. Did it go further than most experts expected? Yes. Did it give the sector plenty to talk about for weeks? Hell, yes. Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, called it “a generational shift that will redress the balance between landlords and tenants”. And, strangely for a politician, he wasn’t exaggerating.
Although the proposed abolition of Section 21 stole the headlines, the white paper also included a host of other eyebrow-raising reforms: periodic tenancies, an end to blanket bans on pets, children and tenants on benefits, proposals for a new decent homes standard, and plans for a new all-singing and all-dancing property portal. Notice periods were also doubled while the government doubled down on insisting that all private rented properties should reach EPC band C by 2025.
Our view at Just Move In was (and still is) that the proposed reforms are very much needed. Yes, we’re worried that landlords will eventually come under greater scrutiny, which might ultimately lead to some leaving the sector at a time when we desperately need more privately rented homes, but honest landlords should have nothing to fear.
Our reaction to Boris Johnson’s proposal to revive Right To Buy, however, was less enthusiastic. Although Margaret Thatcher’s original scheme benefitted thousands of people living in council homes, the flip side was that it cut the number of privately rented properties significantly. We therefore concluded that repeating this now, in the middle of a housing crisis when most young people rent privately, would be a mammoth mistake.
Autumn leaves
Ah autumn - that magical time when leaves turn to brown and fall delicately to earth. This time, however, it was political leavers (rather than leaves) that captivated us. And, instead, it was the value of the pound falling to earth - but with a loud thud rather than a flutter.
The problems started when Liz Truss promised to cut taxes during the race to replace Boris Johnson. Then, having become prime minister, she felt compelled to keep her promises - even though everyone suspected that the markets would react badly. So what happened? We had the infamous mini-budget. And the markets reacted badly. Who knew?
Although inflation and interest rates had been creeping up before the mini-budget, all hell suddenly broke loose. Interest rates were put up again - experts predicted they could reach 6% this year - and mortgage providers got spooked. Virgin Money, Skipton, Halifax, Nationwide and Santander were amongst those who suspended popular mortgage products faster than you can say, “mass repossessions”. Unsurprisingly, Liz and Kwasi didn’t last long.
At this point, the purveyors of pessimism predicted a perfect storm where potential buyers would fail affordability checks, mortgage holders wouldn’t be able to afford their repayments, and first-time buyers would run for the hills. The sector, therefore, seemed on a knife edge.
Our Residential Expert, however, called for calm. And we deliberately sidestepped the media hysteria by writing Don’t Fall For The Property Crash Headlines. After all, property is based on sentiment and we didn’t want the sector to talk itself into a crisis. What’s more, the doomsters were ignoring the fact that the average price of a home coming to market had increased by £2,587 (a rise of 0.7%) month-on-month to September. Incredible when you think about it.
Fourth-quarter quibbles
With a new chancellor taking the reins, PM Rishi Sunak rode into town with one mission: to stop frightening the horses. Thankfully, November’s autumn statement just about achieved that.
However, whilst we were pleased that Jeremy Hunt becalmed the markets, he actually offered very little for the property sector. What’s more, the changes to annual exemptions from Capital Gains Tax (CGT), the reduction in dividend allowances, and the rises in corporation tax seemed to penalise landlords yet again. Meanwhile, introducing a cut-off point for the previously announced stamp duty breaks for first-time buyers threatened to create another frenzied rush to get deals over the line in two years’ time. Overall, therefore, we felt relieved but slightly underwhelmed.
The problem, of course, is that the economic outlook still doesn’t look particularly good. Consequently, we could be in for a discombobulating winter of discontent with a series of public sector strikes. It’s a good thing that property writers, who have far less to grumble about, are much happier in their roles. We wouldn’t want our journal to go awol.
Themes of the year
As we look back on a turbulent 2022, several issues kept rearing their ugly head. For starters (and this obviously isn’t a new problem) we’re still very much in the middle of a housing crisis. The country simply doesn’t have enough available homes.
We discussed the reason for this several times over the course of the year: people are moving less, empty nesters are less inclined to downsize, it’s taking longer for deals to reach exchange, and the government simply isn’t building enough new abodes. The target to build 300,000 new homes per year was on, then off, then on, and now it’s basically off again. The problem, of course, is that hitting targets is largely in the hands of private builders. Meanwhile, a combination of a slow planning process and nimbyism certainly doesn’t help.
The other recurrent theme of the year, which is obviously related, is the continued demonisation of landlords in many quarters. This is a massive shame because the sector badly needs landlords. In fact, we need more available privately rented homes all round. Criticising landlords, who aren’t immune to the cost of living crisis themselves, seems counterproductive to us. After all, most landlords only own one or two properties and the vast majority are Good Guys In a Bad Situation.
Yes, life was tough for many tenants in 2022, but landlords have had a tough time, too. And the Renters Reform Bill and the autumn statement could make life even more complicated for some. The possible introduction of rent caps, which we discussed in August, could also put them under pressure if Labour wins the next election.
Reading the tea leaves
No review of the year is complete without a look forward to the next 12 months. So what will 2023 bring? Hopefully, we’ll see far more stability with fewer unexpected events to blow our predictions off course. What we can safely predict, however, is that the market is likely to be quieter than normal. The Office For Budget Responsibility (OBR) has predicted that the economy will shrink by 1.3% this year before recovering in 2024.
What will these broader economic trends mean for the property sector? Nationwide has predicted a soft landing, with prices falling nationally by 5% rather than the dramatic crash that some harbingers of doom have foreseen. We shouldn’t forget that the sector has weathered a lot of problems surprisingly well in recent times: Brexit and the pandemic amongst them. Perhaps we shouldn’t underestimate the market’s resilience?
Therefore, let’s count our blessings rather than expect the worst and wallow in wanton despair: unemployment is still low and although inflation is high, which isn’t something we’re used to, the Bank of England predicts that it will fall this year. Meanwhile, the markets are predicting that interest rates could peak at 4.5% in the summer, which isn’t as bad as many first feared. Finally, the market could continue to be propped up by the chronic lack of stock. This isn’t an ideal scenario but it should keep rents and prices higher than they’d otherwise be.
The bottom line, however, is that nobody knows where we’ll be at the end of the year. Maybe Matt Hancock will be prime minister, Boy George will be Mayor of London, and Michael Gove will win Strictly Come Dancing? It could happen, folks.