The Residential Expert - November 2022
It’s been yet another rollercoaster month in the property sector. With a new Prime Minister and interest rates on the up, there’s a lot of uncertainty around - and a lot to talk about. Find out what Mark Hayward has to say in our latest Residential Expert.
It’s been yet another rollercoaster month in the property sector. We have a new Prime Minister, again, and the Bank of England has raised interest rates by as much as 0.75%. There’s a lot of uncertainty around.
One thing we can be certain of, however, is that Mark Hayward can help us make sense of these troubled times. So pull up a pew and let’s discuss a month that’s had more twists and turns than the Amazon.
JMI: Hello Mark. Good to see you again. How are things?
Mark: I’m well thanks, although it’s been raining heavily here.
JMI: Yes, the weather has been terrible. And we’ve seen a lot of storm clouds in Westminster, too.
Mark: That’s right. We’ve seen the removal of several ministers, the arrival of some new ones, but also the return of a familiar face.
JMI: Indeed. But before we talk about Michael Gove, let’s first talk about Jeremy Hunt. There’s an important Autumn Statement coming on 17 November. What would you like to see from the chancellor?
Mark: Well, they’ve been painting the horizon very black so I don’t think we’re going to receive much good news. In fact, we could be entering a new era of austerity.
Therefore, what I’d like to see is some support for tenants, many of whom will be struggling to pay their energy and food bills. I’d also like to see some help for first-time buyers. The stamp duty incentives they received in the mini-budget were almost immediately wiped out by interest rate rises.
JMI: What about the return of Michael Gove as Secretary of State for Levelling Up, Housing and Communities? Has this news been well received by the sector?
Mark: I think so, yes. Gove knows the sector so he can hit the ground running. The Renters Reform Legislation is an area where he can hopefully get something done quickly. I’m slightly worried, therefore, that they’re currently saying that the legislation will be introduced “in due course”. That sounds a bit noncommittal.
However, at least we should have a period of political stability now. This will enable civil servants to get on with it. Overall, I’m feeling encouraged - although I doubt we’ll know the direction of travel this side of Christmas.
JMI: Mr Gove said that he still planned to introduce a Decent Homes Standard last weekend. What would you expect this to look like?
Mark: We’ll get to see it in social housing first. But there are questions as to how it will be enforced. After all, the government doesn’t yet know where all rented properties and landlords are. We don’t have a landlords register yet.
I imagine the new EPC requirements will be an important part of any Decent Homes Standard. What we might find, however, is that it’s much easier to talk about these things than actually implement them. Many private landlords will struggle to afford all the changes stipulated.
JMI: The government also seems determined to stick to its original target of building 300,000 new homes per year by the middle of the decade…
Mark: Yes, it might be hard though. But it’s good that there’s a target. The problem is that hitting this target is predominantly in the hands of private house builders; so they’re going to need an easier route to get planning. It can take years to identify a suitable site and then get the necessary permissions.
The other problem, of course, is that there’s a shortage of labour and materials are expensive at the moment. What’s more, it’s a builder’s job to make a profit rather than meet government targets. Will they play ball?
JMI: It’s such a frustrating situation. The shortage of new homes has been the big issue blighting the sector for ages…
Mark: Absolutely. We were even talking about a shortage in the days of Maggie Thatcher and the Right To Buy scheme.
But it’s hard to see how the government can suddenly build so many new houses after all this time without some kind of tax breaks for developers. They’ve already talked about enterprise zones and garden towns, for example. They might have to start building in unpopular areas or really push build-to-rent.
JMI: What would you do, Mark, if you were in Mr Gove’s shoes?
Mark: Ha. Well, we may have to think more broadly to solve the housing crisis. For example, a lot of homes in our country are under-occupied. You’ll find couples living in five-bedroom houses and things like that. A lot of our empty nesters continue to live in large houses when their kids have moved on.
One of the UK’s many problems is that we don’t build enough attractive, quality housing for senior citizens like they do in other counties such as the US. Even the term ‘retirement home’ has negative connotations over here. So maybe we need to see a shift in approach and attitude. And this is just one example.
JMI: It’s also a tough time for private landlords. A recent statistic in The Telegraph claims that one in six properties for sale used to be a rented home. Does this suggest that landlords are beginning to exit the sector?
Mark: Sadly, it does. The same article shows that landlords are buying just a third of those properties. In previous years, other landlords would’ve snapped them up quickly.
The problem is that landlords are often seen as bad guys, which isn’t fair. They’re also under pressure because stamp duty for second properties has gone up, interest rates are going up, their buy-to-let mortgages are becoming more expensive, and we’re in the middle of a cost of living crisis so it’s hard to keep raising rents.
All in all, there just isn’t a lot out there to encourage landlords at the moment. House prices are cooling, too; therefore they can’t even count on substantial capital gains. The good news, however, is that rents are high and there’s a lot of competition for rental properties.
JMI: COP27 began in Egypt at the weekend. So the environment is back on the agenda. What challenges will the property sector face as the UK moves towards net zero?
Mark: The big problem is that we’re in a cost of living crisis; so neither landlords nor owner-occupiers have much money to spend on improving their EPCs. One positive, however, is that the price of gas and electricity has very much brought energy efficiency into the public eye. Let’s hope that the message is finally resonating.
JMI: It’s not helpful that the UK’s housing stock is particularly old and drafty. It’s expensive to retrofit homes but knocking them down and building new homes has a large carbon footprint, too…
Mark: Well, at least it’s possible to build new eco-friendly homes quite quickly once the land is there. And developers already need to meet some pretty stringent levels of efficiency.
Sadly, though, it’s going to take about 300 years to rebuild every home in the UK at the current rate we’re going. In the meantime, I suspect many homeowners will simply turn the thermostat down rather than investing large sums of money into improving their EPC. In fact, some period homes are almost impossible to improve anyway in terms of energy efficiency.
JMI: Yes, perhaps many homeowners can look at offsetting the carbon they use if improving energy efficiency is difficult? I guess we’ll just have to watch this space.
Mark: Indeed. It will be interesting to see what comes out of COP27. Perhaps we’ll talk about that next time?
JMI: Yes, let’s do that. Sadly, we’re out of time this month. Let’s reconvene in four weeks’ time for a special Christmas edition of the Residential Expert.
Mark: Do you promise to wear a Christmas hat?
JMI: You can count on it.
If you'd like to watch the full conversation, click on the video below.
https://youtu.be/4D1HvLIdB3M
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