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There is good news for Docklands buy to let landlords as ‘top of the range’ well-presented properties are getting really decent rents compared to a year ago however, this rise in rents is thwarting many potential first time buyers from saving for both a deposit and money for a rainy day. On top of this, there is also a shortage of Docklands homes coming on the market thus adding fuel to the slowdown and affecting not just Docklands first time buyers but also those going up the housing ladder.

Whilst it is true that the Government’s initiatives, targeted at improving the supply of homes built and helping first time buyers obtaining necessary funding, are starting to work (albeit slowly), I also believe that to boost more existing home-owners and their properties onto the market, we as a Country, need to see a better focus placed on those looking to downsize (i.e. the mature generation).

If we took away some hurdles to home owners downsizing, such as removing stamp duty for those downsizers (as was done for first time buyers last year), together with encouraging even more first-time buyers with 100% mortgages to buy the smaller properties, this would in turn release more mid-range properties onto the market, which subsequently would encourage more mature homeowners to downsize from their bigger properties to buy those mid-range properties - thus completing the circle.

Looking at the most recent set of data from the Land Registry for Docklands (the E14 postcode in particular), the figures show the indifferent nature of the current Docklands property market. 

Only 486 Docklands (E14) Homes changed hands in the last 6 months

Docklands property values and transactions continue to be sluggish, and the monthly peaks and troughs of house prices and properties changing hands doesn’t mask the deficiency of suitable realistically priced property coming onto the Docklands property market, meaning the housing market is slowly becoming inaccessible to some would-be home owners.

Looking at what each property type is selling for in E14 (note the data from the Land Registry is always 4/5 months behind) makes interesting reading ….





One must remember these are the average prices paid, so it only takes a run of a few expensive or cheaper property types (as can be seen with the variance in the table) to affect the figures.. 

Looking at the numbers of properties for sale … I looked at my research for early Summer 2008, and at that time, 3,095 properties were on the market for sale in E14.. and when I did my research on this article today, just 2,319 properties for sale.. a drop of 25%.

The Government needs to seriously consider the supply and demand of the UK property market as a whole to ensure it doesn’t seize up. It needs to do that with bold and forward-thinking plans but, in the meantime, people still need a roof over their head, so as local authorities don’t have the cash to build new houses anymore, it’s the job of Docklands landlords to take up the slack. I must stress though, I have noticed a distinct ‘flight to quality’ by Docklands tenants, who are prepared to pay top dollar for an exceptional home to rent. If you want to know what tenants are looking for and what type of things you as a Docklands landlord need to do to maximise your rental returns – drop me a line.

 


It’s been nearly 18 months since Sajid Javid, the Tory Government’s Housing Minister published the White Paper “Fixing the Broken UK Housing Market”, meanwhile Docklands property values continue to drop at 4% (year on year for the council area) and the number of new homes being constructed locally bumps along at a snail’s pace, creating a potential perfect storm for those looking to buy and sell.

The White Paper is important for the UK and Docklands people, as it will ensure we have long-term stability and longevity in property market as whole. Docklands home-owners and Docklands landlords need to be aware of these issues in the report to ensure they don’t lose out and ensure the local housing market is fit for purpose. The White Paper wanted more homes to be built in the next couple of decades, so it might seem counter-intuitive for existing home-owners and landlords to encourage more homes to be built and a change in the direction of housing provision – as this would appear to have a negative effect on their own property.

Yet the country needs a diversified and fluid property market to allow the economy as whole to grow and flourish ... which in turn will be a greater influence on whether prices go up or down in the long term. I am sure every homeowner or landlord in Docklands doesn’t want another housing crisis like we had in 1974, 1988 and most recently in 2008.

Now, as Sajid Javid has moved on to the Home Secretary role, the 17th Housing Minister in 20 years (poisoned chalice or journeyman’s cabinet post) James Brokenshire has been given the task of making this White Paper come alive. The White Paper had a well-defined notion of what the issues were. 

The first of the four points brought up was to give local authorities powers to speed up house building and ensure developers complete new homes on time. Secondly, statutory methods demanding local authorities and builders build at higher densities (i.e. more houses per hectare) where appropriate. The other two points were incentives for smaller builders to take a larger share of the new homes market and help for people renting.

However, lets go back to the two initial points of planning and density.

(1) Planning

For planning to work, we need a robust Planning Dept. Looking at data from the Local Government’s Association, in Tower Hamlets, the council is above the regional average, spending £90.77 per person for the Planning Authority, compared the regional average of £45.52 per head – which will mean the planning department should have no problem meeting those targets.



Also, 93% of planning applications are decided within the statutory 8-week initial period, above the regional average of 85% (see the graph below). I am pleased with the numbers for our local authority when it comes to the planning and the budget allowed by our Politician to this vital service. 




(2) Density of Population

128.5 people live in every hectare (or 2.471 acres) in 

Tower Hamlets

It won’t surprise you that there is 254,096 Tower Hamlets residents living in the urban conurbations of the authority, giving a density of 128.5 people per hectare (much lower than I initially thought).

I would agree with the Governments’ ambition to make more efficient use of land and avoid building homes at low densities where there is a shortage of land for meeting identified housing needs, ensuring that the density and form of development reflect the character, accessibility and infrastructure.

It’s all very good building lots of houses – but we need the infrastructure to go with it.

Talking to a lot of Docklands people, their biggest fear of all this building is a lack of infrastructure for those extra houses (the extra roads, doctors surgeries, schools etc.). I know most Docklands homeowners and landlords want more houses to be built to house their family and friends ... but irrespective of the density ... it’s the infrastructure that goes with the housing that is just as important ... and this is where I think the White Paper failed to go as far as I feel it should have done.

Interesting times ahead I believe!



The simple fact is we are not building enough properties. If the supply of new properties is limited and demand continues to soar with heightened divorce rates, i.e. one household becoming two, people living longer and continued immigration, this means the values of those existing properties continues to remain high and out of reach for a lot of people, especially the blue collar working families of Docklands.

Looking at some recent statistics released by the Government, the ratio of the lower quartile house prices to lower quartile gross annual salaries in Tower Hamlets London Borough Council has hit 11.66 to 1. 

What does that mean exactly and why does it matter to Docklands landlords and homeowners?

If we ordered every property in the Tower Hamlets London Borough Council area by the value of those properties, the average value of the lower quartile properties (i.e. lowest 25%) would be £380,000. If we then did the same, and ordered everyone’s salary in the same council area, the average of the lowest quartile (lowest 25%), the average salary of the lowest 25% is £32,603 pa, thus dividing one with the other, we get the ratio of 11.66 to 1.

Assuming there is one wage earner in the house, the chances of a Docklands working family being able to afford to buy their own home, when it’s over eleven times their annual salary, is very slim indeed. The existing affordability crisis of people wanting to buy their own home is the unavoidable outcome of the decade on decade failure to build enough homes to keep up with demand. Nevertheless, improving affordability is not a case of just constructing more homes. Tower Hamlets London Borough Council needs to ensure more properties are not only built, but built in the right locations and of the right type and at the right price to ensure the needs of these lower income working families are met, because at the moment, they presently have few options apart from the private rental sector.

Looking at the historic nature of the ratio, it can clearly be seen in the graph below that this has been an issue since the early to mid 2000’s.




However, if one looks at the historic data, those on the bottom rung of the ladder (those in the lower quartile of wage earners) used to be housed by the local authority instead of buying. However, the vast majority of council houses were sold off in the 1980’s, meaning there are much fewer council houses today to house this generation.

Many of the lower quartile working class families were given a lifeline to buy their own homes in middle 2000’s, with 100% mortgages, but the with the credit crunch in 2009, that rug (of 100% mortgages) was rudely pulled from under their feet. You see it is cheaper to buy than rent ... it’s the finding of the 5% deposit that is the challenging issue for these Docklands working class families. So unless the Government allow 100% mortgages back, the fact is, demand for rental properties will outstrip supply.

In the long term, to alleviate that, I would suggest the Docklands community hold their local politicians at Tower Hamlets London Borough Council to account for the actions they could take to ensure the affordability of housing and the extent to which they work with private developers and housing associations and aggressively use the planning tools at their disposal to safeguard the local community getting the new households we need. Tower Hamlets London Borough Council could make certain parcels of residential building land for private rented development only, eliminating the opportunity of the land being bought to develop large executive homes, which do not solve the current problem. 

Yet in the short term, all this means is demand for rental properties will continue to grow, keeping Docklands house prices high and Docklands rents high.

 



More than 3 babies have been born for every new home that has been built in Tower Hamlets since 2012, deepening the Docklands housing shortage.

This discovery is an important foundation for my concerns about the future of the Docklands property market - when you consider the battle that todays twenty and thirty somethings face in order to buy their first home and get on the Docklands property ladder. This is particularly ironic as these Docklands youngsters’ are being born in an age when the number of new babies born to new homes was far lower.

This will mean the babies being born now, who will become the next generation’s first-time buyers will come up against even bigger competition from a greater number of their peers unless we move to long term fixes to the housing market, instead of the short term fixes that successive Governments have done since the 1980’s.

Looking at the most up to date data for the area covered by Tower Hamlets Council, the numbers of properties-built versus the number of babies born together with the corresponding ratio of the two metrics …





It can be seen that in 2016, 2.98 babies had been born in Tower Hamlets for every home that had been built in the five years to the end of 2016 (the most up to date data). Interestingly, that ratio nationally was 2.9 babies to every home built in the ‘50s and 2.4 in the ‘70s. I have seen the unaudited 2017 statistics and the picture isn’t any better! (I will share those when they are released later in the year).

Our children, and their children, will be placed in an unprecedented and unbelievably difficult position when wanting to buy their first home unless decisive action is taken. You see it doesn’t help that with life expectancy growing year on year, this too is also placing excessive pressure on homes to live in availability, with normal population growth nationally (the number of babies born less the number of people passing away) accumulative by two people for every one home that was built since the start of this decade.

Owning one’s home is a measure many Brits to aspire to. The only long-term measure that will help is the building of more new homes on a scale not seen since the 50’s and 60’s, which means we would need to aim to at least double the number of homes we build annually.

In the meantime, what does this mean for Docklands landlords and homeowners? Well the demand for rental properties in Docklands in the short term will remain high and until the rate of building grows substantially, this means rents will remain strong and correspondingly, property values will remain robust.

 
A noteworthy number of buy to let landlords in Britain plan to buy more properties over the next year notwithstanding the frustrations, challenges and seismic changes in the private rented sector. According to Aldermore, the specialist Buy To Let lender, their research shows around 41% of portfolio buy to let landlord’s objective is to grow their buy to let portfolio (Portfolio landlords are landlords that own more than one property).
So, I thought, “Are Docklands landlords feeling the same?” If so, if these numbers were applied to the Docklands private rental market, what sort effect would it have on the Docklands property market as whole?
Talking to the landlords I deal with, most are feeling quite optimistic about the future of the Docklands rental market and the prospect it presents notwithstanding the doom and gloom prophecies that the property market will shrink. Many of those Docklands landlords who are looking to enlarge their portfolio are doing so because they still see the Docklands rental market as a decent investment opportunity.
With top of the range Bank and Building Society Savings Accounts only reaching 1.5% a year, the rollercoaster ride of Crypto currency and the yo-yoing of the Stock Market, the simple fact is, with rental yields in Docklands far outstripping current savings rates, the short term prospect of a minor drop in property prices isn’t putting off Docklands landlords.
The art to buying a Docklands buy to let investment is to buy the profit on the purchase price, not the anticipation of the future sale price.
No matter what the historical economy has thrown at us, with the global meltdown in 2008/9, dotcom crash of 2000, ERM in 1992, the three day week, oil crisis and hyperinflation in the 1970’s (the list goes on) ... the housing market has always bounced back stronger in the long term. That’s the point ... long term. Investing in buy to let is a long-term strategy. The simple fact is, over the long term with the increasing demand for rental properties, predominantly among Millennials as many cannot afford to get on the property ladder, and with councils not building enough properties of any kind, many youngsters are having to resort the private rental market for their accommodation needs.
So, what of the numbers involved in Docklands?
There are 2,257 landlords that own just one buy to let (BTL) property in Docklands (or E14 to be precise) and 4,914 Docklands landlords, who are portfolio landlords. Between those 4,914 Docklands portfolio BTL landlords, they own a total of 10,312 Docklands BTL properties and they can be split down into the size of landlord portfolio in the graph below….
If I apply the Aldermore figures that means 2,015 Docklands landlords have plans to expand their BTL portfolio in the coming year or so.
However, the Aldermore Research also showed that 8% of private landlords intended to reduce the number of properties they own. They put this down to continuing Government intervention in the housing market (as many landlords mentioned too many limitations and higher taxation) while some believed that tenants are excessively protected to the disadvantage of the landlord.
I would say there is no repudiating that the buy to let market has taken a bit of a beating, thanks to a plethora of Government regulation, new mortgage underwriting rules in 2014 and George Osborne’s tax changes. Yet there still remains an overall consciousness of optimism among the vast majority of Docklands buy to let landlords. Despite these latest changes, many landlords still view buy to let as a good investment, as long as you buy right and expand your portfolio taking into account the second rule of buy to let … assess your position on the ‘buy to let seesaw’ of capital growth and yield.

If you want to buy right and assess your own portfolio on the yield/capital growth seesaw ... drop me a note. I don’t bite and the opinion I give, whether you are landlord of mine or not as the case may be, is given freely, without obligation or cost. The choice is yours. Thank you for reading this article. To read others, please visit my Docklands Property Blog.
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