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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.
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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.
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In my blog about the Docklands Property Market I mostly only talk about two of the three main sectors of the local property market, the ‘private rented sector’ and the ‘owner occupier sector’. However, as I often stress when talking to my clients, one cannot forget the third sector, that being the ‘social housing sector’ (or council housing as some people call it).
In previous articles, I have spoken at length about the crisis in supply of property in Docklands (i.e. not enough property is being built), but in this article I want to talk about the other crisis – that of affordability. It is not just about the pure number of houses being built but also the equilibrium of tenure (ownership vs rented) and therein, the affordability of housing, which needs to be considered carefully for an efficient and effectual housing market.
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The average asking price of property in Docklands (or E14 to be precise) dropped by 2.6% or £17,777 compared to a year ago, taking the current average asking price to £659,083 compared with £676,860 this time last year.