Is Society Significantly Different? 

Looking back over the past few years it is useful to get a perspective on what we hear is happening in society and in particular the property market today, versus what we are led to believe is happening by the media. Have things really changed since the 80’s for example? Is society today significantly different and if so, what are those differences and how can we interpret them in order to predict their affects on the future direction of the property market, and society in general.

This may seem a tall order but if you rise above the day to day gossip, scaremongering and negative sensationalism, it is possible to pick out highly significant events which in hindsight have clearly changed the fundamental structure and direction of the property market and vicariously, because of properties enormous impact on our lives, of society in general. One such event was the Housing Act of 1986.

The Housing Act 1986, an innocuous enough title, not the sort of inspirational name you would associate with momentous change like the Bill of Rights, or the 1918 Representation of the People Act which heralded in female suffrage, but in its own way its effect on society has been almost as significant. If you think about it logically and simply it should have been easy for all the so called experts of the time to predict what an enormous impact this act would have on society, and yet at the time the contemporary press failed to see what was going to happen, as did virtually all of the commentators most of whom couldn’t see the wood for the trees.

In the 1989 cult movie ‘Field of Dreams’ Ray Kinsella (played by Kevin Costner before he produced the infamous ‘Waterworld’) a farmer who never thought he’d end up as one, heard a mysterious voice that said ‘If you build it they will come’. This call to arms inspired Kinsella to embark upon a path which led him to the realisation of his dreams, and in a way the films focus on the achievement of our dreams and the reconciliation of our past relationships defines the whole decade.

The same amazing phrase ‘If you build it they will come’ can be applied to all acts of social change. In order to bring about change you first have to put in place the mechanism or mechanisms by which change can take place. Giving women the vote changed society in ways which are still happening today, so it is important to remember that ‘if you build it they will come’, though true, does not mean they will arrive right away or all at once. Changes rarely act alone but interact with other changes and often their effects get so entangled that they become difficult to perceive without exceptional clarity of vision.

Let’s indulge in a few clichés to put things in perspective. Nervousness and indecision are the hallmarks of failure while wide eyed enthusiasm and naïve optimism, though engaging in children, are the hallmarks of the fool when it comes to any form of investment. Most people tend to invest on the lemming principle, in other words, they tend to follow the herd, even if it’s over the cliff. Of course sometimes, even more often than not, staying with the herd is the safest thing to do; that way you don’t have to take any responsibility for your actions and you can rely on being protected from predators because of safety in numbers. Seeing the wood for the trees can only be done if your head is not buried in the sand and sometimes the thing you are looking for is so close at hand you can’t see it, like the nose in front of your face.

We hope that everything is now crystal clear but just in case it isn’t, let’s have a go at getting to the point. The point is that fundamentally we all want security which we see as a key facet of happiness. Unfortunately security is a bit of a ‘willow the wisp’ because it tends to go hand in hand with certainty and this world we live in is anything but certain, especially these days. Right now we appear to have seen an unprecedented boom in property prices over an extended period of time. Not surprisingly, property bears are popping up everywhere predicting financial meltdown, not just in property but across almost every market. On the other hand there are the property bulls who predict vast rises in price over the next ten years; they are all so called experts so how can mere mortals work out what’s going on and what to do about it?

Well we don’t profess to have all the answers, far from it. We think that if you have a lot of money already you should always diversify your investments, in other words don’t keep all your eggs in one basket, which in simple terms means having some cash in the bank, some property and some stocks, shares and other securities. The problem is that this sage advice which you will hear on the TV and read in the papers only applies to those fortunate few who already have a significant amount of wealth. For the rest of us without much cash in the first place, the burning question remains, how do we get it? Investing a few thousand in stocks and shares, even if they are well chosen and do better than average is unlikely to do the trick and just as likely to result in heavy losses if you don’t know what you are doing, or heavy charges if you go through a fund manager, most of whom fail to beat the general market anyway. Of course you could open a spread betting account and gear up your investment; that way in theory at least, you would have a chance of achieving high returns. However you could equally rely on the horses or the National Lottery - its all gambling of one sort or another.

This brings us back to property and the 1986 Housing Act. You see we think this act fundamentally changed the way in which the property market works in this country, so we tend to think in terms of pre and post 1986 conditions. Prior to this act there was no private rental market to speak of because if you owned a property as a private landlord, you could never evict your tenant, as they had security of tenure. Not surprisingly there were very few landlords prepared to accept this situation hence the tiny rental market. The affect of these conditions was that when you left home you had little choice other than to rent a room in a house or buy a property. This put pressure on property prices and lead to the unsustainable property bubble which finally burst in 1988, the catalyst being the removal of double tax relief on mortgages.

The seeds of the new market had already been planted however and underlying the deep recession that followed there was a new paradigm waiting to emerge. As we said earlier if you build it they will come, but not all at once and not straight away. It was only by the mid 90’s, the deepest part of the property recession, that lenders woke up to this new market and started to tentatively make funds available for private landlords and those stuck in negative equity. At this point it didn’t take a financial genius to realise property was good value; falling interest rates meant you could borrow all the money to buy a property and the rent would still give you a massive profit, the ideal way of making money from nothing. Of course 100% mortgages were not available so you still had to start somewhere but once off and running as interest rates continued to fall and rents rose along with prices, if you used the equity to build your portfolio it was possible to become seriously rich - as a number of people did.

But is it all over bar the shouting? Has property run its course for the time being and will the next phase in the cycle be a downward one? It's very dangerous to say definitively that anything will happen in any market because there are always variables and factors over which we have no control; the best we can do is make an educated guess. The thing is we don’t think that as yet the market has fully adjusted to the new conditions brought about by the 1986 Housing Act. We think that until the market has found a balance between home ownership and renting there is still mileage in the current boom. Why? Well would you rather rent or buy? Given the choice you would buy wouldn’t you? And so would everyone else, which means for the time being there is a bidding war going on between the would be first time buyers and the would be landlord; until that bidding war is over prices will not peak for long. If you look at the figures for the private rented market you will know when the war is over by the fact that the private rented sector will stop expanding. So far we have not come across any evidence of this happening.

One of the features of an unsustainable boom, or bubble as it is often called, is that there ceases to be a rational explanation for price rises and buyers are no longer interested in the thing they are purchasing for its own sake, they are merely interested in speculating for quick profit. This game of pass the parcel always ends in tears but as it is driven by greed and stupidity, can we be that sympathetic? Incidentally on a trivial pursuit’s kind of note, do you know the origins of the use of the word bubble to characterize these occurrences? Well just in case you don’t let us enlighten you. (Taken with thanks from Wikepedia)

So did you get all that? It may seem a bit out of date but if you think about the tech stocks boom of a few years ago you will notice that things may not have moved on as much as you might have thought. When viewed against this backdrop we don’t think property qualifies as a bubble at the moment in any way. Although the price has gone up steadily, affordability has not declined that much as it has been offset by lower interest rates, increased earnings and lower direct taxation. As we become wealthier and the price of goods and services fall as a percentage of our income, we have more discretionary income to play with and property tends to attract a lot of this income (and always has). You also have to consider that the average property price is very misleading because it refers to the country as a whole, and as we have often pointed out the market is divided into many micro markets that operate to a certain degree independently of one another. Therefore factors that cause huge price rises in rural Wales will not be seen in London but they will impact on average prices.

Of what there is no doubt however is the game is getting harder and it is becoming more and more necessary to exercise caution and probity when setting out to invest in property. We along with everyone else involved in the market have learned a lot over the past few years and we continue to learn all the time. Our aim is to provide our clients with the benefit of our experience, and the edge they need to stay ahead of the game in an ever more competitive market place. We are not scared of competition and we don’t think you should be either. Competition is what makes life interesting, the secret is to be better than rest, to strive for excellence and have the courage of your convictions.

We appear to have meandered some distance from where we started in this edition but we hope you found it an interesting journey. Next time we will be asking you to participate in a survey to confirm or deny our conclusion that the market has still some way to go before it peaks - as there are around 100,000 of you and only a few of us we are prepared to be educated. Until then good luck with your property ambitions and remember we are there to help when you need us.

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