Supply And Demand
Gerry Fitzgerald has built a multi-million pound property portfolio which he manages himself. As a former Independent Financial Adviser he is further qualified to offer insight and guidance on the buy-to-let mortgage market. With long experience, both of using letting agents and of managing properties himself, he can speak with authority on the benefits and pitfalls of both approaches. He also runs a successful holiday letting business.
Property, like all markets, is governed by supply and demand.
It is almost a truism to say that the British, unlike their continental neighbours, are a nation of homeowners (and shopkeepers, as Napoleon observed). This fact alone has provided, and continues to provide, a powerful demand for house purchase. But house building has never kept pace with demand. Between 1990 and 2000 house building fell from 200,000 units per annum to 180,000, while the number of households grew by two million. London alone needs 35,000 new homes a year and has little prospect of getting them. It is hardly surprising, therefore, that there is an acute shortage of available property.
But while demand clearly outstrips supply in the case of house purchase, what about the rental market? Consider the following.
The first-time buyer is, surprisingly, a key player in the rental market. As the shortage of supply pushes prices up, outpacing increases in wages and salaries, the first-time buyer has had to wait longer and longer to get on the first rung of the housing ladder. The average age of the first-time buyer is now 35. What does he do in the meantime? He rents.
Decisions on careers, marriage and starting a family are now being made later in life than ever before, no doubt in part due to changes in the job market and the increased uptake of university places.
Thirty years ago 5% of sixth formers went on to university. Today the government is well placed to achieve its objective of 50%! In recent years expansion in tertiary education has been breathtaking, with universities competing furiously for the student market. This market, it is worth noting, is not solely UK based. Admissions departments send representatives overseas to attract foreign students (earning substantially more from them than from their UK counterparts). It is not unusual to find some postgraduate courses entirely filled by overseas students!
No amount of student accommodation on-campus can cope with this demand. Without the private rented sector, universities would be in serious crisis.
UNTIL DEATH US DO...
Not any more it seems. The divorce rate in this country has risen year on year over the last 20 years and is heading relentlessly towards 50%. Where there was one household before there is now a need for two. In many cases the second home is initially rented.
The UK has always needed immigrants (there would be no roads without the Irish and no London Transport without West Indians). With the fall in the birth rate and the inevitable consequences of an ever growing elderly population (not enough young people in work to pay for retired people’s pensions), the need for young immigrant workers is now greater than ever. With the expansion of the EU to 27 member states, workers from other countries, East Europeans in particular, are free to come here to fill the gap. They have to live somewhere.
Unexpected immigrants cause a separate housing headache. The burden of providing homes for these families has fallen, in the main, to local councils. The solution, until recently, was bed-and-breakfast accommodation at enormous cost. Now there is a far cheaper and more satisfactory answer – private sector housing, rented directly to the council.
THE JOB MARKET
The permanent job for life has long gone. In its place we have contract work, self-employment, employment agencies, temporary work. Flexibility and mobility are now essential requirements in the workplace. Few expect to stay in the same job and live in the same area indefinitely. Renting is the sensible option for many in this position.
While house purchase, therefore, remains a powerful long-term goal for most people, it is clear that there is and will always be a steady demand for rental accommodation.