The Cure For The Malady Across All British Housing Markets

The cure for the malady across all British housing markets is to use a combination of two cures, in a similar way to a doctor using two specific antibiotics to cure a bacterial infection.

The expertise required to achieve that would involve first acquiring an accurate knowledge of the causes of such infections and following this, the ability to diagnose the correct medicinal cure for the specific infection involved.

It is of course imperative to be able to understand precisely how and why a specific illness or malaise will have occurred. Only then can the correct medicinal cure be prescribed.

Peter Hendry says, “I can explain in simple terms why house prices are continuing to rise despite the increasing lack of affordability affecting ever more prospective buyers.”

In a nutshell, the housing market should find the values of houses in a quite specific way.

The true value (or the correct buy price), of any house being offered for sale should be arrived at by adding THREE separately-assessed components together:

1 The land value – which depends in part upon location.

2: The construction cost (including a profit element to the builder or developer).

3: A further amount of equity or profit produced as a result of having combined these two.

These are the things that a sensible buyer should theoretically be considering, even if only subliminally.

All too often however, anxious buyers will base their offers on a combination of how much they could possibly afford and borrow, together with knowing the asking price being quoted.

What makes this task particularly difficult to quantify is that house prices in today’s housing marketplaces are not derived in perfect market conditions at all. The reason for this is because in a perfect marketplace, the whole amount of homes on the market would be sold and the demand for them would also be fully satisfied at all times.

Instead, the present day housing markets have large overruns where, either there is too much property being offered at any one time or alternatively, there are too few properties being offered to purchasers.

Both extremes are most unsatisfactory for prospective purchasers of houses in the regional marketplaces and especially in tourist and second-home prevalent communities.

Unfortunately, current day estate agency does not assess house prices in the way described just now. Instead they peg asking prices at the level they might simply guess they could sell a house for but also they may well often include what their client (the seller) might hope to achieve when determining an asking price!

Worse, they base their asking prices on what other asking prices are, including what the other recent sales will have achieved, albeit these would have used skewed marketing comparisons themselves for the reasons just set out.

To justify what is being explained here, a year ago for example a typical estate agent had 37 properties available and 379 applicants on their register (according to statistics published by the NAEA). Today, after a spirited first half of the year and after COVID has started to reduce, a typical estate agent apparently has just 23 live listings and over 400 applicants on their register.

If knowledge such as this were to be broadcast, it would skew prices-levels downwards whilst the market is flush with houses for sale and it would skew prices-levels upwards when there were not enough houses coming onto the market – as now.

In the former case, sadly there is inherent pressure within estate agency to want to hide the true facts of an excess of properties being listed for sale compared with buyers so as not to spook the market and to keep things going as smoothly as possible, rather than face the reality of a downwards-changing market, with prices dipping.

In the latter case however, with too few properties on their books and too many buyers wanting them, broadcasting the lack of supply actually helps agents to justify trying for rising prices even against general economic trends! This has been what’s going on recently of course.

Selling agents may try to argue that it is the desperation of buyers which is forcing the prices up but that does not explain why the housing markets are operating at such low efficiency in terms of completed sales. This shows serious imperfections, resulting in their lack of stability which means these markets are in need of a completely new approach to buying and selling houses.

In my analysis and resultant diagnosis following understanding the true causes of these problems, two specific ways to deal with them emerge.

A: Firstly there should be restrictions on the right to occupy a proportion of houses in each locality as being permanent “Primary Residence” restricted. This would mean these houses would be for use only by local people, such as key workers for example.

Most people seem to agree that each locality absolutely needs housing to be affordable to those fulfilling the essential roles in their community. This should therefore be enshrined in each area’s local planning rules.

Secondly and very importantly:

B: The emphasis on all prices should be changed so that these are set by ‘buyer offers’ rather than seller price-rigging, which is of course not an open market practice in any way if this is carefully scrutinised.

This is where The House Price Solution (formerly described as The Hendry Solution) could come in. It allows for both of the essential changes cited above.

It would do this by re-shaping house sales methods entirely and by including the use of “Primary Residence” restrictions on certain properties.

AND

It would enable all buyers to be free to participate and establish the price levels themselves, (subject to declared “Primary Residence” restrictions, which would be locally established using the local planning rules).

To read more about how The House Price Solution could improve the way in which houses are bought and sold across all local housing markets in the whole country, please click the following link.

The House Price Solution

How to Improve all local housing markets across England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution (otherwise known as The Hendry Solution).

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

Buyers need far better representation in the British housing markets

With estate agents acting primarily for sellers and land owners, buyers get poor advice or representation all too often.
Even though they are the ones raising (and usually borrowing) the money for each transaction, they are often the last ones to be told how things are progressing, especially where chains of other sales are involved. A lot of patching up of interlinking chains is frequently going on behind the scenes, which is not necessarily to the advantage of unsuspecting buyers further down the chain. Sale prices at the lower end may require to be re-evaluated.

This is inefficient and ought to be changed otherwise the different local housing markets across England and Wales cannot begin to function more like perfect marketplaces as they should do.

All this happens because estate agents are primarily motivated to try and obtain the best price they can for whatever asset it is they are selling, since they are contracted to act on behalf of the seller. The buyer is often the last person to be told when bids in competition with their own are are being negotiated by the selling agent and then the only remedy remaining for them is to have to find more cash to increase their offer!  It operates rather like a sort of clandestine bidding war usually conducted over a telephone.

House prices as a result, are now passing all time highs but also, they are increasing beyond average couples’ annual earning capabilities for maximum borrowing requirements. This is a big problem especially where earnings are falling. It’s vital that a more generally acceptable approach is available to everyone embarking on house moves, especially if they are first-time purchasers. Purchaser mobility ought to be what should be improved.

The only way this could be done would be to change the way residential property is sold by having agents acting for buyers instead of only acting for sellers.

It is clear that existing estate agents are understandably likely to be reluctant to consider such a change for as long as they can continue to control sales progress in the way they have done essentially since the 1920s.

It would require the buying public to start complaining about the anomalies they are having to contend with when using agents, as well as to prevail upon government to make the necessary improvements to bring about fairer but competitive pricing processes across all residential property markets. Only then could house prices track buyer purchasing power in the localities in which each particular property is located.
The correct solution to this problem does need further in-depth explanation in order for the concept to be fully understood.

The House Price Solution

How to Improve all local housing markets across England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution (otherwise known as The Hendry Solution).

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

Why are house prices still rising despite the downturn?

On the thorny subject of house prices, what we have right now are house prices still rising despite the economic downturn which is following the Covid 19 pandemic.

Why is this?
The reasons are actually straightforward but the current upward trajectory is not good news for those who need financial help to become home-owners in the future.

Research from Savills released in March 2021, estimates that the UK’s housing stock became worth £7.56 trillion – more than four times the value of the FTSE 100 index on the London Stock Exchange. These are seriously head-turning economic statistics!

What is particularly interesting, are the recent stats which explain that the value of mortgaged owner-occupied homes currently is only about £2.5 trillion, whereas there is £5.0 trillion worth of UK property which is owned completely mortgage-free. In other words this is twice as much as the value of today’s homes being purchased with a mortgage.

This would suggest that the main driver of the present government’s policy, is to continue to encourage capital growth in the housing sector. Such capital value increases obviously favour those who already have substantial property assets however, of course, the converse must therefore be true. These same policies can thus only hinder first-time buyers’ ability to become owners, as their purchasing ability is dependent upon and geared to earnings not capital values.

Polly Neate, the CEO of Shelter, is reported to be saying there is a “desperate shortage” of actually affordable homes for people on low incomes.

It’s simply no good putting up with what there is, or just continuing in exactly the same way as before.
We all have to change for the better. We should do this by treating first time buyers just the way we would like to be treated ourselves, even if we own houses outright. Houses are roofs over peoples’ heads rather than capital assets expected to appreciate in value before all else!

The House Price Solution has come up with the best possible new policy for the whole of the housing sector and for stabilising house prices within it.

In a nutshell the new policy is this:
Firstly, Neighbourhood Development Plans (or NDPs), which are readily available planning tools, should be adopted across the whole country and they ought to include similar purchasing restrictions to those which have more recently been enshrined in the St Ives, Cornwall Area NDP, the H2 policies.

These are to allow local earners a better chance to become local owners and to buy (rather than continue to rent) their principal residences.
As long as there are numbers of local earners who are not becoming mortgagor/owners, these people ought to be considered in preference to those simply having greater wealth and wishing to move to a new location of their choice.

The effect of this policy would be to help retain local communities functionally intact.
The alternative, which we have seen all too much of recently, is allowing whole areas to become ghost towns, owned by richer buyers from further afield. Allowing this destroys local communities of course.

One may easily understand that the present property-owning statistics demonstrate that a new policy is needed if we are to protect local individuality and preserve communities from societal desecration i.e. suffer the same fate that has befallen high streets up and down the country having become clones of one another lacking individuality over time. Specifically, I mean that we should save the character and cohesion of localities, from outside influences such as from those simply hoping to buy into a location just to gain an additional property investment for themselves.

BUT, something more than this is required if we are to stabilise the accelerating rise in house-prices and instead make way for a fairer and more inclusive house-price environment.
What is also required is a much better way to determine house prices themselves and it is this idea which I now put forward, naming it The House Price Solution.

In essence it is all about how to market houses in a way that can balance-out the different offers from competing buyers fairly and more equitably, resulting in a better marketplace for all those wishing to buy their next homes to live in.
It involves changing the way in which houses have traditionally been sold using vendor-led estate agency, to having new buyer-orientated agencies instead. Many of those who are employed in vendor-led estate agency practices currently could fairly easily get re-trained and become registered as buyer-advising agents.

These agents would handle incoming offers in a very different way by acting for and liaising with the different buyers. Sellers would be less able to influence the prices that are achieved because offers would be received directly from the buyers competing with one another, to the relevant buyers’ agents. These offers would be passed to the appropriate vendors by their own buying agents and this would allow house prices themselves to stabilise across the various different regions of the country. The mechanism by which this could happen would be by all offers becoming primarily dependent upon local buyers’ offer-price levels.

Only houses which are exempt from the H2 residence restrictions would be available for purchase by wealthier buyers from the rest of the country, these being outside the scope of these policies.

The above would help the success rate of individual housing transactions themselves, causing a general improvement in the number of house sales able to be made.

As explained, the goal of preserving local communities by providing sufficient and affordable homes up and down the country, whilst still allowing a smaller number of the wealthier buyers to integrate, could be achieved. Better price stability within all UK housing markets also would be the clear result.

Resource links:
Savills:

https://www.twindig.com/market-views/houselungo-210321#slice

Shelter’s impact and activities:

https://england.shelter.org.uk/what_we_do/our_impact

The House Price Solution

How to Improve all local housing markets across England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution (otherwise known as The Hendry Solution).

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

How much would you need to save a month to buy a house within 10 years?

Well in theory right now, if you were to make contributions of £200 a month into a stocks and shares Isa, (i.e. put aside earnings of £2,400 p.a.) and you aimed for a realistic yearly return of 4pc after fees, you’d reach your goal of £40,000 in nine years.
If your partner did the same, this could be £80,000.

In addition, if house prices were to fall over the same period, you could suddenly find yourself just about poised and ready to buy a place to start owner occupation in.
Unfortunately, there are quite a few ‘ifs’ in this scenario aren’t there.

The main obstacle to achieving such a dream for an increasing number of aspiring buyers is house prices themselves which, even at the lower end of the house-ownership spectrum, are out of reach for many would-be owner occupiers. This obstacle could however be removed using relatively straightforward improvements in the way that residential properties are marketed.

The present ‘government’ idea of trying to get prices to start reducing is to build many more housing units.
Unfortunately, this idea is fundamentally flawed. The reason is the effect of doing this would be marginal on price. Why?
Because unless upwards of 10% of the total number of existing houses in the system were to be constructed, little or no effect on house-prices themselves would actually be felt.

If you do the maths it becomes clear that it would be impossible to build enough new houses, even over a full ten-year stretch. The calculation tells you it would take building in excess of ten times the number of new units currently able to be built each and every year for at least the next ten years!

By deduction therefore, instead of attempting to do the impossible it would be better to look at the current methods of marketing all residential properties and change that. The sales and marketing of residential property the one thing that is highly inefficient, old fashioned and in need of significant improvement. This is the key to achieving the desired result – greater owner-occupation.

Reform the way privately owned residential properties or houses are bought and sold and you will make the process open, fair, and efficient.

Doing this would bring the prices of starter homes back within the reach of first-time buyers and they would no longer have to borrow the increasingly ridiculous amounts which are currently stopping the majority of those wishing to become owner-occupiers to do so.

The House Price Solution

How to Improve all local housing markets across England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution (otherwise known as The Hendry Solution).

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

Will house prices ever stop rising faster than inflation?

I have worked as a Chartered Surveyor in the property sector from the 70s to the 90’s. During this time I have seen the relentless upwards direction of travel of house prices as related to true affordability, based on general earnings, first hand.

The golden dream of becoming a home owner by purchasing using mortgage borrowing repayable over the next 25 years, was something that was every young family’s ultimate ambition at one time. This has morphed into a nightmare recently. Why?

First of all, landowners have increasingly scooped-up increasing gains on the value of the land involved – by relying on the increased amounts to be borrowed by both first-time buyers and others further up the property chains.

Secondly, the banking and finance sectors have hijacked most of the profit remaining to be found and taken a big slice of it for themselves. In other words those institutions lending capital on mortgages have annexed a greater and greater share of the profits by doing what they think they are supposed to be doing – i.e. advancing increasingly large amounts of finance. More recently, they are now even prepared to increase the mortgage term length beyond the original 25 year repayment period, moving towards 30 years or more, which is highly questionable.

Simultaneously, interest rates, which have dropped to extremely low levels at the moment are enabling buyers to over extend themselves using loans they should not be being advised to take out.

The super-rich, on the other hand, are able to utilise the same unrestricted availability of mortgage finance to outbid the rest, using the collateral they already possess. The difference between the two positions is stark.

Shared ownership schemes (part rent part buy) have begun to appear which further decrease the actual dream of owning a whole building and the plot it is built on, in one’s lifetime.

House prices are being talked-up increasingly by estate agents whose primary interest above all else is to make the sale at the best price possible.

Employment is becoming more uncertain with flexible working hours making earnings unpredictable.

The actual cost of living is going up whilst basic wages are not keeping pace.

The housing market’s core buy-prices are further adjusting to match the described ‘loosening’ parameters. This has tended to happen in the past but the graph is exponential and it is set to continue in the relatively near future because house prices themselves are pegged in a practically unregulated market. In such a heady market, those who will have over extended themselves will, as a result, suddenly find they have a big financial problem.

The more wary amongst potential first-time buyers, are understandably holding back.
Apart from being wary, the main reason for this is that asking price levels of ‘so-called’ affordable housing today, are no longer truly affordable to them.

The only solution to this pernicious problem:- is to lower the buy-in prices of housing for all owner occupation.

How? That is the question?

The answer, as provided by those in the financial sector, is to offer to build more houses to increase the supply so that prices will finally and in theory reduce!

The main flaw in this argument is that it will take many years worth of building new housing (certainly if traditionally constructed), before sufficient numbers of them could push the prices down even a little. In the meantime, builders, landowners and mortgage lenders would hope to be able to carry on making their profits unhindered!
By the time the planned massive building boom will have begun to have had any noticeable effect, the players described will have made all the profits they were hoping to make for themselves!

The other and far more applicable answer would be to make the necessary changes to the way houses are bought, sold and let. Doing this now, alongside building more housing units, is the best and only way to restore the housing economy to sound health once again.

The House Price Solution

How to Improve all local housing markets across England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution (otherwise known as The Hendry Solution).

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.