As things stand, very few young people can afford to buy their own home. Not only does that mean they feel they are spending ‘dead money’ each month paying rent to a landlord, but they feel bad as they haven’t got started on the housing ladder and worry about the outcome. The flipside, rarely discussed in the media, is that by not buying a property these same young people are not burdened by the following:

• The overall upkeep of the property
• Exterior painting
• Service charges for leasehold properties
• Building insurance costs but most importantly:
• The exposure of owning property in any future property price crash.

Most commentators, and let’s face it, there are too many now, would suggest that prices are not likely to rise significantly in the next few years. The 2012 forecasts are currently being issued by the larger property companies and they are predicting flat prices, or marginal increases. However I would argue that we are now far more likely to see a price drop in the next 2 years. I would contend that higher unemployment, continuing uncertainty about job security, the inability of banks to lend to medium-risk individuals as further FSA rules are implemented are all negative factors for house prices in the next 24 months.

I see 3 major factors currently supporting house prices:

1)    Lack of housing supply

2)    Planning Policy

3)    Government support to key-workers/first-time buyers

With respect to housing supply, Mark Clare, Group Chief Executive of Barratt Developments updated the city yesterday “Our strategy of pursuing value rather than volume combined with bringing recently acquired higher margin land into production, is delivering a significant improvement in operating performance. However, without an increase in the availability of mortgage finance, industry growth will remain constrained.” It is clear that even volume developers are moving away from “Pile ‘em high, sell ‘em cheap” social housing and focusing on higher returns from a smaller number of new build starts. Government funding for social housing is falling and the new plans to allow Councils to reinvest Right To Buy income in new social housing remain on the drawing board.

The Localism Bill received its Royal Assent on Tuesday, it is now an Act of Parliament. Home Information Packs are now abolished which means we should now all rejoice in the shambolic Conveyancing system we have since it won’t be improving any time soon. More importantly, property transaction are actually needed before anyone can enter the Conveyancing process. This Act gives much greater powers to Councils, it amends the Community Infrastructure Levy- unwisely in my view- and places a much greater expectation that local communities will understand, and provide for, their housing requirements. It certainly places a great deal of faith on the private rental sector to take up the slack and house individuals that may have historically been sheltered by councils or charities. The change of national policy to assume development can proceed is not something I can see County Councils implementing- they can, and will, stall, until this top-down policy is revised or revoked. Many Councils were delighted to tear up their Local plans after the last elections leaving developers hung out to dry and housebuilding at chronically low levels.

This Government continues the work of the previous establishment in supporting key-workers and first-time buyers in a variety of schemes including FirstBuy. These are encouraging people to buy a great number of the smaller new build properties for prices which, I would argue, are artificially high. We are seeing shared-ownership and other financial ‘dark arts’ being used by developers to simply shift their stock. We appear to have learned little from previous house price crashes and artificially supporting the market in this way isn’t sensible. A great many properties that we take on at Neil Douglas Lettings have been bought on the new local estates in the last 18 months by key-workers who are now moving away. They have no equity in their property and can’t afford the legal and agency costs to sell so they make the choice to rent out their homes. There is no doubt my Lettings company is benefitting from the policy to support the buyers, but standing back from what is happening, is the overall policy actually a good one?

So what are my predictions for 2012. I would say a 2% drop in 2012. But against what measure- am I simply keeping my options open? Yes, that brings us nicely along to another problem- property price indices. I shall blog about that very subject soon.

© 2011, Neil Douglas. All rights reserved. On republishing this post you must provide link back to the original post.

The decision is a poor one, I disagree with it and I want to explore why.

Feed-in tariffs themselves could be argued to be unfair subsidies, and that is a point I will concede. I do think new industries that have a high financial barrier to entry but with a product or service that is, on balance, good for the nation, offer no reason why the Government shouldn’t step in and ‘pump-prime’ by ensuring a guaranteed demand. This pump-priming, or indirect commercial support, allows the manufacturers, retailers and installers to create their supply-chains from scratch at a reduced risk of failure.

The existing tariff rate of 43.3p/kWh of electricity created was sufficiently high to make it a financially worthwhile to the generation who actually have spare money they are prepared to invest. Additionally it is high enough to allow various other creative options such as ‘rent-a-roof’ appear (I should add that I’m not necessarily keen on all of these creative models). Many individual households have, and will see yields of 10-12% on their investment, the investment returns are index-linked for 25 years so are a low risk as well as being ‘good for the environment’. Since these same people would only have used 25 years worth of electricity created from coal, gas & nuclear energy with   CO2 creation as a byproduct, they can be pleased with the investment.

Before moving into the property world I worked in various high-tech engineering companies and am well-aware that the solar panels themselves contain materials that are extracted using processes that can be high in CO2 production. I am also aware, through reading my professional journals of the ongoing research and development into next generation materials/processes for solar panel manufacture. My view is that, in the round, the installation of photo-voltaic panels to capture the free energy provided by the sun is a good thing. There are few things on the Earth that are actually ‘free’-  most have consequences, but the manufacture of solar panels causes less short-term damage than many alternative energy sources.

The new tariff rate is 21p/kWh. This has dramatically reduced the investment  yield to perhaps 5-6% for many installations. With inflation currently running at over 5% and with decisions being made in this financial environment, not the one we will be face in 4-5 years time, this is not therefore an immediately attractive option. The UK does not have a culture of accepting properties that are ‘a little bit different’ in their appearance- and we can thank our planners for their ability to contrive a system whereby new build, undersized, box homes are somehow aspirational.

The Government is happy to emphasise its Green credentials, yet has taken a number of steps that demonstrate its commitment is waning, and failed to take other steps which reinforce the view that the Government isn’t particularly serious about its Green Agenda.

The significant reduction of the Feed-In Tariff

a) The delay to introduce improved EPC compliance until April 2012. This is the second delay so far.

b) The failure to implement Display Energy Certificates (DECs) on large commercial buildings- despite the requests from industry that this would assist the reduction of energy usage across the country.

c) The failure by DCLG to place a priority on Trading Standards Officers to enforce both Commercial Energy Performance Certificates and Air Conditioning Inspections. A huge amount could be raised by fining those managing, marketing or selling property without the correct legal paperwork.

d) The dismissal of the need for future new build to meet robust Code for Sustainable Homes ratings. The roadmap existed, it just needed implementation, Clearly lobbying from developers has brow-beaten the Government into submission on this.

e) Defining zero carbon as something that is not actually zero carbon at all. For the last 5 years industry had one interpretation of zero carbon for new build homes, but after significant delays from Grant Shapps and the merry band in DCLG, the definition of zero carbon is nothing of the sort- it’s been substantially watered down.

The wider concern

Government simply redistributes monies raised through, primarily, taxation. The feed-in tariff was, on the face of it, paid by the larger energy producers who of course can then declare lower profits, pay less corporation tax etc. Ultimately this can be carved up various ways, but my view is that it is public funds being used to subsidise the installation of photovoltaic panels. I regard this is a good thing, retrofitting is never attractive in any industry (unless you are the one financially benefitting as my previous employers did when with military electronic upgrades). The inertia in the UK property industry is so great, that it was astonishing that this ‘special deal’ on solar panels was actually beginning to make headway with the number of installations measured in the tens of thousands so far.

The defence put up by the Government was the subsidy was too high and the pot of money would run out. Now, with some respect, what the Government is failing to realise is that it is simply redistributing money. The Treasury may pretend that it’s a business, with budgets, forecasts and ‘pots of money’ that may or may not ‘run out’ but it doesn’t directly ‘add value’ to the economy- a phrase you may see me use again.

So what should the Government have done?

If the Government had taken the view that an index-linked 10-12% yield investment for 25% years was simply too good to be true, then I’d have agreed. The volume of social housing being built in the next 5 years is supposed to be ‘high’ and of course these properties could certainly benefit from this free electricity – thereby reducing the number of people in fuel poverty.  Given the requirement for a reasonable volume of solar panels to be manufactured, sold and installed to make companies want to get involved in the sector, then I’d have either:

a) Left the feed-in tariffs well alone for another 5 years. Let the manufacturers, retailers and installers earn their crust, employ their staff and pay their taxes (it’s not as if unemployment is under control right now). Many of the retailers and installers are micro-businesses so will actually be paying real corporation tax/employers NI contributions, rather than off-shoring their finances.

b) Reduce the tariff in a phased approach.  Perhaps every 2 years, cut it by 3-5p/kWh so that it becomes more attractive to get the installation work done sooner, than for the members of the public to simply leave their cash in the bank. Spending money will get the economy moving, saving like there is no tomorrow doesn’t actually help very much, especially when the banks are not rushing to lend in any great volume to SMEs.

There is no ‘magic’ improvement to be made at the moment that will take the efficiency of solar panels from their meagre 15-30% to 60% or higher. Research is ongoing to find higher levels of efficiency but there are no factory-ready solutions at far higher levels of efficiency. This is important simply because if you could buy panels that were double or even triple the efficiency and mount them on your roof, they certainly would generate a very nice income with feed-in tariffs left at 43.3p/kWh!

The Green Deal

Details of the Green Deal remain opaque, and quite where the reduction in FITs slots in isn’t worth second-guessing. Certainly the calculations done by many in the industry in the last 2 years showed that it was very unlikely that photovoltaic installations would meet the Green Deal ‘golden rule’ whereby energy efficient improvements can only be funded and implemented when the expected financial savings are equal to or greater than the costs attached to the energy bill.

I have covered a large amount of ground in this blog and will return to expand on many of these topics. I have neglected to include links in this posting, but thank you for the various tweets I have received regarding the first posting last week which was well-received.

© 2011, Neil Douglas. All rights reserved. On republishing this post you must provide link back to the original post.

Of course Neil Douglas is involved in property management of blocks of flats and individual property, Additionally we carry out building and energy surveys as well as assisting developers achieve certification for their new build property.

Having blogged regularly a few years ago acquiring rather a barn-storming reputation (that lead to numerous trade and national press articles) I don’t intend to be quite so controversial since the subject of Home Information Packs is well behind us all. Suffice to say that I learned a great deal about the way that DCLG operates. Or, in some cases, just doesn’t!

Today saw the publication of a report by Which on the state of overcharging that goes on in the residential leasehold sector, and it’s a topic to which I shall return as it certainly gets my heckles raised when reviewing potential new blocks and see how much they have been overcharged for simple tasks.

A colleague took some exams for the Institute of Residential Property Management (IRPM) yesterday and we await the outcome of those. We have found the standards in the block management industry to be incredibly low since getting involved a few years ago and so it’s been imperative to keep acquiring new knowledge in a sector that is unregulated and generates so much anger from leaseholders who aren’t necessarily aware of their legal position.

Today is also the deadline for receiving applications for a Letting Negotiator role that we’ve been advertising in recent weeks. We’ve had a very high response and some very attractive applications so I look forward to short-listing for the role in the next few days.

I’ll also discuss the issues facing energy assessors who carry out Energy Performance Certificates (EPCs) who have had an incredible journey in recent years that I’ve witnessed firsthand.

I would greatly appreciate your comments and thoughts, either about this blog, or suggesting subjects that you would like me to blog about. I’ve been very fortunate to have covered so much ground within the property sector in the last 7 years and I find it incredibly interesting- certainly no two days are ever the same as you’ll find out if you come back to read this blog regularly.

My personal twitter account is at @neilkurz and the company account is @neil_douglas

© 2011, Neil Douglas. All rights reserved. On republishing this post you must provide link back to the original post.