Here’s an interesting little graph, which I gleaned from the Oct 07 edition of Housebuilder magazine. It shows the extraordinary transformation in the supply of new homes in Britain over the past decade. In 1998, nearly half of all new homes were detached. Today, the figure is just 20%. In contrast, flats have gone from around 18% of the total to just under 50%. Effectively, the positions of detached houses and flats have swapped over, whilst terraced houses and semis have stayed much as they were, at least in terms of proportions of overall mix.Now there are well-known reasons for this turnaround. 1998 marked the start of the brownfield land building campaign and the move towards densification. Or put another way, it marked the beginning of the end of developers being able to buy green fields and plonk estates of detached houses on them at very low densities.
Nevertheless, I am still struck by this graph. The turnaround really is quite dramatic. And it does make you wonder whether this emphasis on building flats is sustainable (in the economic sense). It would seem that, all other things being equal (i.e. pre 1998), housebuilders would be knocking out masses more detached houses than they are, but the constraints of the planning policies have more or less put a stop to this. Presumably the underlying demand for detached homes is as large as ever: given the choice, most people would probably rather bring up a family in a detached house with a garden rather than a flat. And most young flat dwellers would probably envisage themselves moving into a detached house if and when they start families. That looks as though it’s going to become an increasingly difficult aspiration to meet. So if this new housing mix remains in place — or even becomes more pronounced over the coming years — then expect to see the relative value of detached houses increase, and flats to decrease.
How’s that for a bit of financial forecasting? Revisit this blog in 2017 and see if my prediction works out.
I should add that the house price statistics that I follow, which are for Cambridge, collected by Cambridge Building Society, do not bear my theory out, despite Cambridge itself now being full of newbuild flats and very few new detached houses. Over the ten years in question since 1998, Cambridge detached houses have risen 225% in value, as opposed to the overall average for Cambridge of 255%.
ReplyDeleteThis suggests one of two things. 1) My theory is rubbish. 2) It's not rubbish, the relative shortage of detached houses hasn't begun to show through yet. Just give it time.
It's not rubbish, you're right. We've hit saturation with flat provision and they're becoming very difficult to shift. I think the detached shortage will start to show soon.
ReplyDeleteI also think you are correct Mark.
ReplyDeleteThat and the fact that Marriage is starting to be a thing of the past (seeing stats), and with divorce rates coming in at around 1 in 3, where are these people going when their lives turn upside down (flats I think).
Also, with it being as hard a time as ever to get onto the housing ladder, young couples must think starting a family is a huge decision in life (unless you have financial help from family) with regards to getting a mortgage at around 5 times your annual wage? These people have to start somewhere, and that somewhere has got to be flats, which is the next thing from living at home with parents.
Something needs to happen sharpish to help the next generation in my oppinion.
p.s Forgot my login details, so had to post as anonymous sorry.
Lee.
I think you are spot on Mark.
ReplyDeleteHaving worked for a major house builder for many years, I have seen the effect of PPG3 - town houses in favour of detached houses. This basically meant that we had scores of people coming onto our sites asking 'could they put their name down for a detached'. When we said there were no detached, only townhouses, we were told to forget it. This meant units were left unsold, and worst still, undesirable - and the Government wonders why the housing market is in such as state!
I think the canny investor will try to add more detached homes to his portfolio, realising these will be in much demand in the future.