The Unique Property
Sneak Preview of 2021 -- Part Three, Different Housing
You can watch this presentation on Youtube:
Okay guys, I'm recording this on Christmas
Eve. As it's a nice day I've decided to do the recording in
the garden, but there is a sneaky little breeze which is
ruining the recording, so I have retired to my car, which I
have set out as a makeshift office. Unfortunately this means I
do get a certain amount of noise from the other inhabitants of
the garden, and the pesky planes from the nearby airfield.
I'll do my best to reduce the interference.
First, Happy Christmas to all ye who are
wailing and gnashing your teeth under the stresses of
lockdown, may you rise above such insanities, and direct some
suitable profanties in the direction of the government and its
Okay, to hell with the government, and to
hell with the virus. Let's talk real estate.
As I mentioned in earlier blogs the average
property market is made up from several different types of
property, and the buyers have differing aims. All this will
affect the various types of property differently. Let's start
with commercial property.
The lockdowns of the past year have seriously affected office
space. Let's have a look at the maths, which is where it
To run a business from an office block both costs and ties up
rather a lot of capital. There is the cost of buying the block
in the first place, or the cost of renting. Then there are the
running costs: rates, heating, cleaners, plus ancillary items
such as running a cafe, first aid, etc. Then there are the
costs of the staff, from wages to pension schemes and
Starting off a business with a large capital outlay is not the
ideal way forward. Doing without an office block saves that
initial outlay, or it removes the need for ongoing rental
expenses. Making the majority of staff work from home saves on
insurance and ancillaries. Staff can be monitored to make sure
they are working by using appropriate software, which is
There are other benefits. The staff dont have to waste time on
public transport getting to and from the office. That also
saves money on the travel costs. The office camaraderie is
lost, but I dont know how to assign a value to that. It is
also the case that we aren't suddenly going to see people
working from home. This is a move that will happen gradually.
But it will start to affect the price of the average office
block. Who needs to buy or keep renting one if home working
can be managed?
This trend will lead to a slide in commercial valuations. The
answer here is obvious. Dont invest in office space. It's
going out of fashion. The more automated things can be, the
less staff is needed anyway.
That leaves us with an important question. What happens to the
Glad you asked. Blocks of offices have been converted into
flats for sometime already. That move will be continued and
extended. This will help to provide more accommodation for
Dont buy into office space until it is empty and a company
seeking funding is prepared to take it over and convert to
residential. But always check both the company and the maths.
That's one for the investment crowd, or those seeking a steady
What about residential property? Are we heading for a crash as
so many pretend-experts claim?
The evidence at the moment would appear to be contradictory.
The real downer is what conclusions lenders will draw from the
lockdown experience. Moratoria on rents and mortgage payments
don't do the lending or investment side of the business any
There is also the question of the gradual extension of the use
of robots and more AI driven automation. Robots dont need
wages or sick pay, maternity leave, or paid holidays, and the
average robots can work 23 hours a day. Also, robots are
getting cheaper while wages keep rising. It's a no brainer. I
foresee swathes of office workers out of work in the near
future. The same is going to happen to truck drivers once
driverless trucks become mainstream. With the tech side of
driverless cars already on version 4, and with version 5 (the
ultimate in driverless motoring) on the testing pad as we
speak, that situation is only two or three years away.
What is this going to do to the mortgage market? We have
testing times ahead.
One metric at the moment is paramount, mortgage payments rely
on wages, and wages rely on jobs. If you lose your job and
cant retrain for another, bang goes your ability to service a
mortgage. House prices can only rise in line with rises in
wages. We aren't in that environment at the moment. I would
need to see what happens to the economy post Brexit and post
lockdowns before hazarding an opinion on where wages are
heading. As usual, I see the metrics pointing in opposite
directions. New technology and new trading deals will help the
British economy in the near future. This will initially lead
to higher wages for certain sectors, but longer term I see
technology eventually putting large swathes of the population
out of work. That will tend to reduce the owner/occupier
stats, and increase the rental stats. That will probably also
lead to an increasing use of companies running the rental
sector, and a more static market in terms of pricing. It will
be more simple and more profitable to invest in such companies
rather than entering the rental market as an individual.
One metric that keeps appealing to those who dont understand
housing markets is the apparent disparity in those who want to
buy a house on the one hand, and the number of houses
available on the other. That has nothing whatever to do with
the likely direction of the market. Lots of people want to buy
a lamborghini, few actually manage to do so. In such markets
the maths is simple enough. You dont buy what you want, you
buy what you can afford. That takes us back to the level of
If you dont believe me, look back at the house price crash at
the end of the eighties. Almost overnight houses lost half or
more of their value. Was there suddenly a drop in the number
of people available to go out and buy? Of course not. The
population level and those wanting to buy were roughly the
same in 1991 as they were in 1989. But we will no doubt still
get people trotting out the same old rubbish.
2020 is going to be a year of testing times. Which way will
things go? It's definitely a suck-it-and-see year. I dont
believe the main movements will take place in pricing, but in
the choice of area. Pricing is going to be messy. If you want
to sell your tenth storey flat, I suspect the price you'll get
will go down as the year progresses. If you want to sell a
nice suburban detached house with garden, expect the price to
go up. The real problem is going to depend on how many
companies do go bust in the end, and whether there is an
economic boom to come. The answer to that is in the lap of the
gods. Not only that, but it does take time for things to work
out. Conclusions are not going to suddenly appear. 2021 could
well develop into as messy a year as 2020.
In the next episode of this series I will be taking a closer
look at which metrics one needs to observe to get your
bearings in the market. Do join me for that.
That was supposed to be the end of this week's property blog,
but as I was about to do the audio for the Youtube version I
received some news about the corona virus situation in the UK.
I have to say I am appalled at what I hear. Let me make a
couple of comments.
Governments make plans well in advance for coping with
disasters. There is already a master-plan to deal with
situations such as the Corona Virus Pandemic. The United
States and Europe set guidelines on how to cope with such a
pandemic. Broadly speaking the playbook was that young people
should stay in school. Businesses should remain open, and
people should carry on working.
The rules set out that you isolate the at-risk segments of
society, in other words the elderly and those with preexisting
conditions. If anybody becomes infectious or has symptoms,
they should self-quarantine. Masks should only be worn by
health care professionals or those believed to be symptomatic.
I am now told that the lockdowns are worse, and that one is
even forbidden to sing carols in church this christmas.
Let me repeat that the UK with lockdowns has certified over
1000 deaths per million supposedly due to the virus while
Japan, with no lockdowns has 23.
The only conclusion I can rationally come to is that the UK is
ruled by a bunch of certifiable lunatics. And in the meantime
I am trying to make some sensible predictions about what will
happen over the course of the next twelve months. How, for
pity's sake, how can one make any sensible predictions about
what is likely to happen in a lunatic asylum?
I will continue to try, but those of you living anywhere in
Europe are heading rapidly into a nightmare of insanity. Not
for me, thank you very much.
The only sensible question to ask at this point is: When is
the uprising planned?