Housing market in North Devon 'changing fast' - Tim Jones

The importance of a vibrant housing market is something that is necessary to ensure success for the Northern Devon economy. I regularly try to report on this.

The situation is changing fast. For many years we have been used to house prices increasing year on year. These increases have often been in double figures. Whilst this is great for existing home owners, it is obviously a much greater problem for those trying to get on the housing ladder. In general, however, most people want to know that their home is growing in value.

There have been some strange disruptions to this normally very orderly market. Covid produced one of the most peculiar effects, which was a flight to the Countryside. The spread of Covid seemed almost uncontrollable in tight urban areas. Many families therefore decided that a more rural location was not only safer but likely to improve their general quality of life.

This trend continued for many months. It was often the case that nice rural properties were sold within a matter of hours. Prices shot up. Many of the purchasers were not looking to this becoming a second home, rather that they could rediscover the pleasures of family life, escape from commuting and work from home.

This pattern has settled to a form of hybrid working, whereby roughly two or maybe three days a week are spent in the office and the balance working from the home office. All the expert analysts now believe that this pattern has settled in and should be part of policy making for the future. For the owners of poor-quality office accommodation in Town Centres, this has proved to be bad news.

Occupancy has dropped to an average of about 40%. This has inevitably affected values generally and rental income. To try and offset this, government have been encouraging owners of commercial buildings, particularly in Town Centres, to convert these for residential use. As part of the planning process, there is a procedure called Permitted Development Rights which make this whole process easier to achieve.

Demand generally for rural properties has remained relatively stable, however, the speed of transactions has reverted to normal.

What has happened most recently, however, is a symptom of rising interest rates and the effect of a brush with recession in the national economy.

House prices have now fallen for a fourth month in a row, dipping by 0.3% month-on-month in July to £285,044. Over the year prices are down around 2.4%, which is the largest fall since June 2011.

The general view from property experts is that despite tough economic head winds the housing market is continuing to display a degree of resilience. Surprisingly, the first-time buyer market has held up relatively well despite the removal of the government’s 'Help to Buy' incentive. There are indications that some purchasers are searching for smaller homes to offset higher borrowing costs.

On the one hand interest costs have increased to the highest level for 15 years. They are probably close to their peak after 14 consecutive increases, particularly now that there are signs that inflation is coming under control. This has however had a huge impact on mortgage costs which from record low levels now average interest charges in the region of 6%. The resilience however can perhaps be explained by the performance of the wider economy. Most noticeable is strong wage growth. In June, for example, wages had grown at the fastest pace in nearly two years.

Most worrying is the decline in the availability of properties to rent. There is clear evidence that Buy-to-Let landlords are under such pressure that they are selling up. Soaring interest rates have made mortgage repayments costly for landlords. In addition to this however these landlords need to take account of regulatory changes. The Renters (Reform) Bill is designed to deliver a better deal for tenants and proposes to do away with 'no-fault evictions'. In addition, landlords face the challenging costs of obtaining energy performance certificates. Starting in 2025, newly rented properties must have an EPC rating of C or above.

The cumulative effect of this is to reduce the supply of properties to rent. In certain parts of London, it is now the case that landlords will quote a rent and then invite a tender process to see who will bid higher than the quoted figure.

This of course is a completely untenable situation and a clear indication that the government has got to get a grip on balancing supply and demand. Properties to rent will continue to decline, rents will increase. New properties coming to the market will not be delivered at anything like the level needed to achieve a minimum of 300,000 houses a year.

This is a failure by government to tackle a crisis that was obvious to many. It is only to be hoped that this is a big issue for voters in the run up to the next general election and that some common-sense policies will shortly be put in place. It is crucial across the country and in Northern Devon that this market disruption be swiftly addressed.