Whether you have celebrated the rise of house prices when selling a property or despaired of it when the time comes to buy, there is no doubt that it is a time of many questions when it comes to the housing market in 2023:
- Why do houses cost so much right now?
- Why does everyone suddenly have a strong opinion about housing?
- What is the solution to housing challenges for (1) individuals and (2) the economy
These are today’s big questions, and we are going to offer some answers, as we make time for the answers that investors really need.
The State Of The Housing Market in 2023
I don’t like to repeat myself too much – it always feels lazy – but in our recent newsletters, I’ve found myself saying “high demand, low supply” at least 3 times.
Nothing in the world conveys the point like that: the housing supply is low, the demand is high, and that competition for properties, rental spots, and developments is the real reason house prices are so high.
People have a lot of strong opinions about that – but that’s not what this article is for.
It’s about how this is happening, what it means for the future of the housing market, and both the solutions and how to make the most of it.
Supply And Demand: Why Are House Prices So High At The Moment?
Before we even get into the specifics of the housing market, there’s a lot going on in the economy that style hasn’t evened out. The money supply has inflated considerably, trade has been disrupted by world politics, and 2022 was an absolutely bonkers year.
When we compare year-on-year data, we need to consider the overwhelming market optimism of 2022 investment fever. When we see “20% decline in landlord participation” we do need to consider that the same figure hit record heights in 2022.
Take any of these kinds of comparisons with a grain of salt. Scaremongering rides on the back of poor stat usage, and we won’t be doing any of that today.
Shortage: High Demand, Low Supply
The primary driver of housing price rises is the high demand of renters and the consistently low supply of housing. As it turns out, it’s easier to make a baby than build a house, and the economic impact of that is showing up.
Housing supply grows at a relatively slow rate, especially relative to population growth and movement of people. The problem is a combination of low supply and the changing demand for homes.
Nobody cares about housing oversupply in places where people are moving away from. They do care when places with high demand and increasing opportunity (like Manchester, Birmingham, or Leeds) lacks the appropriate rent for the local workforce and commuters.
Remember: housing supply and prices are entirely regional market challenges. This relationship is going to matter even more when we break down the specifics of what is over/under-performing later on!
Inflation In Housing: Cash Vs Rental Yields
It’s hard to ignore inflation – it’s been one of the leading causes in a lot of broken records for profits, home buying, and more. It’s been nipping at everyone’s wallet – but it’s also pushed many savvy investors into property.
When cash isn’t very valuable, there’s always a lag-time before other assets catch up. Housing has been a haven for those trying to beat inflation since ancient times, and it’s no different now. Housing is a very reliable long-term investment, especially when cash is weak.
Think about it; if your cash is getting less valuable but homes are getting more valuable, stashing that cash in a property investment – something that generates you revenue on your savings – is a huge opportunity. It simultaneously helps you protect and grow your capital, while generating revenue.
Win-win.
Housing Vs Stocks: Which Returns Most?
One of the other reasons why housing is a safe haven for savings for smart investors is the ability to park cash in a long-term asset that is outperforming a bear market. As stock investing looks more pessimistic, housing remains strong and has seen incredible growth in value and yields alike.
Smart investors see the over-performance of HMOs and other opportunities in major cities where room rental is offering a solution to the needs of early-career young professionals and students, looking to keep overheads low while enjoying a premium location.
This has led to the value of a large number of inner-city and city-linked properties rising over time. This is a double effect, as the raise of rental yields promotes higher total values (if rental income goes up, then the standard formula – rent*20 – goes up for house prices in HMO-desirable locations).
Market growth in one area is driving up the value of the underlying property, which also influences real estate prices. Obviously, this impact on the “secondary market” has pushed prices up, and this is only inflated by more middlemen than the primary, off-plan market.
Anywhere But London: Buying Property With 2023 House Prices
The London market is the only place looking bleak in the UK right now. It sees very limited growth because prices are as high as they seem to be able to go, with rents reaching a limit based on the salary and affordability of the city.
When we look at London, we see the future – not the present. It’s where house prices will go in the next 5-10 years, but they’re going to continue to increase until then. London isn’t special, it’s just way ahead of the rest of the country – and it has still been seeing strong yields.
This suggests that – no, the market isn’t done – and house prices in major, connected cities with strong demand aren’t finished just because they’ve grown well lately. Optimism still dominates and – while it has its winners and losers – house price and rental growth continue to climb for years ahead.
The results: the future of the housing market?
We’ve heard a lot of frivolous comparisons of the current market to 2008, which makes great idle chit-chat at a dinner party, but fortunately doesn’t seem to be true.
Market correction isn’t happening because inflation is dropping, mortgage rates are beginning to drop again, and the government measures seem to be working. Seeing these pressures recede suggest a return to sustainable growth – not a complete collapse.
This is a refreshing change from the pessimism of those who thought that everything was about to collapse because prices were high.
As the great Peter Lynch once remarked, the rule “prices are high, they must go down next!” is an easy mistake to make.
After all, prices rose again in June 2023 – according to the Land Registry’s transaction value figures.
Off-Plan Investments: The Golden Ticket?
At Track Capital, we’ve been investing in off-plan properties for a long time. These are projects currently in development, which means a lower price on hand-curated properties, which will typically complete in 6-18 months. This often means a significant saving against normal market prices, while still capturing growth markets and locations – and only require a smaller upfront payment (with the rest paying upon completion).
Off-plan purchases are increasingly in-demand as government initiatives push the private rental sector forward and everyone is realising the importance of new-build homes. Off-plan purchases are one of the best answers to the problem of demand, offering a more affordable entry point for investors, stronger fundamental performance, and meeting demand from younger people looking for high-quality rental options in cities like Birmingham and Manchester.
Off-plan property investors can get ridiculous long-term returns for a few reasons:
- Beating a growth market: you get better prices when you get in before the estate agents and other owners. Instead of fearing house price rises, you make money off of them.
- HMO opportunities: experience strong rental yields above market value with hand-selected properties that maximise on the benefits of off-plan buy-to-let, crushing market averages.
- Exceptional locations: off-plan properties put location first so that you profit from a city’s success, in places like Manchester, Birmingham, Liverpool, Leeds, Sheffield, and Bradford.
- Short-let options: with strong locations come the ridiculous yields of short-term lets, for those with a good rental plan, often reaching 12% or more.
- EPC and compliance: with massive changes to EPC legislation, new-build buyers avoid five-figure costs for older properties, saving £10,000+.
- Hand-curated deals: we say ‘no’ to a lot of deals because they’re not the best on the market. Our portfolio is built on the back of high standards and great, unique deals for investors.
Off-plan trends happen before properties get to market, where they start to experience the volatility and change of the market forces. Getting your deal before all of those additional price-bumps and middlemen is one of the best ways to put your capital to work straight away.
Off-plan is the winner from all of the changes we’ve been seeing. If you’ve got money you want to protect from the volatile markets, and you want to put it to work for you without paying a disgusting mark-up, then it’s about time you started considering off-plan property.
Track Capital offers start-to-finish support for property investors, and our portfolio only includes the best quality properties. We say no to a lot of deals, which means you know that we only offer the best – with exclusive deals and discounts for our investors.
Click the button below to see our UK property portfolio now, and get a clearer picture of what your money gets you off-plan (vs the high-priced secondary market.
