Housing front and centre in 2017 Budget, but what will it mean for Oxford?

The Budget has been announced and analysed, so far with relatively few unannounced ‘nasties’ having been found.  It is welcome that housing is receiving the attention it deserves, recognising: the challenge faced by first-time buyers; that too few new houses are being built; and, that renting is now a preferred alternative for many people.  But, are the Chancellor’s plans going to serve Oxford and the County well?

No Stamp duty for first-time buyer for the first £300,000 spent

Oxford is well known as having one of the largest gaps between average property price and average salary anywhere in the UK.  With one-bedroom apartments in central Oxford selling for £385,000 or more, even without stamp duty, most first-time buyers can’t afford to live in the City.  But places such as Littlemore, Greater Leys, parts of Marston and Barton do provide realistic opportunities, particularly where a shared ownership option is available.

But, the changes to stamp-duty do not benefit those looking for their second home, who need to vacate their starter homes to make way for first time buyers.  House building takes time, and consideration should be given to a tapered reduction in stamp duty benefitting 2^nd and 3^rd time buyers encouraging them to move.  Only then, would these measures really benefit Oxford’s market where 97% of sale transactions are within existing housing stock.

100,000 new homes for Oxfordshire

As part of plans to connect Cambridge and Oxford, one million homes are planned between these great University Cities.  Of those, 100,000 are expected in Oxfordshire.  Oxford must fight, and fight hard for the lion’s share of those new homes.  Without them, the local property market will remain supply constrained.  With Oxford Parkway train station, North Oxford – Kidlington, Marston and Wolvercote present significant opportunities to build with easy access to the City centre, and transport links to the Midlands and London.

A consultation on longer tenancies

The Chancellor announced a new consultation on how to encourage longer tenancies.  This will bring the total housing consultations to 16!  Oxford, like most places in the UK is experiencing a trend towards longer tenancies.  Once student tenancies are removed from the average tenancy length is between 24 and 30 months.  Longer tenancies benefit both landlord and tenant where each is satisfied with the other (the majority of tenancies).  This suggests to me that no consultation is required to stimulate a trend that is already occurring under current arrangements.

It is great that housing is getting the Government attention it deserves, but our local authorities must seize the day, facilitate the planning process and secure their fair share of the new funds.

6,564,678 People use Oxford Train Station a year - How does that affect the Oxford Property Market?

It might surprise you that it isn’t always the nicest most picturesque villages around Oxford or the most desirable Oxford streets where properties sell or let the quickest. Quite often, it’s the ones that offer the best transport links. There is a reason why one of the most popular property programmes on television is called Location, Location, Location!

As an agent in Oxford, I am frequently confronted with queries about the Oxford property market, and most days I am asked, “What is the best part of Oxford to live in these days?”,.  Now, the answer can be different for each person – a lot depends on individual factors e.g. the age of their family, their age, schooling requirements and interests etc. Nonetheless, one of the principal necessities for most tenants and buyers is ease of access to transport links, including public transport – of which the railways are very important.

Official figures recently released show that, in total, 9,017 people jump on a train each and every day from Oxford Train station. Of those, 2,811 are season ticket holders. That’s a lot of money being spent when a season ticket, standard class, to London is £5,724 a year.

The bottom line is that property values in central Oxford would be much lower, by at least 3% to 4%, if it wasn’t for the proximity of the railway station and the people it allows access north and south of the City

Rail is becoming increasingly important, as the costs associated with car travel continue to rise and as the roads are becoming more and more congested. This has resulted in a huge surge in demand for rail travel.  

Overall usage of the station at Oxford has increased over the last 20 years. In 1997, a total of 3,064,352 people went through the barriers or connected with another train at the station in that 12-month period. However, in 2016, that figure had risen to 6,564,678 people using the station (that’s 18,035 people a day).  Hence the huge investment in capacity at Oxford parkway station where parallel investment in bus routes to/from Oxford has driven house prices in and around Kidlington, meaning that house price growth continues to track above the average for Oxford.

A property’s location relative to the train station has an important effect on its value and saleability in Oxford. It is also significant for tenants – allowing car-free living to be realistic in a City that wishes to limit car usage.

One of the first things house buyers and tenants do when surfing the web for somewhere to live is find out the proximity of a property to the train station. That is why Rightmove displays the distance to the railway station alongside each and every property on their website – they know it is in the top 5 criteria applied by buyers and tenants alike.  To illustrate this, recently a couple came to me looking for a property 5 minutes’ walk from Oxford station and 5 minutes’ walk to the central shops, restaurants and bars.  They wanted 2 bedrooms, one bathroom and wanted to keep the monthly rent to around £1,000.  In the event, they achieved their perfect location, but had to raise their budget by 20%, reflecting the premium that proximity to the stations carries.  They are now living just off St Thomas Street, just a few hundred yards from the Central station.

It's time to get political!

Conservative member of parliament James Gray wants us to use this route to get hold of our MP, over the next day or so - to let them know that you oppose buy to let tax changes.

Gray, MP for North Wiltshire, says:

“ Some of my colleagues and I have energetically taken up the cause with the Treasury but the answer we get is that the changes will, in their view, not actually affect that many landlords.

“Even with the changes, Ministers claim, there is no reason why the impact will lead to landlords having to raise rents or consider dis-investing.

“The only way we as MPs can answer this would be for large numbers of landlords who will be affected by the tax change to come forward and tell us. We will then have the evidence to present to Ministers to prove them wrong.

“Nothing focuses the mind of an MP (or a Minister) more than receiving representations from constituents, especially if many people are saying the same thing.

“Equally, nothing focuses the mind of a Minister more than lots of MPs, particularly from their own Party, telling them the Government has made, as it has here, a big mistake and that changes are needed.

“Landlords themselves therefore have a crucial role to play in seeking the changes to recent tax reforms that the market needs.

“We need you to email or write to your MP or, preferably, go to see him or her at one of their regular surgeries.

“Tell them about the impact of the tax changes on your situation – will you have to increase rents, ? Will you stop investing in further properties? Might you be considering getting rid of some of your holdings? What effect might all of this have on the tenants, especially young people or the disadvantaged in life? Will it wreck the Private Rented Sector just at the moment the Government are saying how much private renting is needed, especially in high house price areas.

“Remember, MPs want to know what impact the property tax hikes will have on their constituents looking for somewhere to live, so present your case in terms of the tax rises making it more difficult or expensive for local people to find housing.

“We need landlords like you, to get their MP to tell Ministers why changes are needed in the Chancellor’s Budget on 8th March.

“Take time out on a Saturday to call into their regular surgeries (details on their websites or via theyworkforyou.com). That counts almost more than anything else.”

OxfordPropertyBlog believes that the changes to mortgage interest rate relief together with the proposed ban on fees charged to tenants will be a Double Whammy - leaving landlords with no choice but to increase rents higher than would otherwise be the case and certainly above inflation.  In Oxford, many tenants already struggle to achieve the required affordability criteria, depending instead on advanced rent payments and/or guarantor security.  Anything that increases rents beyond trend is unwelcome.  Some landlords are already divesting properties to reduce their mortgage debt, reducing supply in a local market that is already under-supplied with rental property.

Now is the time for Oxford's mild-mannered landlords to get political - take the time to email, call or speak with your MP to make your feelings felt.

The housing white paper – some positives, some missed opportunities, and some confusion!

The Government’s much vaunted and long awaited white paper was published this week, and it seems to signal a shift in Government thinking away from the mantra ‘home-ownership = Good; renting = Bad’ to a recognition that both ownership and renting need to be encouraged.  That is something that I have been arguing for several months.  This shift is to be applauded.

We should also applaud the Government’s desire to protect legitimate tenants from rogue landlords.  However, there is still no recognition of the need to protect legitimate landlords from rogue tenants. 

The recognition of the value of build to rent schemes in our cities is certainly a welcome new innovation, and this should help to meet the rising tide of demand for affordable rental properties.  However, the white paper is mute on measures to encourage smaller landlords to continue to invest to expand the supply of available properties in the short to medium term.

Since the white paper was released, many of the headlines have centred on Government’s desire to promote longer-term 3-year tenancy agreements to provide a more stable environment for young families living in rental accommodation.  However, the Housing Minister has subsequently been forced to clarify that those longer-term tenancies will not apply to small buy to let landlords, who are often unable to offer tenancy terms longer than 12 months due to limitations placed on them by mortgage lenders and insurance providers. 

The measures to ease the bureaucracy of decision making and improve transparency of local authority planning policy is also welcome.  New housing is desperately needed across the UK particularly in larger towns and Cities where under-supply is driving prices above wage inflation.

It seems to me that the Government is too focused on popular measures which it believes may result in votes, rather than taking time to think fully about the market, and how best to improve fairness and supply over the short, medium and long-term.  For example, the proposed ban on fees charged to tenants by letting agents, risks landlord costs escalating and rents rising above trend as a result.  Already rents are proving unaffordable, with growing numbers of tenants being unable to pass credit/affordability checks.  Anything that makes that harder has to be unwelcome.  There is certainly a need to bear down on unscrupulous letting agents charging exorbitant fees, but a blanket ban which stops all fees will have unwanted consequences.  The Royal Institute of Chartered Surveyors (RICS) has warned that following last year’s increase in stamp duty for landlord investors, the forthcoming restrictions relating to mortgage interest rate relief will force many smaller landlords to reduce their portfolios and for many discourage further investment.  This at a time when rental supply is so restricted (as recognized by the Government) also seems unwise.

So, a mixed-bag of measures which are directionally correct, but when populism has trumped analysis and clarity of purpose.   Yes there are 4 million voters living in rented accommodation, and protecting them from exploitation is absolutely correct.  But, basing policy on the assumption that all letting agents, all landlords and most developers are exploitative risks undermining stability and supply over the coming decade.

942% - Rise in Oxford Property Prices since 1981

Roll the clock back 35 years to 1981.  Mrs. Thatcher was Prime Minister, we had a Royal Wedding, England won the Ashes and Bucks Fizz won Eurovision with ‘Making your Mind up’.   Haven’t things changed.  The number of homeowners and property investors who said they wish they had hindsight and bought up every house in Oxford all those years ago, especially when you consider what has happened to Oxford property values,

Oxford Property Values since 1981 have risen by 942%.

Not bad when you consider inflation over the same time period has been 271.9%, meaning in real terms (i.e. after inflation), property values in Oxford are 670.1% higher.   It’s no wonder people can’t afford to buy property anymore and landlords are attracted by bricks and mortar. Yet the changes to the Oxford Property market run much deeper increases in value.  No one could have predicted how the property market has changed in Oxford over the last 30 years.

Looking at the Local Authority data for Oxford City Council in 1981, 29.3% of Oxford people lived in a Council House, whilst today its 21.4% ... a drop which can in part be attributed to Margaret Thatcher allowing Council tenants the right to buy their Council House.  The private rental sector since 1981 has, as one would have expected, also changed.  The proportion of properties privately rented in the Oxford area (i.e. through a private landlord or a letting agency) has seen quite an increase, rising from 18.6% to 28.2% of all domestic property.

So, let us consider those people who own their own home, surely that has had a massive drop?  In 1981, the proportion of people who lived in the Oxford City Council area who owned their own home was 51.9% and today it’s 46.7%. Not the seismic change most of you were probably expecting but a material reduction nonetheless.

Home ownership in the 1980’s and 1990’s in Oxford did in fact rise, but as I have discussed in previous articles in the ‘Oxford Property Market Blog’, that was because nearly every Council tenant was buying their council house. Now there are too few Council houses for the younger generation to move into nor sufficient properties provided by social landlords to make up the shortfall.  This means that the people who would otherwise occupy such properties have no choice but to privately rent.

The Oxford property market is constantly changing but current imbalance between supply and demand for property means that buy to let investment in Oxford is over-reliant on house price growth, with rental yield having been progressively eroded by the ever increasing purchase price.  I see the changes in tax and landlord & tenant law in a different perspective to many commentators – I believe yield should and will become more important as landlords experience the consequential deterioration in their returns.  Some may need to change their buy to let targets, their financing methodology or broaden their portfolio geographically (e.g. look at Kidlington, Bicester or other satellite towns) and by type (e.g. ensuring you have exposure to Oxford’s student demand, and the growth in demand for HMO’s from young professionals).

Like Bucks Fizz said in their song, it’s time to make your mind up. The advice I give to my landlords, and also to you my blog reading friends is this; the changes to come will make some landlords panic, providing a more stable platform for knowledgeable and wise and well advised Oxford landlords to thrive.