Is the Oxford Property Market stalling?

Everyday thousands of column inches are being used to make comment on the UK housing market.  As is usually the case, the headlines are overwhelmingly full of foreboding – after all good news doesn’t sell!  But, what is the true picture for Oxford?

Oxford remains the UK’s least affordable city for residents to buy a house, with an average house costing over 16 times average income.  So Oxford is prime for the building of new homes right?  Well, no!  Over the last 3-month period new build homes in Oxford accounted for just £1.27m of £217m value of homes sold in the City – that’s just over half of 1%!  And, therein lies the real challenge for Oxford, which now has 45,000 people commuting daily many traveling because they can’t afford to live closer to their workplace in the City.  This in turn is causing road congestion, rail congestion and long bus journeys.  It is driving a new growth segment in the Oxford rented sector – that being professional Houses in Multiple Occupation (HMO) – shared houses for young professionals who can not afford to buy or rent their own property, but no longer want to live like they did as a student.

So, house sales are booming then?  Well, no!  The table below shows data for key Oxford post codes, over the last 12 months, compared with the 12 months previously.  The analysis shows that whilst prices have continued to rise for the most part, transaction volumes a down significantly, suggesting that more people are staying put, with fewer people being able to buy a home in the City.  To date, prices have held-up strongly, because the reduced supply is balancing-out any reduced demand for new homes.  However, in April Hometrack UK City index reported that Oxford had slipped into negative house price growth, with the May 2017 report just tipping into positive territory at 1.6% year on year (YoY) growth vs. 8.2% YoY growth in May 2016.

Postcode/Town	Average value (£)	% change in value	Number of transactions	% change in transactions
OX1	460,407	12%	214	-48%
OX2	538,814	2%	490	-29%
OX3	406,212	7%	372	-37%
OX4	345,006	6%	578	-27%
OX5	344,416	-1%	366	-9%
Bicester	329,745	6%	1,077	-13%
Banbury	292,016	7%	2,756	-16%
Abingdon	328,638	6%	3,873	33%
South East England	307,611	9%	30,325	-51%

An important part of the Oxford property market is accommodation for the City’s 30,000 students.  With Universities announcing increases in tuition fees, and a net reduction of 4% in student applications with applications from the EU down over 5%, the City may experience a surplus of student accommodation, reversing the under-supply of recent years.  Together with the ban on fees charged to tenants by landlords and their agents which will be introduced by the Government, the City’s student landlords are certain to experience greater competition when attracting tenants, and an increase in costs.  The best way for such landlords to compete will be to invest in their properties offering better fixtures, fittings and décor, reflecting feedback from their agents about what students demand.  For many, it may be more sensible to re-fit and re-configure their property to appeal to the growing market for professional sharers mentioned above.  This sector demand en-suite facilities, large double bedrooms and well fitted, large communal kitchens.

In summary, Oxford prices have held-up to date, but show signs of weakening.  Oxford remains top of the charts for unaffordability, and the continued lack of new-build affordable homes is pushing demand to outlying towns and villages.  Demand for rented accommodation is changing, and the City is suffering reduced demand from foreign nationals wishing to live and study in the City.

Oxford to be affected by a fall in student numbers?

The number of students from the EU seeking places at UK Universities has fallen by 7%.  The first fall in over a decade.  A corresponding fall of 5.6% in the number of UK applications for University places seems certain to reduce demand for Oxford's student accommodation during 2017.

The Government's inclusion of foreign nationals studying in the UK within its manifesto promise to reduce immigration to the tens of thousand, seems certain to further discourage and decrease the number of non-UK students coming to our Universities to study.

I believe that the uncertainty caused by Brexit, together with widespread reporting of political emphasis on reducing immigration in the UK, has quickly impacted demand.  Students and their parents have become concerned about the welcome they will receive in the UK, and as a result are looking at alternative opportunities internationally.

Oxford University's Global standing, should mitigate some of this reduced demand for UK Universities, as should Oxford's broader reputation as a City of learning and knowledge.  However, the City will not be immune, and landlord's need to recognise that overall demand seems certain to fall.

Oxford Property Values increase by 2.88% ... good or bad news?

Even the Brexit vote has not hindered Oxford’s steady rise in property values. Last month alone Oxford property values went up 2.88%, leaving them 6.79% higher than a year ago.

So why, given Brexit, the coalition of the 2010-15, a double-dip recession and post credit crunch fallout – has the Oxford property market remained so strong, still 20.1% higher than 20 months ago?

The Oxford housing market is built on the foundations of basic economic rules that any GCSE Economics student should understand. However, at a time when we seem eager to uncouple ourselves from all manner of proven facts, why is it that Oxford’s property seems to be in a ‘post-fact bubble’?

Even the wary Royal Institute of Chartered Surveyors (RICS) said most of its Chartered Surveyors anticipated house prices to increase in the coming six months, which seems contradictory given economic cautions from Mr Hammond, HM Treasury and The Bank of England. Given that inflation will rise to between 2% & 3% in 2017 because of Sterling’s devaluation, and uncertainty remains about how Brexit will impact the wider economy, how can RICS and most of my landlords be so confident about the value of their homes?

Nationally the starting point is a strong base of low unemployment, low inflation and preposterously low interest rates, while in Oxford, the local economy continues to perform well. Confidence also plays a part. But the fact is, there is a strong long-term relationship between property values, wages and unemployment. For example, looking at the graph below, you can quite clearly see the ratio of property values to earnings is nowhere near as high as it reached in 2008 and currently is in the middle of the range for the last 30 years. As a country, we are in a good place.  Whilst Oxford remains one of England’s least affordable property markets, demand for homes – rented and owner occupied continues to far out-strip supply, and until the supply increases via new house building and via new private rental supply, the market will continue to be buoyant.

By April 2017, Article 50 will be invoked. This will bring further doomsday press commentary, polarised political opinion and short term crises of confidence. With both purchasers and vendors predisposed by the 24-hour news cycle, which let’s face it, gets more haphazard by the day, it is likely to prove a challenging couple of years … and yes, Oxford property values might rise less reliably during 2017, but based on what we know of the UK plc now, the UK and Oxford property values are not projected to move that much over 2017 or 2018.  Going into the next two years, we are in much better financial shape as a country compared to 2008, and since 2008 Oxford house prices have risen reliably – last year they were up 6% again and up 30% since 2013.

Confidence will continue to be the key player in the Oxford housing market for a while longer – despite being pro-remain, Oxford and its home owners need to look for the positives, stay confident and continue to invest in a solid long-term asset.

Average Rents Paid by Tenants in Oxford rise to £2,490 per month

Back in the Spring, there was a surge in Oxford landlords buying buy to let property in Oxford as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1^st April 2016. To give you an idea of the sort of numbers we are talking about, below are the property statistics for sales either side of the deadline in OX2.

Jan 2016 – 42 properties sold

Feb 2016 – 27 properties sold

March 2016 – 91 properties sold

April 2016 – 19 properties sold

May 2016 – 23 properties sold

Normally, the number of sales in the Spring months is very similar, irrespective of the month. However, as one can see, this year was a completely different picture as landlords moved their purchases forward to beat the stamp duty increase. You would think that even with a basic knowledge of supply and demand economics, rents would be affected in a downwards direction?

However, there appears to be no apparent effect on the levels of rent being asked in Oxford - and more importantly achieved - and this direction of rents is not likely to reverse any time soon, particularly as legislation planned for 2017 might reduce rental stock and push property values higher. The decline of buy to let mortgage interest tax relief will make some properties lossmaking, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, limiting the growth in available rental stock at a time of severe property shortage.

But it’s not all bad news for tenants. Whilst average rents in Oxford since 2005 have increased by 22.6%, inflation has been 38.5% over the same time frame, meaning Oxford tenants are 15.9% better off in real terms when it comes to their rent (which is a sizeable chunk of most people’s monthly household budgets)

Year	Average Rent in Oxford per month
2005	2030
2006	2077
2007	2123
2008	2193
2009	2227
2010	2196
2011	2249
2012	2300
2013	2334
2014	2369
2015	2421
2016	2490

I found it particularly interesting looking at the rent rises over the last five years in Oxford, as it was five years ago we started to see the very early green shoots of growth of the Oxford economy.  Following the Credit crunch (2011), rents in Oxford have risen by an average of 2.4% a year – fascinating don’t you think?

The view I am trying to portray is that while renting is often portrayed as the unfavorable alternative to home ownership, many young Oxford professionals like renting as it gives them flexibility in their life. Overall, tenants have had a good deal with below inflation increases in rents over recent years. As Government policy targets landlords financially, it is likely that there will be a period of higher rent increases across Oxford, as landlords off-set the additional costs being imposed on them.  The data suggests a small rebalancing between tenants and landlords is overdue, and can be accommodated without driving rent above the medium term inflation trend.