Friday, November 14, 2008

Bank Error?

Halifax bank cheerily announced last week that numbers of empty homes are dropping. Poor old Halifax, they’ve had a torrid time recently and I’m reluctant to pour cold water on one of the few apparently good news stories they’ve got.
But sadly they are wrong. Or at least they have drawn a pretty odd conclusion from the data. I predict that sometime over the next year the numbers of empty homes in the UK is set to pass the million mark. It sounds unbelievable - Just a couple of years ago several people were talking about empty homes as a problem that was close to being solved. After a decade of falling numbers it was easy to draw a straight-line projection down to a number so small that we could talk of the problem being solved. Unfortunately the line has turned out not to be straight but have a very sharp upward curve in it. What has happened?

The straight line started to bend two years ago with the explosion of city centre flat developments. Developers twigged on early that they were selling to a different market. No longer were buyers owner-occupiers, but most were investors, speculators and budding buy-to-let landlords. In 2006 a survey in London found that 70 % of house purchasers were within these groups. What this meant was demand was no longer coming from people who wanted to live in them, but people who wanted to invest in them. An inevitable consequence was that the link between new supply and housing demand was broken. Investors carried on buying past the saturation point of potential occupiers. That point was probably crossed in mid 2007. The result was a large surplus of vacant flats.

One of the main reasons numbers of empty homes reduced over the last decade has been through the activity of small-scale developers. Homes fall empty all the time, often from the bottom end of the private rented market, but if the same numbers are redeveloped the net effect is zero. In the early years of this century the net effect was very definitely positive.

But most developers saw the recession coming and after years of buying up and redeveloping empty homes, most have wound back their activity. Meaning that homes that fall empty are more likely to stay empty. Landlords unable to raise money to refurbish their homes have probably exacerbated the problem.

An acute and painful effect of the recession is the rise in repossessions. In the USA foreclosures rates have been enormous and lead to a huge increase in empty homes. Here the effect is thankfully less acute, but nevertheless RICS predict 45,000 by the end of the year, compared to 10,000 last year.

Call it bad timing, or bad luck, but to all the market driven vacancy we have to add regeneration driven vacancy. Thousands of homes have been vacated over the last few years to make way for future regeneration projects. Several social housing estates stand empty. In Wood End in Coventry hundreds of houses have been left empty for five years awaiting a stalled redevelopment project. The Ferrier Estate in Greenwich has over 1,000 flats empty for more than four years awaiting demolition, and in Hackney the Haggerston Estate the story is similar. Much housing market renewal activity has reached a similar stage. In Liverpool for example over 2,000 homes stand empty in Anfield awaiting the bulldozer. The real worry is that many of these regeneration projects were based on private investment and private developers building new homes when the old ones had been demolished. The viability of many of the projects is very much in the balance.

So how could Halifax interpret this as good news? Their story is based around a drop in empty homes between 20003 and 2007. Statistically they are correct, but their conclusion is I’m afraid two years out of date.

1 comment:

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