Tapping into Hidden Customer Needs
John Glen
Steve Macaulay Today we are going to look at the UK housing market and house prices in
general.
Now, joining me in the studio today is John Glen. Now John, it used to be
said that you can’t go wrong with bricks and mortar; is that true
anymore?
John Glen
Broadly speaking Steve, that is correct. As long as we take a relatively
long term view of our ownership of property, then we are likely to get a
very reasonable return on our investment.
Steve Macaulay So that sounds all very good, but we are not going to return to the heady
days of the 70s, the 80,s the 90s?
John Glen
I think what you are talking about there Steve is returning to the heady
days of bubbles in our property markets and frankly that is probably
something that we don’t want to return to. What we would like to see is
a situation where first of all we have a housing market that provides us
with the housing services that we require in those parts of the economy
that we require them in. And secondly, that those house prices
appreciate over time so that we get a reasonable return on our asset.
Steve Macaulay House builders have had a pretty rough time over the last twelve months;
is that likely to continue?
John Glen
Well, it is still the case I think Steve that we need to go back to the
fundamentals in the UK housing market. It is only three or four years ago
that we were being told that there was a fundamental shortage of supply
in UK housing with respect to what our demand was likely to be over a
five to ten to fifteen year period.
So for those house builders who are committed to the market, for those
house builders who have been in the market for a long time and
understand the market, opportunities will start to re-emerge, there is a
demand for housing out there that needs to be satisfied and essentially
we have to get back to, if you like, a steady state in the housing market.
Steve Macaulay Given the poor state of the economy, some people are pointing to all the
foreclosures in America or looking at the empty housing estates and the
drop in prices in Ireland. Are we anywhere near that sort of position?
John Glen
John Glen
Well I think with the United States and with the Republic of Ireland you
have to take into account the issue that the market was grossly over
supplied at the point that the market crashed. And indeed, one could
argue that is almost the definition of why markets crash – an excess of
supply relative to demand causing prices to fall.
So what we are seeing in North America and the Republic of Ireland is a
situation where the slack in the market, the excess supply, has to be
consumed by the market before you see the market returning to more
normal levels of activity and prices starting to both level out and then
appreciate.
In the United Kingdom, I don’t think we are at that point. We didn’t have
as great an excess of supply in the market; I think over the last twelve to
eighteen months the majority of that excess supply has been consumed
and indeed we have seen prices in the first half of this year start to
recover.
Steve Macaulay Some people are saying the mortgage market is so tight that if you are a
first time buyer then you have had it, you are never going to be able to
afford it and mortgages aren’t available anyway. In fact, some people are
saying you will never own your first house until you are in your fifties in
the future; what do you think of that?
John Glen
I think again we have to take a slightly longer term perspective. In the
short term it is the case that there are issues about the banks’ willingness
to lend and the banks are being much more prudent in terms of who they
lend to and therefore the conditions that first time buyers are finding
attached to any mortgage offer are significantly more onerous than they
were maybe three or four years ago. Although, I think it is the case that
as the banks become more confident, as the banks themselves
recapitalise their balance sheets, you will find more funding coming back
to the market, at more favourable rates. And indeed, the market will
start to compete for the business of first time buyers.
Steve Macaulay What about social housing; there seems to be quite a shortage of social
housing and that seems likely to get worse?
John Glen
Yes; I think this is probably one of the big issues that has not received the
amount of press that it should receive. I think the comprehensive
spending review that is coming out today and the trailing of that with
respect to social housing is suggesting that the government is actually
going to reduce its spend on social housing at a point in time when you
could argue that it should actually be increasing that spend, rather than
reducing it.
That said, the government is banking on the private sector coming in and
filling the gap that publicly funded social housing will leave. My own
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John Glen
opinion is that there may be a lack of fluidity with respect to the private
sector filling the gap that has been left by the public sector and that could
cause a real problem in the housing market.
Steve Macaulay So in summary then, if you were to look ahead over the next five years,
what is the outlook?
John Glen
I think that what we are going to see is a return to what I have termed
steady state in the housing market, where we see a normal rate of
appreciation – maybe somewhere between 5 and 10% a year. Over the
next twelve to eighteen months we may see house prices rumbling along
at the bottom, slight depreciations, some appreciations, but generally we
will have a steady state, a non bubble housing market, which I think is
incredibly important. But again, we have to be very, very careful here
because we will see geographical fluctuations around that average rate of
growth. So there will be some markets, most obviously in the South East,
which may record higher rates of appreciation than other markets further
away from London.
Steve Macaulay John, thank you very much.
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