Rise in property prices shows strong economy
Thursday 10th February 2011, 2:30PM GMT.
THE cost of buying a house in Guernsey is rising rapidly again.
Policy Council figures show the local market median price for the last quarter of 2010 was £396,500, an annual increase of 20% and a 5.7% rise on the previous quarter.
The more reliable moving average price showed an annual increase of 13.1% to £370,647 and a quarterly rise of 4.7%.
Treasury and Resources member Allister Langlois and estate agent Adrian Morris said that it would be wrong to read too much into the one-off median price.
Deputy Langlois, referring to the moving average, said it was good news for the economy, but there were concerns for first-time buyers.
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It is good for the economy which is great, but for someone looking to buy a house it’s awful! Unless you have stinking rich parents or earn £100,000 a year which is enough to get a mortgage for £396,500.
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Hang on. Are the stats saying that there are more buyers of properties than there are properties, so lifting the market, and that these buyers are all local, shifting up through the income thresholds; or there are less properties for sale, the market driven by cash-rich open/local snapping up dwindling resources?
The population debate will get more polarised all the time this ideology prevails.
What does negative equity matter when you are don’t plan to move? If you plan to upgrade then the seller will have suffered also.
A bunkum view of how an economy should be judged.
See: the UK, the US.
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Totally agree with Ben, terrible for first time buyers. It just seems there is a total lack of concern for first time buyers which is surely going to drive more younger people away from the island. If your not being backed by parents/family or earning a substantial wage it becomes very difficult to buy a property. Which is then compounded by having to pay high rental prices. So its great news for home owners but its only getting worse for first time buyers.
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I completely agree. For single people, even on a salary of 40k per year, purchasing a property is often out of reach.
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Some good points raised, Arnald. Here’s a thought of mine: Given the finite housing resources on Guernsey I have often wondered whether there shouldn’t be some kind of cap on property ownership.
It’s all very well building flats and apartments but if they’re all bought up by cash-rich investors and rented out, the likes of Ben Miles will always find themselves priced out of the market by people who can just up the ante, knowing they’ll get their return in the end.
This may drive up house prices, delight estate agents and fill the States coffers but it does very little for those who want to put down their roots down here and get on the property ladder.
Adding a cap wouldn’t be easy, as many investors use trusts and companies as vehicles for property ownership, so this would have to be taken into account. It’s not impossible though.
I really think it’s time Guernsey decided what kind of housing culture we want. If we want a culture similar to France where renting is the norm then keep on the way we are; if however we want to keep the present culture of owner-occupier then I see no alternative but to take action.
(for the record I rent, by choice – and am happy to do so – so I’ve no personal axe to grind here)
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I generally agree that it is foolish to read much into property figures in a distorted market like Guernsey, where single sales can skew the results. As Arnald says, there can be a number of reasons for price increases.
The British obsession with house prices as an indicator of success never ceases to amaze me. The only people who benefit from rising prices are those who are downsizing.
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I completely agree. I have worked for a high street bank, in personal and commercial banking at management level. I now work in private banking. I have always felt it a sad thing that older islanders have several properties, whilst younger locals (and I’m talking age 25+) cant get on the ladder. I feel that the baby boomer generation have really screwed things up, both in the UK and here. We seem to be slaves to homeownership
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Paul le Page
A cap might fit but it might be easier to add some sort of percentage premium to the document duty if the property purchased is not for buyer occupation.It would be incumbent on the conveyancing Advocate to declare that at the appropriate time
Whilst it is good sense for anyone with a spare 300K-500K sitting in a savings account earning a couple of percent interest,to use that spare cash to buy a property which will not only bring in a high rent but also gain in value along the way,it is causing genuine grief amongst those who need a very large mortgage in order to compete
Aimee. I hope you completely agree
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Matt
Its not always the case that its great news for property owners because unless its seen as an investment or as TL says you downgrade it dosen`t make a lot of difference.
I have a mortgage but would like to see prices come down to a level where my daughter could afford to buy at some point if she wishes and i bet there are many in that situation.
Well put Arnald.
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it’s not only the young that can’t afford to get on the property ladder,i am local and lived and worked in the island all my life, i have never been out of work since the day i left school,but i am coming up to retirement and it looks like i am going to have to leave the island to be able to afford to live, i will have managed to save a nice little nest egg of about £130,000 by the time i retire when you include my pension payout that i have paid into all my working life,but that won’t even buy me a shed. I couldn’t get a mortgage when i was younger as i wasn’t earning enough and now that i am earning enough i am too old. I could stay here and pay all my savings out in the exhorbitant rents they charge, as houses are too expensive for me to buy, or i can move to the mainland and buy my own house over there outright, i don’t want to but as far as i can see I don’t have much choice.
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Ray – I imagine those that can afford to accumulate property portfolios would simply pay the duty.
Whilst your idea would give the States more funds to play with, it can’t see it solving the shortage of affordable homes for first time buyers.
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An interesting comment from Geoff. Why should the UK support someone going to the UK in their retirement and taking up housing? Youngsters in the UK are struggling to get on the ladder as it is. £130k in the south east is the exact amount that is the difference between a flat and a small house.
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Ray – I do indeed agree. I’m from the UK and I saw this twenty odd years ago (showing my age!!). My grandmother lives in leafy Buckinghamshire and even then, kids were priced out. It is the same with Devon and the New Forest, to name but a few areas. My brother is looking to move at the moment and can’t. He has a flat in a council block and between him and his partner earn 30k per year. Its just not enough to get a larger flat / house.
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As far as the states are concerned its a good strategy to let peoples main asset increase so that when they retire and possibly down-size it becomes a little nest egg for them and take the pressure off taxes for pensions for the aging population.
Yes it is difficult for people to get on the ladder but how is this different to any other time in history? The cost of housing has increased but so have wages and opportunities. Most people of mine and my parents generation couldn’t expect to get a grasp on the ladder without struggling and saving a deposit over perhaps 10 years of hard work. Lifes damn hard – but you have to expect that. If we could all live in huge houses easily then we would be.
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Paul Le Page – The trouble is that there are always consequences to adding regulation to a free market.
Currently anyone can purchase local or open market property to rent it out. This has obviously pushed up prices over the years. As stated, it’s now very difficult for young local people to get on the property ladder.
If new rules are put in to limit the number of properties that a person can own, or to exclude non-locals from buying property, what would the effect be? Also would it be applied retrospectively, forcing those that have more than one property or non-locals to sell?
Forcing sales would cause a sizeable fall in property prices. For those who have been in the property market for years and have built up a good cushion of equity, that wouldn’t be a great problem.
The people hit hardest would be the very people who have saved hard and managed to purchase property in the last few years, young and old alike. They would find themselves with some serious negative equity.
In a falling property market with widespread negative equity, banks would cut back new lending significantly. Those people with negative equity would no longer have access to credit. Those now hoping to take advantage of the lower prices to enter the market would find that instead of a 10% deposit they would be asked for 20% or more. Mortgage rates would also likely increase to cover the extra risk.
A similar but less severe scenario would occur if the restrictions were not retrospective.
In any economy there are a large number of people who do not wish to buy property, or are not able to, for many reasons. If there is a cap on property ownership, where would those that don’t own a property live? If the supply of rental properties fell dramatically due to the restrictions, what would happen to rental prices? They would rise through pure supply and demand, forcing more people without the deposit and means to buy a house to leave the island.
Perhaps the States could step in and purchase houses to rent to people? Where would the money come from to buy the property? How much would upkeep cost?
What other effects would there be on Guernsey’s economy? Those buying property to rent out employ tradesmen to upgrade and maintain their properties. Non-locals buying property are investing large sums of money into the local economy. Locals with more than one property will be spending some of their rental income in Guernsey. Ultimately the economy would suffer from any restrictions.
I am local and am lucky enough to own a property, my home. Many of my friends are unable to buy property. I work in the Finance Industry, and many of my younger colleagues are unable to buy property. I worry that one day my children will be unable to buy property.
I don’t know what the answer to the problem is, but I do know it’s not as simple an issue as most believe.
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More good sense from George and his last couple of lines are so true
The States tried to ease the problem in the mid 90′s with the Pecqueries Estate at La Passee
New builds in 1995 were sold off for £94 – 95K.I recall reading a Press list in about October last year that one of those same properties sold for £361K which is now appears to be the going rate
I believe the same thing has happened at the old Amherst Police HQ flats which were also sold off new at less than the then average price
Geoff’s input reminds us all that the problem is not confined to first time buyers
Housing’s shared equity scheme has worked well for some and I wonder if that type of scheme could be adopted and adapted by one or two of our local private building companies
The States could buy up derelict glass at say a premium of 150% of the horticultural value,change its designated use and sell it on to a builder for shared equity plots,as long as the sell on clauses are drafted in such a way as to be as watertight as a crab’s a*se
Changing the designated use might seem to be a little underhand but it was done for the Post Office HQ and St Sampsons High,both ex vinery sites
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Aimee its always happened in the more prosperous areas that people below a certain wealth threshold cannot afford to buy. The big problem in Guernsey is that unlike someone in the UK you cannot move a couple of miles to an area were you can afford to buy.
And as for your comments on the older generation owning several properties find out how they worked to obtain them before you comment further. There was no finance industry in Guernsey before the eighties.
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Ray,
Convert agricultural land to housing? Are you out of your tree or something? With the prices of food increasing (do some research people) we are going to need growing space…
Besides this island can not support a larger population.
Would be nice if wages for the average working person kept up with the rise in housing etc…
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A lack of affordable homes for first time buyers is a symptom of the Islands general affluence.
Even if the States changed zoning and allowed houses to be built on old greenhouse sites the resultant house prices would still be “market price” for the types of home built for the simple reason that the developer has to pay his staff, pay builders merchants for the material to build and also buy the land in the first place, and then also make a living from themsselves.
The new houses built at L’Islet at the end of Sandyhook recently highlight the Island problem, all of those houses were in the high £300k some I think were just over £400k.
The only way “affordable homes can be built would be if the States capped the price on a development but then would any commercial developer be interested in a non profit build?
The other issue of wages is self defeating; If for instance all the staff at Norman Piette or Ronez (major building materials suppliers)were given a 10 or 15% pay rise what would happen to the cost of building materials?
No easy solution, I’m pleased I got onto the housing ladder years ago, although thinking back to the early 80′s when house prices were around £20k to £30k for reasonable a house I couldn’t afford a house for £26k!
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George – I appreciate your points on this and agree it is no a simple issue.
What is inevitable though that the “cost” of a free market will be less and less first time buyers able to purchase property.
That being so, if the island continues on it’s current course, do you agree there will need to be a shift from the British culture of owner-occupier to a more French model? Do you think the people of Guernsey will accept this?
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cynic
OK.It is quite probable that cabbages and parsnips might treble in price over the next few years but we need to keep our young people in the island in order to pay my pension
If youngsters are so priced out of the housing market that they have to emigrate then I don’t think the price of the Sunday veg will be top of the worry list
Actually if house prices do escalate as they seem to be doing there will be no need to concern ourselves about over population.It will stay around the 65,000 mark but with the present owner/occupiers getting older and older
Somebody is going to have to look seriously at building UPWARDS in the not too distant future
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I dont think there is a way to solve this problem, this is the symptom of a small affluent island with a strong financial industry. But its not all doom and gloom
People who want to live and work here will have to buy or rent, I think we are looking at the next generation being a generation of people renting, and ownership is going to be locked away for many people for some years.
I think if this can be tackled, either giving a tax break to people renting, like on mortgage repayments, or by capping rental payments against the landlord. This might help FTB’s to rent first and still be able to save for a home.
Saying that, one firm on the island does offer 100% mortgages at the moment, up to 5 times annual salary. And there are equity shares, plus the states is lending up to £150,000 to FTBs who need it.
Then again there are lots of crooked estate agents and landlords. My rental payments were HIGHER than my mortgage payments are now! Maybe there should be something done here to at least make life more comfortable for tennants – off topic a little, landlord reform could go a long way here!
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No-one has reported (apart from BBC) that open-market prices have fallen significantly.
I wonder why?
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Sanguine
Au contraire.
The subject of landlord reform is most definately “on-topic”, and I would suggest would go someway towards being a solution, such are the many issues and potential solutions.
It is a can of worms that will stay closed however, as to deal with it would simultanously upset the apple cart and put a cat amongst the pigeons.
Have I broken the guiness record for amount of sayings in a sentence??
I would suggest landlord behaivour on Guernsey is the cause of many problems and another symptom of the “wealth is might and might us right” society that we seem to breed so successfully.
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I agree re the comment about tax breaks for renters. I pay more rent than a friend that has a mortgage, yet they get tax relief. I’m saving hard for a deposit but as house prices increase, so does the amount I need. I feel that I am almost punished, in terms of tax coding, for not owning a home. And I hate to think how I will cope in retirement if I dont own my own home.
Although my mum points out that owning a home can be a money-pit!!!
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Maybe the tax relief should be extended to include all types of home ownership – whether you live in it or not. Then first owners (like Aimee) can live with their parents, purchase a property with the help of extra income via rent received, rent out their flat/property until they can afford to move in and in the meantime still get the tax break?
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I too agree re the comments on tax breaks for renters. I also pay more in rent than some of my friends pay for their mortgages.
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Well, there are lots of very greedy landlords on this island and some estate agents who colude with them, not just in housing but in retail and especially in town.
For example, there are quite a few local shops going out of business, a lot blame the internet, but its actually just as much if not more so the landlords, pushing people with high rent and removing them as soon as they cannot pay.
Where the supply is this constrained the States should step in and do something about it. A tax break would be positive for the renter and is a good step forward, but i think landlords need to be taxed more heavily on rental income to reocver what is lost by the States for the tax break on tenants with provisions in place to prevent them passing these costs back to the tenant.
I say this as a landlord, not in Guernsey in another country and as a previous tenant and now homeowner in Guernsey.
I am very sad that some people over here will never have their own home, so I think the least we can do as a society is to make life easier on tenants.
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Sanguine
I completely agree, and there are some relatively simple measures that could be implemented to go some way towards helping.
For example we’d all agree that rent prices are very high in Guernsey, if there were some form of cap on how much rent you could charge, linked to the value of a property, in an attempt to pull back rental income yields to the type of returns that could be found elsewehere.
Also tax rental income in a higher band and offest this against introducing tax breaks for rental payments.
Doing this may deter more buy-to-let’rs from doing it, and also may put some more properties on the market as current landlords may decide to invest elsewhere. I also dont think (if done correctly) it could have such a massive drop on housing prices that would put masses of hard working people in negative equity.
It would also allow people currently renting to have more saveable income, making cruicial house deposits easier to save for, and may even help out states housing, and those people on the borderline between not being eligable for states houses, but struggling by with high rent payments.
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Dave Haslam – I don’t think a rental cap indexed against property value would work – for no other reason than value is a very subjective figure that changes with market conditions.
A rental cap based on TRP would be more feasible IMO.
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Paul
Good idea, I was just freestyling to be honest thinking and typing at the same time, based on TRP would make good sense.
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I’m afraid what we’re seeing in the figures is just capitalism in action, in a small closed system – it would make a very interesting little example for an A-level economics course.
There is limited housing stock, and plenty of people wanting to buy or rent a house.
The price of housing reflects how much value people place on having their own place to live, as compared to the other things they could spend their money on (cars, holidays, food, and so on).
There’s simply no point putting forward all sorts of price-capping strategies – they’d never be politically acceptable here. Nor would paying people more money or making mortgages more affordable, since people would still be willing to sink the same proportion of their take-home pay into a house – so prices would just rise further.
The two factors that will alter house affordability reliably are 1) changing the supply (e.g. building on all those old greenhouse sites); and 2) changing the demand.
Changing demand is very difficult – for example, a great deal of the growth in demand is due to an increase in single person households (younger adults moving out from parents; divorcees; older people living alone). I can’t see any of those groups keen on moving back in with other family members…
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James
Good post.I would add a 1a)… building upwards
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James – you’re right, this is basic capitalist economics in action – and as with every economic policy there are winners and losers.
Although like you I’m inclined to agree that price capping (whether on prices or rent) would not be politically acceptable at the moment, I think it’s only right to point out who the losers are in our current system – low income earners and first time buyers.
Unless some external equalising factor comes into play (e.g. finance leaving) I cannot see this situation changing – in which case the aspirations of future generations will need to rapidly change – i.e. the ingrained culture of owner-occupier will have to go.
Your final paragraph is spot on too – there’s no doubt the changing demographic and rapid social upheavals you mention has had a profound effect on the housing situation.
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James,
I would have agreed with you entirely about 12 months ago, but I’m a bit more optimistic now.
The changes in demand patterns you’ve identified can be met, partially at least, by changing the housing stock so we have more subdivisions into smaller units. The market is already meeting this demand (how often do you see properties converted from flats back into big houses?!), but there are policy interventions which could push this process on more quickly.
Older people living alone can be given assistance to partition their properties and take on live-in help, subdivide their properties and rent part of it out, or find accommodation which is more manageable for them.
We need more inventive contractual, financial and legal instruments to be available to people who want to take an equity stake in a property without buying it outright, or release equity in their property without selling it completely. Part of the problem is that house ownership and the mortgage is such a blunt tool – you can either afford it or you can’t, with nothing in between.
I accept though that bringing down the market value of perpetual property ownership without unacceptably draconian measures is nigh-on impossible. As you observe, many of the things which have previously been put in place to get some respite from the heat of the market (e.g. tax relief on mortgage interest) have become ineffective or even counterproductive as the market races to catch up.
A final note – greater use of TRP as a means of taxation will do a great deal to shift the tax burden away from the 20-something office admin living in a bedsit, and towards the retired rich languishing in lavish properties while squirrelling away their savings in low-tax investments.
Sorry, went all super-left-wing there for a moment… normal service will be resumed…
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I don’t see how building on greenfield sites will help – it will be the same cash buyers coming in and buying the properties, to let out. First time buyers will be unable to compete.
Mortgage lending is also at an all time low.
Working in finance, what is concerning will be the rise in interest rates. I worked for a high street bank and the Mortgage Arrears Report made disturbing reading, even with base rate at 0.5%.
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Are there “plenty of people wanting to buy..”?
Surely the population is not increasing that much that supply is so low.
I have a hunch that it is not the numbers of buyers but the resources available to a few buyers looking for solid investment.
There are lots of young people wanting to buy, but they can’t. How many family sized households are looking to move?
How much can be put down to outside interests?
The market is not a true one, it is distorted by the cash-rich who can pay over the odds to keep the bubble going.
How many houses does a person need?
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Arnald – you may be right. Perhaps there are outside “investor buyers” who are fuelling a bubble. If so, then none of us needs to worry. Just take advantage of the profits so far, sell out of the market if you’re in it, and wait for the inevitable bursting of the bubble, when prices will return to real values. Because all bubbles eventually burst.
However, I don’t think what we are seeing is a bubble. I think there are plenty of local buyers (or would be buyers) who just want a house as a home, and those people have enough money (or access to credit) to keep prices up where they are.
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James
This is why Guernsey is so unrealistic when it comes to knowing the effect of higher earner purchasing power. What if you’re right, and there is a demand market based on local wealth.
How does that not reflect a bubble when the lists waiting for social housing are increasing, people’s wages are decreasing in real terms, debt levels are increasing within the majority?
Is the younger generation growing faster than the older? Are there more first time buyers than there were in the past? Are more people being lifted into the earning bracket, and who have access to funds to pay the rapidly increasing deposit outlays (and legal fees and the like)?
I can’t see that a mere shifting about amongst what must be a tiny number of offers/requests could keep the bottom end of the market so out of reach to the average earner.
If it is only that, then damn right the government should intervene. It means that the wealth gap can never be addressed and we condemn our children to a poorer future.
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Arnald
With more than twenty Estate Agents in the phone book there must be quite a bit of buying and selling going on,although admittedly at 2% of today’s prices an agency wouldn’t need to sell too many each month to turn a profit
I would think the States bean counting department would have the figures for the number of first time buyers readily available as they get a special document duty allowance when they buy
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