Pensions versus Property Investing and Do We Need So Many Housing Associations

It must be the new government having an effect on me (or maybe it is the sun) but I have decided to go a bit political this week.

Base rate remains on hold this month but one thing that won’t be staying on hold is the mechanism that is used to up rate pensions to account for inflation. It looks like the lower CPI inflation measure, not the historically higher RPI will be used in future when your pension funds come to work out what you will get in income from your little pot of money that you had to work to age 65, 66, 67, 68, 69, 70, 71… for. (Yes, the age is going up)

Property v Traditional Pensions

Those who did not trust the government and pension funds and invested in residential property instead (as their own little pension) will not be affected by this of course! This is part of the reason property as an investment still retains some attractions. (You could add the split cap investment trusts scandal, the Equitable Life scandal and the duff returns on endowment mortgages to a list of reasons why people like property.)

Despite the increases in red tape there has not (thus far) been too much government interference in the private rented sector. Private landlords remain free to invest where they wish and adjust rents to what the market will bear, though some who depended on pretty generous LHA payments in London may need to think again now. Which leads me neatly back to the dangers of an investment strategy that is government dependent (e.g. standard pensions!)

Certainly investing in the private rented sector is continuing to attract people in and existing landlords to invest more. According to think tank BSHF, if recent trends persist, the private rented sector (PRS) would be larger than the social rented sector by 2013 and by the end of the decade one in five households could be private renters. They add “It seems reasonable to assume that some of the likely drivers of recent changes in tenure mix will continue and, therefore, that the private rented sector will continue to grow.”

Six years ago I predicted one in three households could be in the PRS by 2026. Back then few commentators agreed. Now, it seems quite a few others are getting on board and backing my predictions.

Are First Time Buyers Really Priced Out?

But where does all this buy to let stuff leave the first time buyer? Are they being priced out? I’m not sure they are priced out because borrowers moving home in May saw their mortgage interest payments account for the lowest proportion of their income in 35 years, according to new data from the Council of Mortgage Lenders. So why aren’t the first time buyers out in force?

Well, I guess there is a fear among first time buyers and others about their own economic prospects. People aren’t buying in droves because they are worried about their jobs, possible house price falls, worries interest rates could rise and also to some extent because of the high deposit requirements the lenders are asking for. These things do constrain would be house buyers but all the same, this attractive affordability position hardly paints a picture of millions who are being priced out of buying a home. It’s always a big jump to buy your first property but as Warren Buffet says, “the time to buy is when others are fearful.” First time buyers should ignore the dire warnings from the likes of Capital Economics and the like and get in and buy within the next 12 months or miss the boat when house prices rise again in 2011.

1200 Housing Associations in the UK – Is that Enough?

I see there are “significant problems” with housing associations in Northern Ireland, according to a report from the Audit Office. The watchdog found 14 out of 33 of the province’s housing associations were performing at an ‘unacceptable’ level, and that many were underachieving on property maintenance. One may wonder why the venerable province of Northern Ireland needs 33 housing associations.

I’m no expert in housing association management but I would have thought that this number is too many. There are over 1200 housing association in the UK. Yes, twelve hundred. Surely, there must be some economies of scale that could be realised with a smaller number?

I really wonder about the efficiency of some of these institutions. I’m sure that many are very well run with dedicated staff and my own experience of a few local authority’s housing departments and housing associations has convinced me there are some excellent people doing some great work. But there are clearly some duffers too. Here in sunny South London my own experience of an arms length housing management company (yes, I know it’s not an HA) who manages the communal areas of one of my let properties (previously the local authority did it) is that they could not manage their way out of a paper bag let alone get basic fixes done. In the end only my letters to their Chief Exec (whose salary has five noughts on it) got them to do anything about the things that were wrong at the property.

Dismantling the Big State is not Always a Bright Idea

The Conservatives are all for decentralisation and dismantling the state (or as they would no doubt put it “bringing control closer to local communities.”) This is all very well but even though big state bodies can be inefficient, there is also a huge lack of control that comes from doing things in a very distributed or decentralised way. Some things simply don’t lend themselves to market economics.

I’m convinced that it would be better if social housing was mainly built and managed by local authorities. And, of course if there was more of it! People on low incomes are still suffering as a result of the great council house sell off. Private landlords have plugged the gap but the debate now raging on changes to Local Housing Allowance (LHA) rates is surely simply a symptom of that.

For more on the big LHA debate, please select “Housing Benefit” from the drop down category list to the right. We are having a break from blogging for a week  – the next blog will be on Tuesday August 3rd.

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One comment

  • There is always something attractive about owning property rather than a pension. A property you can actually see and say that is mine, and while the price of it goes up and down you do have the physical reassurance of being able to see what you own. A pension in contrast can rapidly gain or lose value and because you have no physical asset for a lot of people property would feel the safer way to go.

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