Buy Houses not Flats in London and Other Prosperous Cities
At LettingFocus, we say that in most big cities in the UK – London and the other bigger cities – you’d be better off buying houses not flats.
On the news today there was something about a near riot in Calais caused by immigrants trying to storm the port and ferries in a desperate attempt to get to Britain, which seems to be the destination of choice for most migrants from around the world.
On the news last week, it was reported that net migration to the UK is still running at over 200,000 people a year.
And there was a third news item saying that we are still not building enough new homes.
Well, those stories are connected and form three reasons why property, in the towns and cities where the migrants settle and look for work, is still a good thing to invest in.
It’s not rocket science – lots more people looking for work in places like London and other thriving centres, but not lots more housing, so something’s got to give.
Buy Houses or Flats?
And the normal market clearing mechanism (the thing “that gives”) in a market economy, (or indeed any other economy, because even in the old days of communist Eastern Europe, it was not really possible to “buck a market”), is rising land values expressed in either rising rents and / or house prices.
This is the clearance mechanism. Simple really – prices rise when lots of people want something that is in short supply.
Of course there are other things that will do well as inward migration continues to roll. For example, school buildings. I read on the news that London needs another 140,000 school places by 2018 to cope with all the extra demand for school places from the fast growing population. So if you can buy shares in companies that build schools or if there is a company somewhere you could invest in that trains teachers, you should also reap a good return too.
Lewisham’s Ghastly Towers
At the same time as I heard one of these bits of news I was driving through Lewisham, which, once upon a time was my old stomping ground. Here the local council has built a huge swathe of mostly ghastly tower blocks (with daft names designed to appeal to the gullible: names like Da Vinci Torres, which rather sounds like Chelsea football club’s new foreign signing to me).
And that got me thinking.
It is far easier to build up in the air as Lewisham has – there is unlimited space in the air, after all. And where there is some spare land, builders in the middle of the prosperous cities and towns will always tend to build flats, to maximise their gain.
And that is one reason why I have always tended to favour buying houses with gardens.
In London, where I mostly buy, there has always been rising demand for freehold properties with access to gardens. And as developers, like Barratt Homes in Lewisham, encouraged by councils, build flats in towers rather than houses, this demand will only increase.
Indeed, back before the new towers were built in Lewisham, the old council houses that stood on that land, did indeed have gardens. So, the number of houses with gardens has fallen in that area, and will continue to fall.
This is part of the reason why prices of houses over the last twenty years have indeed risen far more steeply than flats. Lots of people (especially those with kids) like gardens and most flats don’t have ’em. (OK, not all folks like gardens, but there is always something to be said about having your own outside space on a nice day).
And I would bet that this price differential is even more marked in places like London, where rising demand as a consequence mostly of inward migration has been most strong.
Invest in Houses Not Flats
You may have heard the expression, “They are not making more land, so invest in houses.”
I agree – that is true. But of course, this maxim does not work in any area that is dying on its backside and being depopulated.
Take a look at what has happened across the pond in Detroit – an extreme case, but we also have a similar (though less extreme) situation in some parts of the UK, including in depressed corners of the “sunny south east”.
Property prices will remain stagnant or fall in any town where the economy is weak, job opportunities hard to find and the local young people are leaving in droves for the chance of a job elsewhere.
In fact, if you want to find anywhere to avoid investing in property in, just find out where the migrants are coming from – whether they are coming from other parts of the UK or from further afield – and avoid these areas like the plague.
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