House Prices and inflation

There has been a lot of comment in the personal finance pages of the press about where house prices and rents might be heading in the next year or so.

House Prices, Rents and Inflation

The big worry, is of course, inflation – and its effect on everything as a dampener of demand and hence of a dampener too on house prices, rental levels and the cost of other assets.

The conflict in Ukraine and the sanctions imposed on Russia has produced a double whammy – of rising grain prices which feeds into lots of food prices and a supply squeeze on oil and gas, leading to rising energy prices which feeds into inflation of many different things, from the price of your domestic fuel to an enormous range of products.

Basically, this inflation and the impact of higher interest rates that has come with it as governments attempt to wrestle inflation to the floor is hitting both industrial and consumer demand as people feel the pinch of inflation being higher than their wages rises and companies struggle to pass on price increases, thus curbing profits and future investments.

So, what next?

Well, I think Mr. Zelenskyy, (spelt for some reason in some places with two “Ys”), in the past few days has realised that he has been led up the primrose path by the West and that in reality, Ukraine has next to zero chance of ever being in NATO and probably not in the EU either.

This is all about Russia not wanting to be surrounded by potentially hostile NATO states, all pointing missiles at it, which seems not unreasonable to me. After all, under the modern version of the “Monroe Doctrine” the USA will not tolerate any hostile state in the whole of the Western Hemisphere doing the same thing. So any country in the Americas who cosies up too much to a potentially hostile superpower can expect to wake up next morning with American paratroopers descending from the sky and the US Navy in their ports.

So, a deal will be done – or should be – unless the globalists above governments in the West have other plans, of course. I have written about these potentially sinister forces in other blog posts.

If a deal is done, the inflation we are seeing will be transitory. And maybe one fine day more sensible people could look up from their newly Russian-hating papers and ask why the West ever backed a coup in Ukraine against what the BBC would call a “Russian leaning government” back in 2014, (also a democratically elected one, a point lost on dear Auntie), and why we in the West ever kept pushing them to be in NATO and the EU.

All the relatives and friends of the deceased on both sides and all the new refugees ought to be asking the same question too.

This is not an apology for Putin, who is clearly a deeply unpleasant man, but the double standards of the West are appalling. (As an example, we are now busy trying to buy cheap Saudi oil from a regime that likes to turn dissidents into mincemeat when they go to one of their embassies to pick up some papers).

But where does that leave house prices and rents?

If peace comes and general inflation is more transitory, house prices and rents should resume their upward march.

If it doesn’t, they will still march upwards.

Yes, there are pressures all over the place on people’s ability to pay higher house prices and rents, but the inflationary impact of shortages of materials to build housing in the UK is not going away soon and there is still a lack of housing.

Owners probably face the greatest pressures from the insanity of the government’s push for Carbon Net Zero – and the cost that will bring to landlords initially and to other owners later, to make their homes more energy efficient.

Landlords are increasingly saying to me that they are putting through higher rent rises than they would have before, because they know that they have a lot of expenditure coming to try to reach the magical EPC grade C for energy efficiency.

In difficult times and especially in inflationary times, people talk about the safe havens of things like gold and bonds, but the real safety comes from being in real assets such as shares and property. They have a track record of keeping their values over the long term. Good companies making things people want have some pricing power and property will always be in demand because of the obvious need for shelter.

But as a landlord you must expect that along with the energy efficiency nonsense the government is sure to come round with the begging bowl for higher taxes to pay for the Covid lunacy of the last two years. That is just life – and this time everyone is getting the same begging bowl.

What’s the alternative to property? Yes, a pension of course.

But when one sees how limits to pensions pots have been frozen before tax charges apply, this now looks a lot less attractive.

The fact is no one really trusts the government now. When people of my generation started saving for pensions years ago, they could never have imagined a limit of £1.037m could be applied to their pot before swingeing tax charges applied.

My big bets remain on residential housing.

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