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Weekend reading: Renters and rentiers

Weekend reading

My weekly roundup of good money and investing reads from across the web.

The great British housing debate has run for my lifetime and I suspect it will run for many more to come.

Are houses too expensive? Are they actually cheap? Is it fair? Should we even care? We don’t debate the price of other essentials over the After Eight mints, such as the price of cars, or milk, or indeed After Eight mints.

Of course, everyone needs somewhere to live, which is what gives the housing debate its special potency. Shelter comes very high (or rather low) on Maslow’s hierarchy of needs. (Although I’ve just noticed it comes after sex, so maybe all those 20-somethings should stop worrying that pensioners have it so good!)

You can always rent if, like me, you stubbornly persist in your costly belief that houses priced at over 5x average earnings and 30x annual rents are not sustainable, but rather an artifact of unusually low interest rates.

But renting doesn’t solve the “is it fair?” conundrum. Just in today’s Guardian, the kids are up in arms about the cost of a room in London. To quote one roofless vagabond:

“I earn £22,000; it’s not a vast amount, but I never thought I would be completely priced out. I can’t face meeting another ‘rah’ with bouffant hair looking for someone to spend £800 a month on a room in his flat.”

Some will say he should just leave London, but living in London can be crucial for certain ambitious or competitive career paths, as well as the experience of a lifetime. Plenty of time to leave when you’ve made it or given up in your late 30s and 40s. Besides, mile after mile filled with smug 30-somethings and oligarchs without a shabby student terrace in sight would also not be very good for London. (Paris or Manhattan, anyone?)

Still, one itinerant media worker’s woes is another’s opportunity – The Telegraph is reporting that buy-to-let is now back:

Britain’s army of buy-to-let landlords, if they have chosen their properties wisely, are now benefiting from record rents, high demand, shrinking void periods, and often very low interest rates on their mortgages.

The market is beginning to open up for new entrants too, with specialist lending companies such as Paragon wanting to take on new business, and larger groups, such as Santander’s buy-to-let arm, showing an interest in lending to more small landlords next year.

What do you think? Let us know in the comments below – but first pass the After Eight mints please.

Christmas reminder: There’s just nine days left to take advantage of Amazon’s 12 days of Christmas campaign.

Incidentally, I don’t know how I ever shopped for Christmas before Amazon. A few arty bits and pieces and the odd fancy girl present aside, for years now I’ve done all my Christmas shopping in slippers, sometimes with a mince pie and always with something quaffable.

My family gathers at my parents’ house every year, too, so I invariably get my orders mailed there directly.

Is modern life really so rubbish?

Money and investing blogs

Mainstream financial media

  • The new super-charged index funds – Wall Street Journal
  • Why your stocks are acting like commodities – Wall Street Journal
  • Growth trusts look cheap vs. income trusts – Motley Fool
  • We’re all gulled by special offers – Peston/BBC
  • Opportunities in unloved small-cap investment trusts – FT
  • John Lee’s latest portfolio update – FT
  • Why Germany will save the Euro – FT
  • Impact investment is a burgeoning asset class – FT
  • Hoping for a Santa Claus rally – Independent
  • Income from an immediate vesting personal pension – Telegraph
  • The cost of childcare? £26,000 – The Guardian

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{ 17 comments… add one and remember nothing here is personal advice }
  • 1 Neil Wilson December 4, 2010, 1:15 pm

    This country will never be great again until it gets over its obsession with property. Only gold competes with it in the ‘zero sum game’ stakes.
    .-= Neil Wilson on: Sparse copying from a pipe on Linux with cp =-.

  • 2 RetirementInvestingToday December 4, 2010, 2:10 pm

    Hi TI

    As you know I’m with you. I’m currently renting and think that house prices at current rates are just too high.

    I find the obsession with UK property amazing. If I use my company as a statistical sample where my peer group are well educated degree qualified people. They find my property behaviour where I rent and say prices are high when looking at historical data strange. They tell me that if I don’t buy I’ll never get on the ladder and that I should stretch myself if needed. I then mention the words equities, gold or even something like strategic asset allocation and their eyes just glaze over…

    Of course it’s just not the UK with the unhealthy UK obsession. If you look at my last post Australia is just as bad. Of course the difference is no recession and no austerity as everything they can “rip out of the ground” is easily sold to the Chinese or similar. Although my last post shows even Australia might be about to “cool”.

    Cheers
    RIT
    PS: Thanks for the plug.
    .-= RetirementInvestingToday on: Is Brisbane Cooling – Australian Property Market – November 2010 Update =-.

  • 3 RetirementInvestingToday December 4, 2010, 2:12 pm

    Hi Neil

    Interesting you say gold is a zero sum game. In my portfolio I am targeting 10% allocation to property and 5% allocation to gold. I don’t see gold as a zero sum game. Sure it doesn’t pay a dividend but what it does have is a low correlation with equities. So while my equities are zigging hopefully over time my gold will be zagging.

    Cheers
    RIT
    .-= RetirementInvestingToday on: Is Brisbane Cooling – Australian Property Market – November 2010 Update =-.

  • 4 Tyro December 4, 2010, 2:54 pm

    Well, I read that Guardian piece too and what struck me is that the vox pops were not about London prices as such but instead were about being priced out of zones 1 and 2, which is tantamount to insisting on living in the most expensive areas of one of the world’s most expensive cities and then whinging about its being expensive! I agree that £800 for a room is pretty ludicrous, but so long as there are queues of 20-somethings daft enough to want them they can expect to endure the humiliations described in the piece. What’s wrong with zones 3-6, anyway? You can get perfectly nice 2-bed flats in Greenwich and environs for £800-£1200, and if you ask me the Greenwich/Blackheath area is a much better place to live than almost everywhere in zones 1 and 2 – big green spaces, leafy, historic streets and buildings, theatres, pubs, galleries and museums, fun caffs and restaurants, pretentious little delis, river, craft markets, charm …..

  • 5 Bruce December 4, 2010, 3:10 pm

    I believe the GBP will have to make a bit of a run before there is a significant drop in the London housing market from here. From a foreign real estate investment standpoint, London is a lot cheaper than it looks to a Brit. And, any further decrease in the GBP or the housing market will likely be shored up to some extent by foreign investment into London real estate. All things considered, I wouldn’t be surprised to see housing stagnate where it is for years.

  • 6 pkora94 December 5, 2010, 7:38 am

    People in UK are really emotional about property and the only thing that might shake them out of that frenzy is interest rates at 10%+. That ain`t gonna happen for a very long time so do not expect property prices to go to rational levels until that happens.
    Buy the worst house in the best street and then do it up (my uncle says), you buy low and the rental yield is always there. Easier said than done, lot harder than buying and selling stocks online!

  • 7 The Investor December 5, 2010, 4:18 pm

    All good comments, cheers.

    @Bruce – Yes, that’s particularly true in London I agree.

    @Pkora – I do wish I’d just got on and done that 10 years ago. Will I be thinking the same thing in a decade’s time? At least there *are* a few rundown houses around nowadays. In the boom days even the rubbish would sell in a few days, for near the same price as an already tarted-up house. (BTW, did you see I responded to your query on the emerging markets post?)

    @Tyro – Hmm, I do partially agree. But when I came to London 20 years ago it was very easy to live in zone one places, let alone zone 2 (e.g. Camden, Notting Hill fringes, most of the inner East End, then out a bit into Clapham, Kilburn, Hammersmith, Hackney, Battersea, etc). So it wasn’t irrational 20 years ago, and I wonder if the city was better for it. London is great now if you have money and are prepared to splash it, but I do think the center has lost a lot of vibrancy. I agree Greenwhich or Ealing or Muswell Hill or Balham are perfectly fine places to live (and pretty expensive too!) but it’s all diluting away the centre, and the buzz and makes it harder to get ‘scenes’ going, which leads to culture etc (e.g. Chelsea in 60s, Notting Hill or Islington in 80s/early 90s, or Hoxton in 90s).

    @RIT/Neil – UK house prices generally seem to have a life of their own though – I was seeing big irrationalities in the market and unsustainable lending five years ago, and it’s cost me dear ‘shorting’ the market, despite everything that’s happened in say the US! Perhaps it’s imprudent to bet against an investment owned by 70% of the population, and 100% of the people in charge.

  • 8 ermine December 6, 2010, 1:31 pm

    ‘Twas ever thus in The Smoke. In the 1980’s I rented a bedsit in West Ealing from a rah with bouffant hair. The concept of buying a house at 23 is breathtaking – people didn’t expect to do that in London unless they worked in finance. I don’t know where these guys have got that expectation to be buying a house so young – it certainly wasn’t an expectation of previous generations of Londoners! The guys I knew that did manage ended up buying mid-terraces in places like Harlesden, but they were far closer to their 30th birthday than their 20th. And had shared digs beforehand.

    So who the heck is it pumping up expectations like that? If you’re Bernie Ecclestone’s daughter you get to buy in London at 22. The rest of us get to think about it later, or high-tail it out of town, but even then don’t often buy in our early 20s…
    .-= ermine on: Why dont the Middle Class do Forward Planning =-.

  • 9 James December 6, 2010, 3:26 pm

    wheres a good place to rent nowadays?

  • 10 The Investor December 6, 2010, 9:26 pm

    @ermine – I agree 23 is a bit young, but I disagree that it was ever thus, exactly. When I first looked at London prices in the mid-90s, the average house was selling for (from memory) 3.5 times average salary. At the peak it was something like seven times. House price inflation massively outstripped average wage price inflation. That’s my core argument, which I think has come under extreme pressure in the past few years as it’s become clear other factors (principally City money and overseas buyers, but perhaps also people moving to country but keeping their London flats as investments) has kept prices high.

    I don’t (I hope! 😉 ) have simple sticker shock about the prices.

    I met Bernie Ecclestone’s daughters and some of her friends last year. Lovely girls. Now lovelier! 😉

  • 11 The Investor December 6, 2010, 9:30 pm

    @James – Depends what you’re after really. London is multifarious!

    If you’re under 30 and into bars and trendiness, I’d look around Bow or Hoxton fringes. If you’re young and a bit more “Rah” as we’re saying today, I’d consider somewhere like Clapham (the Battersea or Clapham south end — Clapham common is a bit scruffy, except for certain areas) or maybe West Hampstead. If you’re poor and street, Brixton or maybe even Deptford or Peckham, but be prepared to be mugged at least once in the latter in your stay. If you’re a 20-something Citygirl (I appreciate *you’re* not!) I think it’s hard to beat Queens Park or Greenwich for middle class tritery/loveliness, but again there are grotty fringes.

    But all this can be re-rolled a hundred times for space/budget, and excludes many of my favorite areas of London!

  • 12 Salis Grano December 6, 2010, 10:47 pm

    We bought our first house (small Victorian mid-terrace) in SE London for £42,000 in 1986 on the basis of 10% deposit plus (2.5 + 1.5) x salaries. According to Zoopla, that same house is now worth £295,000, but on the basis of the same formula we are short by around £100,000 and we both earn comfortably above median salary.

    Something has gone badly wrong and it looks like PricedOut have a point, but they also represent the relentless desire to buy which is, of course, the problem.
    .-= Salis Grano on: Weekly Roundup 03-12-10 =-.

  • 13 ermine December 6, 2010, 11:05 pm

    > When I first looked at London prices in the mid-90s, the average house was selling for (from memory) 3.5 times average salary

    you were looking in the midst of an awesome price crash after the nutty behaviour of people like me in the Lawson boom. I remember it well, I sweated through that crash and still ended up eating a 40% loss after 10 years 🙁 If you’re norming on that then you’ll be praying for 14% mortgage rates to shake the tree a bit.

    Still, if you’re meeting the likes of Petra E then renting in town isn’t so bad. ‘Owning’ a house isn’t all it’s cracked up to be – it’s a long hard 20 year slog to pay off that last instalment, and you do forego a certain amount of lifestyle to get there! Even after that amount of time I still sometimes miss the bright lights. Bloomsbury was where I wanted to live, though I could have managed Knightsbridge too, I sub-rented a basement room from a couple for a year as a student behind Harrods, and the tube journey was nice and short to the city centre attractions. My total net worth would probably buy me a paving slab in those locations now… I’m amazed that Brixton has improved so – I used to lock the doors of the car driving home through there from the BBC.
    .-= ermine on: Why dont the Middle Class do Forward Planning =-.

  • 14 Claire December 7, 2010, 4:54 pm

    My 2 pence worth, get out of London.

    Houseprices are not extortionate everywhere. In south wales it is still possible to buy a two up two down for under 90k. Ok, its not bright lights and big city and there are few professional jobs, but something has to give doesnt it?

  • 15 James December 8, 2010, 6:24 pm

    south wales…. good god

  • 16 Financial Samurai December 10, 2010, 6:24 am

    It’s important we have renters. Who else is going to pay the landlord’s mortgage? It’s a good trade for both. Renters get a place, and landlord’s get their retirement paid for.
    .-= Financial Samurai on: The Clubber’s Guide To Saving Money And Having A Good Time =-.

  • 17 Terry Pratt December 23, 2010, 4:41 am

    I am a low-income (11,000 USD ~ 7,000 quid) renter in US with no hope of buying a home. I view owning your housing purely as a defensive hedge against ever-rising rents.

    The low-income owner can look forward at least to a modest retirement in which he is liberated from the necessity to pay a staggering proportion of his income to a landlord. So given a choice I would prefer owning to renting.

    What nobody – except perhaps for a few perceptive landlords, who are holding this secret close to their bosoms and quietly buying more property – seems to have yet figured out is that a housing crisis of unprecedented proportions is looking several years ahead.

    New housing construction in the US collapsed a few years ago and is showing no signs of robust recovery. When and if construction does recover, it will take YEARS for the supply to expand to where it would have been if the market had not collapsed. (There is much ‘red tape’ and permit-gatghering required, which makes bringing new housing construction online a multi-year project.)

    So if employment recovers, it will necessarily do so well prior to a construction recovery, thus rental demand will outpace supply for quite some time.

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