Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Monday, 12 August 2013
Britain's property market set for another boom
If you read my first book, you'd be aware that I believed that the UK property market would set itself for another boom period, which was not a popular viewpoint at that time.
And now the seeds of that boom are all in place.
It's not ideal. Booms and busts are not good for the wider economy, but in a market like that of Britain it seems to be almost inevitable.
Nationally prices have regained new all-time highs and are growing at the fastest pace in 3 years.
Why is another boom inevitable? If it had to be summed up in one word: debt.
The British government has debt of more than £1 trillion, a figure which was pumped up during the financial crisis in a desperate bid to rescue the floundering economy. British consumers owe even more: £1.5 trillion of debt.
When a government is as indebted as Britain's is, there is simply no way that deflation can be allowed - it would be economic suicide. The value of the debt must be gradually inflated away.
Notionally, the Bank of England has an inflation target of 2%, and to keep inflation above 1%. This target was set by the British Labour government back in 1997.
But what happened this week? To heck with the inflation target, said Mr. Carney, we're leaving interest rates at rock botttom (0.50%) until unemployment falls from 7.8% to 7.0%, which could take several more years.
Given that savers won't be able to find returns of more than around 2.50% on their cash, more and more Brits will be lured into the housing market and other growth assets.
Meanwhile inflation will probably be ignored or "looked through" in the parlance of the day.
The funding for lending and Help to Buy schemes will kick things along as is no doubt the intention.
Meanwhile, dwelling construction is at its lowest level in decades, and a baby boom means that Britain has the fastest population growth of any country in the EU.
The south-east of England will be the sector of the market which sees the greatest growth.
It's been fairly common to hear snide remarks about Britain's property bust offering a salutary lesson to property owners elsewhere.
I'd rather say that the lesson is this: modern governments are so committed to promoting inflationary economies that while property prices in popular locations will ebb and flow, over the long term they will move much, much higher.
UK property prices will likely continue to set records over the coming couple of years. Just five years on, it's pretty much 'as you were' for UK property.