Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Tuesday, 25 November 2014

The Value of UK Housing Stock 2004-2014

UK Housing Stock +57 percent

Two interesting infographics I prepared to illustrate a key point about house and land values.

Below is the total value of UK housing stock in 2004 at £3.22 trillion.

London (16 percent) and the south-east (19 percent) have always made up a sizeable chunk of the total value of Britain's housing stock.

Of course, over individual years certain regions may fare better than others, but over the longer term certain trends should be observable.

Roll forward a decade to 2014 and we see that with the exception of Scotland, most British regions have seen the total value of their housing stock increase by a compounding rate of a surprisingly consistent 3-4 percent per annum.

Broadly speaking, housing across the country boomed and then receded, but housing in most regions has done little more than track inflation, with the retail prices index increasing by 37 percent over the same time horizon.

Variances by Region

In regions such as the East Midlands and the North East, the value of housing stock has increased at less than the rate of inflation over the past decade at 32 and 33 percent respectively.

The total value of UK housing stock has risen from £3.22 trillion to £5.02 trillion over the past decade, mainly driven by the capital city of London, which now accounts for nearly 23 percent of the total value of housing stock - a huge increase.

Where demand is high but there is a reasonable amount of land made available for development in the South-East of England, the value of housing stock has appreciated at around 4.5 percent per annum over the past decade.

Where the demand is highest but the supply of land is all but fixed - within the green belt in London - the total value of housing stock has increased at close to 8 percent per annum over the last decade.

In Prime Central London the numbers are significantly higher again at more than 10 percent per annum.

There are, of course, all manner of theories pushed around the place when it comes to real estate.

At a high level, the basic crux of a functioning housing market is that if demand and then prices rise, new supply is then created which cools the market back towards equilibrium.

This is why Britain's regional markets have mostly now failed to appreciate much above the rate of inflation over a very long period of time.

However, where demand increases but land is finite, such as in central London, over the long term prices can outperform inflation, and indeed they have been doing just that over the decades.

London and the South East Drive Growth

In the past year the total value of housing stock has increased by 14 percent of £630 billion, but more than half of the increase was accounted for by London and the South-East alone, with values elsewhere relatively static.

Despite what some try to claim the increase in housing stock has not been driven exclusively by increases in UK household debt.

Far from it, in fact.

The increase in the value of housing stock has increased by more than four times the rate of increase in mortgage debt, and as such housing equity increased by £1.42 trillion or 61 percent over the decade to well over £3.7 trillion.

That is to say, the total value of housing stock (£5.02 trillion) is a massive £3.7 trillion higher than the total value of mortgage debt (£1.29 trillion). 

Drivers of equity growth include an inflow of foreign capital, particularly into London, and rising incomes over the first half of the decade.

The value of housing equity is heavily skewed towards London and the South East of England.