Supplement 21 Apr 24 – Relativity and Absolutism

Apr 21, 2024

“Variety is the very spice of life, that gives it all its flavour” – William Cowper, poet.

Before we crack on – 27th April is the day of the first of a series of in person Social Housing Events that Partners in Property are organising. There are 7 speaker slots in total covering every aspect of social housing. Attendees will be able to walk away with all the nuts and bolts they need to decide whether you want to incorporate social housing within your own property portfolio. The agenda will include:

  1. Why Sue Sims started in social housing as an investor more than 8 years ago
  2. Wayne Millward the founder of Room Match will be outlining all the due diligence you need to undertake, when deciding on which social housing provider to work with
  3. Mark Turner, COO at the Housing Network will be talking about the future of social housing
  4. A social housing expert mortgage broker will confirm exactly what you need to provide and take into account when you’re looking for funding for social housing. 
  5. Pinder Singh Dhaliwal, MD at Falcon Insurance will give you an overview of how to insure your property that is leased to a social housing provider. 


Tickets are available at this link: 


Welcome to the Supplement, everyone. We got through another one, as yields looked ever rising when we breached my “high tide” of 4.25% on the 5-year in the middle of the week. It seems that the Governor – in spite of my overall critiques of the man – may have, for once, “done us a solid” – but we will get into that. It’s always a meaty week when the labour market and inflation are both published, and we had a bit more of that. I also collated a fair amount of anecdotal evidence this week, and I’m going to have a word about that too. 


So alongside a deeper dive as we go along into both (un)employment, and inflation, we’ve also got to look at the retail sales so we can get some kind of handle on consumption, and then round off with a more fulsome look at the 5-year bonds and swaps.


The good old-fashioned layabouts that the British Public just love being told that they are got a rollocking this week from soon-to-be-former-PM Mr Sunak, the weak leader as he will be known (but perhaps with the “I banned cigarettes” legacy – a fascinating debate all on its own). It struck me as a rallying cry to the voters that the Tories are losing to Reform (or think they are) – analysis of the Reform voters shows as many are coming from elsewhere as they are from the right hand side of the equation, and a decision to go right to get back up to 8% of the vote when you are so far behind looks like another poor one, to be honest. Is that really what he said, though, or what the media portrayed him as saying? We will take a look.

Ups the chances of Liz Truss as the next leader of the party – still polling very badly though amongst all voters, but her thick skin gives her no worries. There’s also a semi-defence of her (more of a critique of the Bank of England – and a good one) defiantly led by Robert Peston and Stef McGovern (mostly Peston doing the defending, although it is almost a second order consequence) on the excellent “The Rest is Money” podcast, in 3 parts. “Who killed Liz Truss”, the mini-series is called. 


So – after our lettuce amuse bouche, back to the starters. Are we just a nation of lazy good-for-nothings? Or, has a pandemic and a gigantic waiting list on the back of said pandemic, and industrial action, alongside other things, caused a lot more sickness in the UK? Or – as usual – is there somewhere to meet between those two polar opposites that aren’t necessarily mutually exclusive? Let’s get into the Labour Market Overview for answers to that.


We get figures about 6 weeks or so late, but then get a snapshot of the more recent month as well. February wasn’t incredible – 18k payrolled employees lost – but 352k more on payrolls than a year before. March’s early data was more worrying – 67k fewer employees on payrolls, and only 204k up for the year. Looks like a pretty bloody month, 67k is a big loss.


Employment now sits at 74.5%, 1.7% down on where it was pre-pandemic. Inactivity now sits at 22.2%, 1.7% UP on where it was pre-pandemic. Is that the end of the analysis? – not quite yet.

I wasn’t as bearish as many of the headlines were, because, mostly, the ONS by their own admission don’t think much of their quarterly figures these days. We have a new measure coming in September (likely not worth the wait, to be honest). We do have real time PAYE information, and also claimant counts, which can be trusted to an extent.


We also lost 106,000 working days to disputes in February 2024. We lost none for two years (I’m sure we did, but there are none on record) between January 2020 and January 2022. In December 2022 we lost 830,000 – in September 1979, we lost 11.716 MILLION hours of work, if that helps to put all of this into context (the winter of discontent!)


Pay growth also features in the Labour Market Overview, and was 6% excluding bonus – down from 6.1%, but not down fast enough. 6 still looks very big – and just imagine what April’s number will look like when released in a couple of months’ time, after the minimum wage rises this year. I estimate around 18% of the workforce are pegged to, or at, minimum – so that puts perhaps 1.8% or so ON that figure. In real terms after CPIH (as the ONS prefers it) that was a 1.9% annualised increase in real terms – very healthy indeed, and would be great, if the underlying economy generating that was also healthy, rather than coughing and spluttering.


Vacancies fell again, 21 periods in a row, but to 916,000 – still 120,000 more than before the pandemic (although the labour pool has grown by far more than that in the same period). Same old story, for now, on this one.


So – with 853,000 more people economically inactive since Feb 2020, the long-term sick number is around 350,000 more since then. Less than 5% of the waiting list, which might tell you something about the average age of those on the waiting list, of course – but still, a big number that needs reversing and fixing.


Let’s give Rishi a chance – and analyse what he actually said about benefits and the like, in stats (which he loves, of course):


Personal independence payments are to be reviewed. There’s a massive rise in PIP for anxiety and depression. Current projections are PIP to go up by 52% to reach £32.8bn by 2027/28 and that is a scary rate of growth. Total benefits spending for people of working age with a disability or health condition is up nearly 2/3rds to £69 billion – more than the core schools’ budget, or on policing.


The promise is a focus on getting back to work. The evidence shows that those in work tend to lead happier and healthier lives – although I’d like to see those stats ringfenced for the disabled, or those with health conditions. There is a promise to end benefits after 12 months if people haven’t accepted a job (or don’t meet other conditions as set by their work coach). 250,000 have been out of work for 12 months or more. 


424,000 people fewer will be assessed as “not needing to prepare for work” by 2028/29. There will be fallout, as there has been in the past. Will that be a hard price that is difficult but worth paying? 180,000 more people will be moved into the Intensive Work Search group. There’s also going to be more digital support to detect fraud which should save £600 million by 2028/29, apparently.


Reading the whole speech, it looks like typical political economics. Tough choices – you can read it as “too many have learned how to play this current system, so we need to change it” – or you can just look at the stats at face value – there are some gigantic increases in certain benefits that are being used in a different way from how they were designed. That suggests reform is a good idea.


The other other way of looking at it is a fix for the leaky boat before the other, and more sympathetic, party gets into power……..


Anyway – enough on labour and Labour. Inflation! CPIH (The ONS’ preferred figure) is still 3.8%, unchanged from Feb, and +0.6% month on month (12 months ago, it was +0.7% MoM). CPI – the Bank benchmark – and the one that makes all the headlines – 3.2%, versus a consensus of 3.1% but a print in Feb of 3.4%. So – falling, but not as fast as forecasted or expected. 0.6% month on month versus 0.8% month on month 12 months ago (where we were still at double digit inflation).


Core CPIH is still 4.7%, from 4.8% in Feb – CPIH services annual rate still 6% (services inflation overall, also 6%). Core CPI 4.2%, forecast was 4.1%. Month on month core was 0.6%, still outside of where it needs to be, but the last 6 months only prints 1.8% still if annualised – although if you took out January’s -0.9% for a month, that would change that quite a bit. 


Of what contributed to CPIH the most – housing and household services is always worth a mention, up 0.4% month on month. Recreation and culture has been making a comeback as the cost of living crisis has eased and was up 0.9% month on month. Restaurants and hotels were up 1.1%, perhaps preparing for the minimum wage rise a little early, or perhaps just because there’s more holidaying to be done in March than in February, simply because of the weather!


So – to draw that together – I feel there will be few surprises. It isn’t over yet, by a chalk. Services inflation +6%. Wages +6%. Wages figures to go up, not down, over the next couple of months. Perhaps services too. That takes us to mid-June without the conditions to lower interest rates if you are a member of the Bank of England monetary policy committee. Just keep fighting the good fight and swimming through the treacle.


Retail sales, then – flat month on month, up a tiny amount year-on-year (0.8%, just about positive, but no adjustments made for inflation). The hope was a bit better than that, because of Easter – so there will be some disappointments there. 


The bonds and swaps now. Gilts – We opened the week at 4.08% on the 5-year, still above where I think we should be, but who falls out about 10 basis points or so. We ended in the safe haven of 4.13%. Swaps – after Thursday’s close, 4.165% was the print – compared to a swap rate of 4.131% – so, there’s still more supply than demand……..I’m just miserable when it starts with a 4. 


The escalating middle east has not helped. Iran launched their first ever direct attack on Israel. It does appear to be posturing and de-escalation, from a distance – but no risk can be allowed to pervade. Hopefully! Oil is wobbly and I shared a solid piece in the FT from Mohamed El-Erian on Friday which is here: – a powerful analogy that you will likely have heard before!


Just one more roundup before we get to the end of the macro. The Bank of England had several appearances this week, and I thought it a good idea to summarise them briefly. Most of the speakers were on the more hawkish side, so it is no surprise that bond yields have gone up. The Governor first – Andrew Bailey. Basically said the most obvious thing that all already knew – inflation will go down for April’s print. He used it to suggest we might cut before the US, but I think the US cut will be much more politically charged than the UK cut, when it comes – so it’s a dangerous game. It also weakens the currency, of course – that sort of chat.


I do think though, as I’ve developed this view with some evidence over the past few weeks, that the US has more of an entrenched, secular inflation problem than the UK. However, the UK system feels a lot more “built on sand” at the moment – we cannot afford 6% rises in wages, and services, with a limp economy. It HAS to force some efficiencies – which WILL raise productivity, but also raises the benefits bill massively (and indeed, perhaps Sunak knows that and that’s why he is already taking the knife out, in that department, and it is just good economic stewardship – with inevitable fallout). 


Next – Sarah Breeden – Deputy Governor for Financial Stability – spent time talking about tokenization, and stability in the crypto world. There will be two sides to this – those who roll their eyes and say “of course the central bank wants control and oversight over all tokens” – but we cannot allow a libertarian attitude to enable criminals, who are still overwhelmingly interested in cryptocurrency, when so much progress has finally been made in anti-money laundering over the past 15 years or so. Not an easy one.


Dave Ramsden – Deputy Governor for Markets and Banking – talked in Washington about his take on what has caused the UK’s inflation. He referred to Ben Bernanke’s report on the Bank and its forecasting, which I will cover in a coming week. He reminded us that forecasting inflation is hard (I agree, but I think it is woeful in terms of some of the rhetoric that has come out of the bank in the past 3.5 years). He said that it looks like the UK is not much of an outlier – although the 2024 wage and price growth performance still looks on the very highest end of the G7 nations to me, and US wage growth has been far more under control than UK wage growth for a fair bit longer now.


He went through the usual stuff – it would be hard not to – Ukraine, and energy prices. He also talked about the decision to hold at 5.25%, but not in any detail. He talked about services inflation – highlighting 6.9% as recently as Sept ‘23, without pointing out that March ‘24’s number is still 6% – a pace of drop that is just far too slow to get to this scenario where we hit target and stay there, generally. I am stuck scratching my head – but we are at a time where the Bank’s economic models should be vastly superior to a one-man-gang such as myself. Let’s see.


The Bank has got 2.2% inflation pencilled in for Q2 2024. So – they see a much slower dead cat bounce. I can see how we get 2.2% for April, and perhaps even lower. But, I don’t see how inflation in services doesn’t continue to rise at 5.xx%, which in a month where prices aren’t actively falling in energy (May, June) and with oil elevated and who knows what happening, CPI being comprised of 47% of services inflation, starts off at 0.47*5.5 (if services inflation was to drop that much, in the face of massive minimum wage rises – hmmmm) – which is 2.6%. It just can’t be right, in my view.


They see inflation still averaging 3% in Q1 of 2025 – so a bit more than a dead cat bounce – I’m absolutely higher than their 2.2% for Q2 ‘24, but see the 3% as possible although at the lower end of my range. Remember core inflation is still over 4% and core CPIH over 4.5%……the energy price cap stuff doesn’t change core at all so a big drop can only be in relative performance – which I’ve highlighted above in this month’s report – there a BIG dropout of 1.3% for April 2023 in core MoM to drop out next month, which helps massively, but still sees core in the 3s of course. 


The tightening of the labour market is the thing that ultimately will help with wage growth, alongside lowering inflation expectations, and the timing of all of that might just be a really positive thing. Let’s see. Most companies are still expecting to be handing out c. 5% pay rises for 2024 as a rule, which is ultimately only half of the increase in the minimum. Luckily for employers, most people don’t think in percentages, is all I can say!


It was a useful and interesting speech from Ramsden, in spite of how many holes I want to pick in it! Then we moved on to Haskel, an external member of the committee. Usually hawkish. He was instead speaking about AI, where he dropped the least surprising news ever – we are behind the US (we are completely underpowered compared to them, of course, when it comes to tech companies in general – so there is just no news here, surely). Nothing he said really moved the needle at all in the markets.


Megan Greene was the last one to raise her head above the parapet this week. My favourite, I make no bones about saying. She did have an impact – suggesting that she’s hesitant to start voting to cut rates. She preferred an analogy to a bumpy last mile (the notoriously difficult problem to solve for online retailers) as far as inflation goes – and said that the slowdown in globalisation was also a factor. You’d certainly expect yields to have hardened a little on the back of her chat on Tuesday.


Anyway – that’s our macro. For the meat this week I wanted to have a look at the spring market insight report from Hamptons International because they cover a few different angles and also use their proprietary data in the same way that Zoopla do, to create reports of interest. So……into the breach we go.


The report, for a start, contains one of the better graphs for indicating comparative health of the market over recent years that I think I’ve seen. Any estate agents reading will be able to add value because I’m not sure if the way that houses are marketed has particularly changed in the interim period – I mean the pervasion of the modern method of auction would have had a small impact on this metric, I would have thought, but not by a huge amount. This is the proportion of homes sold above asking price – ranging from around 10% in 2010 in England and Wales to 39% in 2021/22, and back down to a surprisingly high 24% around now. London was well ahead of that curve in the early 2010s, peaking in 2014 which won’t surprise anyone but staying ahead of the national graph until 2016/17 as that market started to cool – and London has just for the first time gone ahead of that curve again, in 2024 year to date.


Hamptons claim that the January and February pace almost always sets the tone for the year ahead. Makes sense, but they haven’t provided data to support that claim. Prospective buyers up 14% from 2023, tracking only slightly below 2022 levels, although it is fair to say 2022 was pretty much a year of two halves (or the market didn’t really start to fall off until August, meaning the last four months of the trading year were tough).


The report is slightly outdated now just upon publication (the risk of writing anything down post-pandemic!), pricing in the June rate cuts which the bond markets now think are unlikely to happen until September or so. They’ve talked about 3 rate cuts which are now more likely to be one or two. Therefore the particularly recent rise in yields (we are now trading nearly 1% higher than the Xmas lows of 2023) isn’t really written into this report, and will make a negative difference to the buoyancy of the market over the coming months. 


8% of properties are going under offer within a week of being offered for sale – compared to 6% last year. Fewer homes are being reduced. Hamptons also talks of choice still being more limited than pre-Covid, although the Christopher Watkin stats for listings dictate that prices have moved forward, and that the “post-easter” week was the best week for sales agreed since May 2023, and that we are 10% above the historical 8-year average year to date in terms of listings. So I’m not sure if Hamptons specifically are struggling a bit, or their geographical bias down south is just leading to a tougher market than nationwide.


Volume looks good on Chris’ stats though, with 350k gross sales year to date (remember at the moment around 1 in 5 are falling through, so that needs to be taken into account). Net sales are 4% ahead of the average from 2017-19 and 13% ahead of the 2023 comparable figure, so that’s a pretty good yardstick for the health of the market nationwide/from all the data.


Back to London – Hamptons see fewer homes available, but 23% more buyers looking to move than last year, and 10% more deals done in February than the comparable month in 2019. Hamptons talk of potential price growth in 2024 in the face of the first couple of months worth of data that went into this report from the Nationwide and the Halifax.


The report also contains a nice summary of the Competition and Markets Authority’s (CMA) report into the factors holding back house building in Britain (a report on a report? Lush). There are four principles of a future scheme to help first-time buyers:

  1. A scheme should incorporate supply-led reforms to weaken its potential to push up house prices. 
  2. New demand reduces the incentive for housebuilders to cut prices. Therefore, any scheme should only try to attract those who would otherwise not be able to buy.
  3. Reducing deposit requirements leaves buyers vulnerable to higher mortgage rates and falling prices – increasing the risk of negative equity
  4. Any temporary scheme creates winners and losers, and potentially makes it harder for others to buy


Now I don’t know about you, but this does not, to me, sound like a report packed with great solutions. It sounds like significant problems, without one single proposed solution. All it really does is expose Help to Buy for what it was – a transfer directly into the pockets of large housebuilders, and something that kept the price of often-substandard new build products artificially high.


Nothing also doesn’t work, because the housebuilders know how to manage that – choke off the stock, temporarily, and keep the price artificially high – which is what they did in 2023. The big conclusion is that some sort of income cap on any scheme is what is needed. That doesn’t sound like something that would sort out the supply-side, of course – but something for key workers would make sense, if the Government had any interest in building relationships with key workers (which it seems fairly obvious that they don’t, at this time).


The conclusion, after exploring the positives of an open-ended scheme, from Hamptons is that the Government is likely further away than ever on its 2019 manifesto target of delivering 300,000 homes each year.


Next up – what’s cheaper? Renting or buying? I always criticise these sorts of comparisons, because the most basic ones compare mortgage payments to rent payments. Indeed, last week, the Resolution Foundation report tried to compare rental payments to the interest component on mortgage payments. Laughable, frankly – because you need to pay the capital regardless of where it is going. You forego investment returns from elsewhere on the deposit. You also take on maintenance, compliance (if you choose to do it, since you have the choice in your own home), buildings insurance, and improvement costs. You’ve also got all the frictional costs to consider of course.


Nevertheless, after some stretches recently where renting has been cheaper, the Hamptons data indicates that buying is £136 per month cheaper than renting. This is compared to £400 per month+ cheaper when interest rates were much lower.


Hamptons also ascribe the percentage of the market that first time buyers are making up, at the moment, to the bid to escape rising rents. That makes some sense of course. I’d also expect there’s some pent-up demand as they sat last year waiting for prices to “crash” while idiotic forecasters were spreading their insane forecasts. Flat prices are going up faster than smaller homes in 36% of local authorities, which bucks a trend – this number was nearly zero throughout 2022. The costs on a monthly basis however are bludgeoned somewhat by larger deposits – if you can get them – and the average FTB last year put down a 25% deposit compared to 23% in 2019. In London, that is typically 33% (but also typically of a much higher price in the first place of course). There’s also a great map of England and Wales showing income multiples required of local incomes to buy houses – and there’s some disparity but this shows how much tighter (or not) it is and how much harder it is to buy in certain areas based on average incomes. Really illuminating. It could be “average FTB income” rather than “average income” if you wanted to make it even more accurate, if that data was available – but still, not bad.


Onto the rental market, then – and the overall picture painted by Hamptons is that rental growth is cooling. We know this – they put some colour around it though (they are talking about new rents, although they don’t make that clear – because ONS figures are showing faster growth than ever before, as existing rents seek to catch up). 12% in August 2023 was the peak – down to 7.1% by February this year. Similar to the inflationary cycle in general, but lagging – which is very commonplace with rents.


London had rents rising at 17.1% in that August according to Hamptons, and that’s now down to 6.1% (very similar rate to wage and services growth, interestingly). 61% of new lets are getting a higher rent in ‘24 compared to 81% in ‘22 and 80% in ‘23. Between 2015 and 2019, 49% of properties were getting a higher rent on re-let. Rents on smaller homes are going up faster, as demand for smaller properties has rocketed as people have downsized to cope with the increase in the cost of living.


Affordability is cited as the thing causing the ceiling, which makes sense with Hamptons portfolio largely concentrated where it is. First time buyers, they say, are now outnumbering investors 3:1 – I’d love to see the logic behind this, because if FTBs are 33% of all buyers, that puts investors at 11%, even though only 7% of debt issued at the moment is to investors. Perhaps that encapsulates the number of investors that solely use cash, however – it is possible.


Stock is still 41% down in terms of availability compared to 2019 – and again, as so often, no allowance is made for the fact that far more rental properties are needed than 2019 because of significant population expansion, particularly in the demographic that tends to rent! They see rental inflation ahead of general inflation for 2024, which is as easy a prediction as Sunak’s “halving of inflation”. The equivalent of the old trick in dieting when you pile in 10,000 calories a day before “going on a diet” – a “guaranteed success” (which isn’t a success at all, of course, it is just tricking the measurement system). 


They also have a focus point in the report on homes selling off-market. We’ve played around 10% over the recent years – which is fairly high – as a rule. That looks to be down to about 7% (so if you know a struggling property trader, that is likely why). However. £1m+ homes are at an all time high, with an unbelievable 33% (yes, one in THREE) £1m+ homes now selling off market. In 2023 51% of £2m+ homes changed hands off market – it is close to the norm, now! It is a very clever way for a vendor to test the market, of course, without the price being plastered all over the internet. I also think that it provides the illusion of a bargain – whereas most things I ever get shown that are off-market but not coming through a trader are ridiculously overpriced, of course.


It also, as the report identifies, might just be because the market was weak and once it is stronger, it will be deemed that the best way is to go on market and attract the widest possible number of buyers. 30% of owners of £1m+ homes went on the market after an average of 62 days off-market advertising. Also, it is starting to become more of a tactic for those that were ON the market, and then have a deal fall through. It will remain a watching brief of interest.


I hope you found that report as interesting as I did – a lot we knew, with some potentially regional bias in there, but some really interesting facts and figures and surprising proportions, in many ways, for certain parts of the market. It’s clear that the rental market is growing at an unstoppable rate for the moment, and that the buyer to investor ratio is likely to climb a little bit more if rates did continue to rise from here (although we are really at the top of my range, it is just bearishness keeping these bond prices down right now – and there’s bound to be positivity next month when we get an inflation print that starts with a 2 on CPI, even with all of my warnings about what’s going to happen and that it should be more than a dead cat bounce).

There’s only one way to deal with all of this, of course – Keep Calm, ALWAYS read or listen to the Supplement, and Carry On!