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How Cheese Affects UK House Prices

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Buy to Let  Inflation  UK Property Investment  Investment Timing  Cheese Affects UK House Prices 

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By - Friday 30 July 2010

How Cheese Affects UK House Prices

In the past couple of weeks or so some interesting statements and reports have appeared in the British press with respect to the future of UK house prices. Accountancy giants PriceWaterhouseCoopers have spent a great deal of time analysing the possible paths of property prices against inflation. The end result (depending how you read the various articles and opinion) is a little confusing to say the least.

As much as PWC are renowned as accountants, they do have a wealth of experience in the worldwide property arena providing very valuable insight to both the industry and the public with respect to property investment when it comes to number crunching.

Personally, whilst I might discuss investment briefly with my own accountant (who I must add is not PWC), I would not solely use his advice with respect to a property investment decision. (This is of course providing I can get a word in edge-ways as he tells me to spend less money, save more, and all the usual other boring things accountants waffle on about as I stare out the window with glazed eyes).

My personal accountant's job is to take numbers that already exist, whirl them around a bit and tell me if my books are in order and whether or not I should be on the look out for a visit from the tax man, or perhaps more scarily, a visit from the VAT man.

From a corporate accounting point of view, the major accountancy firms produce reports across entire sectors for a couple of reasons. Mainly to assess the sector as a whole to create data (knowledge is power, the more data you have that is up to date, the more you can advise upon effectively), but also as they compile these reports, they will then take into account what is happening in the other sectors they are analysing. End result is a very comprehensive set of numbers that can be used to asses the viability or practicality of an investment idea.

As much as the publication of "sound bites" from the report may well have boosted PWC’s profile, I doubt that was the intention of the report. The Telegraph has very successfully tied itself in knots over this by headlining with "Are house prices set to fall again?" followed by "Hearts would have skipped a beat last week on reports that by 2015 there is a good chance that homes will be worth less than they were in 2007". Hardly responsible in my opinion.

The actual report published by PWC suggests that a house in the UK will be worth less relatively in the next 5 or possibly 10 years. On the whole, I would largely agree with that opinion, based on the figures they are quoting, and the way they have reported it, at this moment in time, as far as the UK property market in general is concerned.

Does this mean I am now rushing around in a blind panic to flog off every asset I own in a bid to beat inflation? No.

Why not? Consider a property market that has taken a right old thrashing over the past couple decades. Japan. Inflation and economic volatility has forced the creation of perpetual lifetime mortgages and no end of problems that will still likely take several years to fix, do you think that no-one at all buys any property in Japan anymore though?

I doubt it, and also I doubt there are too many Japanese TV shows suggesting that you buy up half of Tokyo in a bid to become a Buy to Let billionaire but, (without going to the extent of researching the last 2 decades of Japanese housing prices and inflation) I can't believe that no-one has made a profit from property investment in the last 20 years in Japan.

The Telegraph has gone on further to very successfully tie itself in knots over this, with an array of varying opinions on the subject from investment property professionals, bankers and the public alike, only to come up with the conclusion that it has no idea, although the general consensus would appear to be the usual one of the press: Doom Gloom = House Prices go down.

The point of this post is to illustrate the problem with much of the press that floats about. We have shown this before with news sources even blaming poor house prices on bad weather.

Roll the clock back 2 or 3 years and a very different picture was being painted. Few reports from the major financial firms made it to the press for public viewing or comment, largely due to the swathes of advertising promoting property investment, suggesting you could become a real estate bazillionaire in 5 minutes if you just sign up. For a few it happened. Very few of those few are left now.

The real money at the time was being made by the press in the form of advertising. Don’t get me wrong, I am all up for a bit of "make hay whilst the sun shines" but the media (at least as far as property investment is concerned) seems to be incapable of maintaining any kind of balance as far as what it reports on when times are tough in any sector.

The Telegraph are not the only paper to pump some hype, the Guardian have been at it too with headlines like "Buy-to-let landlords rush to sell before capital gains tax rise" followed by "Estate agents report deluge of enquiries from landlords about possibility of selling before proposed tax rise introduced" Granted, the Guardian vaguely attempts to balance the report out by quoting another agent as saying "So far we have not seen a knee-jerk reaction from private or investor landlords. Most investors are taking the wait-and-see approach to see if the chancellor introduces other measures in the coming weeks."

Another piece of "news" published recently was that the average time taken to view a property prior to purchase is only 21 minutes, (A number I find a little difficult to believe personally, in fact, watch this space, we'll run a poll on exactly this subject!) as a comparison, apparently nearly 10-fold the amount of time being spent on deciding what satellite TV package to have! One really has to wonder what the press is trying to do.

These are just a few of the points from the press that come into question here about how the media report with respect to the property industry in general, and how much contempt it should perhaps be treated with. As strange a logic defying analogy this is, consider the following headline, backed up by the subsequent statements:

Swiss Cheese is a Rip-Off!

  • Swiss cheese has holes.
  • The more cheese I buy, the more holes it has.
  • The more holes I acquire, the less space there is for cheese.

Taken literally, the more cheese I buy, the less I get!

By simply leaving out the fact that cheese is sold by weight and not cubic inches/feet/yards etc. As a result, it is possible to very easily misdirect the reader, whether the reader is a cheese expert or not.

As a company, we could sit here all day and insist that gold will be worth tuppence a kilo in the year 2030, based upon the number of mining villages being created in Mongolia and I am sure if we had nothing better to do, the figures would stack up (eventually). Do we publish such a claim and allow the media at large to run riot with it? No. Why?

  1. We are not qualified to make such a claim
  2. Although we have access to past data concerning gold prices and mining villages in Mongolia, it is exactly that – past data
  3. We have sufficient respect for our clients to be able to appreciate the fact that they are unlikely to take such a claim very seriously, for the very reasons just stated.

Investment predictions and projections require taking into account ALL of the data at hand, not just the bits that cause panic/confusion/comments/people to buy newspapers. Blasting out the "tastiest" headlines that will sell papers is really not responsible at all, and a fairly reasonable amount of blame should perhaps be laid at the feet of the press for the recession at the moment.

Now I am not about to suggest that one shouldn't read the paper anymore, but more to think about what is actually in front of you. Question whether what you're reading is in context. Personally, the harder I look at the mainstream press, the less context it tends to hold.

What do we think about UK house prices in 2015?

In a nutshell, there will be profit to be made in UK property investment over the next 5 years. Just as there has been in the past year or so, despite a diving market. The only difference is that it has just got a little harder to find out where the profits are.

Two things however are for sure. If you don't invest, you cannot make a profit at all, and if inflation kicks in, you will be at a loss anyway. Secondly, there has to be bad days in ANY investment market, that is part of the deal with investing. You cannot have positive days without the odd bad day! What you can do however, is understand what you are investing into, seek advice from people in the business of what you are investing into, as opposed to rolling along with the doom and gloom merchants.

In conclusion, the media will be right if everyone believes what the media publish, and those that don't invest at all will be able to look back and say "weren't they clever?" much like those that claim "you will always lose at the casino". For the most part, the casino statement is true for most casual casino goers with no knowledge of gambling or game odds. How does it explain professional gamblers that make a living successfully?

I am not going to suggest for an instant that professional gambling is the future, far from it, but there is money to be made in property investment, even when the odds appear to be against you, it's just how you go about it that will depend on your success or failure.

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