House Prices

There are two ways to look at real estate in the new era. The first is to look at western europe and the other developed countries of the world. The second is to look at the developing world. Let’s start with the first, and look at the UK.

In my books on property markets I devote a chapter to the history of real estate prices. That is perhaps one of the most important chapters in the book, apart from the chapter on how to value a house properly, and why houses have different values in the first place. The trouble is the world is full of “experts” who dont understand what they are talking about. They look at what has happened to house prices in the UK since the second world war, and they project that scenario forward. What they dont seem to grasp is that the world in the twentyfirst century is not remotely like the world in 1945, or even the world in 1965.

Let me explain how things work. To get a full picture you really do need to buy my book, but hopefully this digest will help.

In 1945 there was a wrecked economy and a wrecked currency in the UK, and indeed, across the whole of Europe. Prices were on the floor. Adjusted for inflation house prices were the same as they were in 1760. What happened next was that over a period of ten years the economy improved, wages went up, and people started doing reasonably well. The prime minister Harold MacMillan was always bleating that “You’ve never had it so good”, and he was right in many respects.

If people have an improving economy, regular increases in wages, and good job prospects they will be able to spend more money, and be able to afford higher house prices, therefore house prices are likely to rise.

From the sixties onwards the banking system expanded enormously. Mortgages, which were very limited, became widespread; lending criteria relaxed; and because of the availability of those mortgages people could spend even more on houses, so prices could rise even more.

During the seventies we had massive inflation, with annual rates above 15%, and even reaching the mid twenties in one year. The value of money dropped through the floor. This artificially increased the nominal cost of houses.

During the nineties even more sophisticated financial features were introduced which made borrowing money almost as easy as printing the stuff, and naturally that made buying houses even easier, so prices naturally went up again.

There comes a point when the system collapses because the euphoria takes things too far, and people are carrying far more debt than they can reasonable repay. Well, that’s just happened. However, the question is: what next?

Nothing goes up and up indefinitely. It just doesn’t happen. If prices rise because of increased wealth, so be it, but they can only rise in tandem with that increased wealth. They cant outpace the increase in wealth.

If financial instruments such as mortgages, synthetic mortgages, and cash-backs, increase the money available, so be it, but that increase can only go so far, which means that house prices can only increase to take account of the increase in cash available. There comes a point when that increase can no longer be sustained. We have reached that point, and things are now going the other way. That means house prices are likely to go down rather than up.

What all this means is that house prices went up not because there is something inherent that makes them go up. It means that house prices go up in tandem with a series of stages in the financial development of a state. It also means that there is a simple historical relationship between the economic wealth of a nation and its house prices. They will naturally rise from a low level to a maximum. They will then fluctuate just below that maximum according to the current economic health of the nation.

Can I put that another way: We’ve hit the maximum. You cant have house prices rise any further in relation to income than they already have in the recent past unless someone changes the rules quite drastically.

The implication here is that the only way anyone is going to make money out of house price appreciation in the future is to buy at the bottom of any big drop. Picking bottoms isn’t easy, and it’s very risky. There are other rules which help you in those situations, but they dont figure in this short article.

Let’s look at the second situation; the developing world.

If you find a country that is economically and financially in the situation the UK was back in the years after the second world war then you can reasonably expect that country will go through a similar cycle. That means you can buy real estate in that country and, over a 20-50 year period, expect the value of property to go up quite significantly.

If you want capital gains in real estate you need to find a country that is just starting to chug forward. You need to find a place where the political leaders can truthfully stand up and say to the populace “you’ve never had it so good”, and start investing. Your investments will grow, maybe erratically, but they will grow big time.

So where do we go from here? We go where the new economies are starting to grow. That’s where the future is. Western Europe is the past as regards big profits from real estate. If you want to go into property because that’s where the profits are, then the first thing you need to do is move your business abroad to the developing world.

Fountains Abbey

It was a perfect day.

“Where shall we go?”

It’s Yorkshire. Yorkshire is Annabel’s county. I’m a foreigner. She thought for a moment, and then decided to take me to a monastery that Henry the eighth had dissolutioned; Fountains Abbey.

Fountains Abbey

The abbey ruins are in a small valley with heavily wooded sides. There is a small stream running through the middle: the river Skell. The old abbey is most imposing.

Fountains Abbey Ruins

There are great columns rising high and sturdily into the sky, walls running down to the old cloisters, and moss-green squares where the sun rarely peeps. It is damp and cool. There is a mill over the river, and we sit washing pebbles in the fast flow. Here and there are silent remnants of excavation: planks, holes, and oozing dirty water, gradually stagnating.

The sun is high in the sky, the trees are a lush new-summer green. The grass is freshly cut, there is no-one else about; we have the whole place to ourselves; our own private abbey; our own private ruin; the stream rattling past, flashing white teeth, and all around us a warm indolent summer’s day.

Behind us is a low wall, we lie back against it, basking in the wonderful sunshine, Ann leaning against my shoulder, her summer frock gently undulating in the slight breeze. It is a quintessentially English summer’s day. I had forgotten the weather could be so kind and soft after the long hard winter.

I stroke her hair; the leaves of grass stroke my legs. It is time for the world to stop so we can lay back here forever. Instead, we get up, eager to do something.

We walk along the river till it leads us to a small lake, very peaceful, shaded and dreamy, like some Keatsian hideaway. We clamber up through the trees and come out on a narrow stream with statuary on the far side, and a Victorian gazebo set back enshrined in willows, and overlooking an overgrown and stagnant artificial lake.

For no reason at all I decide we should cross the stream.

“But we’ll have to go right down there before we can cross over.” Ann points to a grassed bridge about a quarter of a mile away. “And then we’ll have to come all the way back on the other side. Is it worth it?”

“Yes, but we wont do that at all, we’ll go across here by stepping stones.”

“But there aren’t any.”

“So? We’ll build our own as we go, and destroy the passage after we’ve gone across. Okay?” I feel quite excited about the prospect. I haven’t done any stream-damming or anything like that since I was at primary school.

I walk down to the water’s edge and start collecting together suitably flat large stones. Up in the shade of the shrubs Ann is bent over her hoiked-up skirt undoing her suspenders. She quickly rolls down her stockings and slips them off her feet and comes dancing down to the water.

And so, as the sun works its way across the sky to the west, and as the birds fly into the edge of the woods to catch insects, we slowly work our way across the stream, damming small areas and diverting a fast-flowing eddy, building up solid footholds above the water level, and then undamming where we have crossed, and letting the current through again so we can damn somewhere else.

It is a charmingly silly enterprise which takes about an hour to complete; far longer than it would have taken to stroll to the bridge and cross over; but we are forging our own bridge, and it is a perfect way to spend the middle of the day.

We wander among the statues covered now in mould, and the square ponds covered now in pondweed, and at last come to the head of the valley where it peters out into level fields. We walk back across the fields to Ripon.

Silly really. Nothing happened. But it was just one those magical, perfect days.

Mendip Breweries

The Mendips have always had breweries of one sort or another. The reason for this is the fact that the water is good. Towards the end of the last century more and more small breweries started up, and the tradition is still strong.

One only has to look at the centre of Frome to realise that brewing and drinking is central to the town’s way of life. If you stand in the Market Place at the bottom of the hill you can lob a brick at half a dozen pubs. There are even two next door to each other. There are dozens further out, and dozens more in the surrounding villages. There are even pubs stuck out in the sticks alongside some lonely road.

My local used to be The White Hart at Truck (Truck is short for Truddox Hill.) The pub never ran out of beer simply because thirty yards away at the back was the White Hart brewery. They used to put out some excellent ale. Not only was their best bitter extremely good, but they used to make specialist ales, and started giving them silly names like Toxic Waste. Unfortunately, after a family split, the organisation of the pub went downhill, and after a sudden expansion of the brewery, with the premises moving to Chippenham, that too collapsed.

However, not far away in Frome itself, a couple of guys moved into one of the pubs bang slap in the middle of the old industrial housing estate, and started brewing their own ale. That was pretty good as well, and I remember an interesting afternoon spent being shown round the brewery, and sampling the goods.

Further up into the Mendips is the Butcombe Brewery. Not far away in Devizes is Wadworths. And there is a whole clutch of micro-breweries all over Dorset and Somerset. There’s Abbey Ales in Bath, Blindman’s Brewery at Leighton, Glastonbury Ales (guess where), Hidden Brewery at Warminster, Milk Street at Frome, Moles at Melksham. There’s Newmans, and Badgers from Blandford in Dorset. They brew some unusual tasting brands. The company has been going since 1777, but as a cottage industry for even longer than that.

Of course, beer is not the only alcoholic drink that thrives in this area. Most of the commercial cider comes from Herefordshire. Unfortunately, most people drink artificial watery junk full of fizz that comes in plastic bottles and is only useful for putting out a fire.

Something called cider is also produced in both Kent and Devon, but I’m a Somerset man, and I cant abide the other stuff. Kent and Devon cider is just too sweet. It doesn’t quell a thirst, and is designed for kids and those who cant take the real stuff. (Okay, I guess I’ve now insulted half of southern England: too bad.)

Scrumpy comes from Somerset, and it’s the only properly thirst quenching drink on the planet. (Actually, you could make out a good case for guava juice, but….)

Scrumpy is also a dangerous drink. Being rather raw it does things to your inside, and I remember back in 1990, when we actually had a hot summer, I was doing a lot of manual hard work, and drinking gallons of the stuff. I got a bit alarmed when my urine turned bright pink, and I have ever since had to restrict myself to half a pint in any one day.

However, I notice that The Red Lion in Lacock is having a cider festival from 27 to 30 august. There will be over 15 different ciders to sample and enjoy, hog roasts, and The Mangled Wurzels play live on the Saturday! I shall be there.

One could of course just drink the freshly pressed apple juice. That’s pretty good as well. How about Wattles Cider Apple Juice from Easton Hill. Crafted in small batches using fresh, hand-picked, unsprayed fruit. The apples are simply washed, milled and pressed. The resulting juice is then bottled as a medium-dry Kingston cider-apple juice.

Now, if you’ll excuse me I shall be opening another bottle.

Wool Towns

One of the properties I have listed on the Unique Property site has a special interest for me. It is the Old Globe Inn and former brewery building and coach house in Naish St, Frome, once the centre of one of the largest early industrial housing estates in England.

This is an important part of England’s industrial and commercial history. It was also scheduled for demolition before John Clare and friends got together back in the seventies and moved in on the area to prevent any demolition from taking place. I used to live in what was then 25 Naish Street, although since the area has been renovated all the house numbering has changed drastically.

The West Country used to be famous for its wool. The Mendips in particular were used as grazing for sheep, and wool became a great wealth creator in the middle ages. Sheep were everywhere, and a whole cottage industry grew up around sheep wool and clothing. By 1700 Frome was a large industrial centre with a population four times larger than that of Bath.

As the towns reputation for good cloth grew, fleeces from further afield, such as Salisbury Plain and the Cotswold Hills, started to come to the area for combing, spinning and weaving.

Because of the nature of the countryside with its short steep hills, and the fact that this area is generally wetter than the eastern side of the country, there was a ready-made supply of water power to drive the mills that pounded the wool to thicken it. Basically the fleece was threaded and woven into strands which were washed and pounded by wooden hammers. This was called fulling. There were no less than five fulling mills in Frome.

The peak of the local woollen industry was from the 1500s to the 1700s. In 1713 Frome had 54 tradesmen busy in the cloth trade, compared with 25 at Bradford in Yorkshire, which later became the centre of the wool industry. In addition to those in Frome, the surrounding villages provided work for another 33 businesses based in woollen trade. In 1745, the trade with London amounted to 1000 lengths of cloth dispatched to the metropolis at the rate of one wagon per day.

With all this work, a large industrial housing estate grew up on the western side of the town. This estate straddled the Radstock road, and spilled down the hill to the river Frome, and spread right across to the town centre.

The buildings were charming old stone constructions with red clay tiled roofs. The whole estate was still largely intact at the beginning of the sixties, and represented the largest such collection of uninterrupted sixteenth and seventeenth century housing in the country. Unfortunately the barbarians in the local planning department decided to bulldoze the whole area. They decided to do this in two stages. The first area, lower down the hill, was cleared, and some grotty council housing was put up in its place. When it came to the turn of the rest of the estate a small group of us banded together and moved in as we were determined to stop this wholesale vandalism.

The first to move in was a guy who’s name I’ve now forgotten, but he moved into one of the houses in Naish Street. He was followed by Jason Caine, who moved into number 16, and I moved into number 25 on the other side of the road. Half a dozen others followed, and we started a campaign to preserve what we considered to be a gem of this country’s heritage.

Another part of this heritage was of course the brewing of beer. There were several pubs in this area, and, as far as I can tell, at least two breweries. But let’s have a look at that in the next episode.

The English Are Crazy

I have to be careful how I write. The previous episode was called The English are Nuts, and someone wrote back advertising nuts to eat. I wonder what someone will get wrong about the word ‘crazy’. Oh well, forward into the breach.

The Leigh on Mendip Country Fayre was a bundle of fun. Once again they laid on a great deal, with the usual pig roast, and some silly events. This year we had a Viking invasion. I think I mentioned in a previous article about the human fruit machine; here’s a pic:

A bit further west, but still on the Mendips is the village of Priddy.

Priddy goes way back. There are the Priddy Circles, which appear to be contemporary with Stonehenge. That’s back in the New Stone Age, sort of 2000 b.c. or earlier. There are also round barrows, or ancient burial mounds.

Later, the Romans came to work the lead mines. More recently there is the Priddy Folk Festival.

Okay, there was music, there was cider, and all the usual fun of the fair, but that’s not what I want to write about. The highlight of the festival had to be the really silly race on Priddy Green. I mean, for heaven’s sake! It was a steeplechase for sheep ridden by teddy bears! The sheep were provided by the local farmer, and there were six races.

Now, come on folks, when did you last see sheep steeplechasing over fences ridden by teddy bear jockeys? Who thinks up these things? Here’s the evidence:

Now, how am I going to categorize this blog? Who on earth is going to search on keywords like “sheep races” and “teddy bear jockeys”? Oh well, let’s try “Mad Englishmen”.

Oh yes, and if you fancy turning up next year, mark these dates in your diary: 8-10 July 2011.

john

Portugal and the Ministry of Invention

There’s something about Portugal. I dont quite know what the problem is. Maybe they have a naturally surrealistic turn of mind. Maybe the system of thought police is well organised, or maybe they are a nation living in some kind of fairy tale.

They deal with this quite simply by having a Ministry of Invention. Perhaps other countries have such a government department, I dont know. Portugal’s Ministry of Invention is quite busy.

A couple of years ago the tourist industry fell through the floor and we had the lowest number of tourists for a decade. The Ministry of Invention was soon on the job, and put out a news flash that it had been the fourth best year of all time.

When the news came through that there was to be a ban on smoking in bars there was uproar. No-one will take any notice, said most of my friends. But the Ministry of Invention was right there taking notice alright. It wont affect Portugal they said because only 18% of the population smoke, and the young people dont smoke at all.

Of course, what they meant was that about 18% of the population dont smoke, and they are the pensioners who cant afford to.

The weather has been unusual this year. We had a massive amount of rain from mid december. It just went on raining and raining. My swimming pool (which started the period empty) filled by 42 inches in four months. That’s nearly three year’s normal rainfall.

Not only that, but summer just refused to come on time. Month after month people were going round with coats on, asking when the summer was going to start. We’d have a few days of warm sunshine, then the clouds would be back, and we’d all be wearing pullovers again, and taking the umbrella with us.

I left in mid june, and still the weather was dodgy. We’d get occasional fine days, but generally speaking it was chilly. I certainly didn’t hear of anyone having to switch on the air conditioning.

However, now we have the official report from the IM (I assume that is shorthand for the Ministry of Invention). May and June in Portugal were the hottest on record!

Everyone I spoke to, not only in the Algarve, but in Northern Portugal as well, claims May was the coldest anyone could remember. So I suppose it comes as no surprise that the powers that be decided this could be bad news for the tourist industry and got onto the Ministry of Invention, and asked them to do something about it.

Portugal doesn’t like to be left behind. Global warming is still the in thing. Never mind that the harvest in Iowa was stopped by heavy snowfalls. Never mind that we discovered that the temperature reports had been “adjusted”, and that the whole thing was a massive fraud. Portugal was still staying with the old story.

Apparently someone did a spot of research to show that temperatures in Portugal had gone down over the last century. We couldn’t have that. If temperatures were rising around the world Portugal was not to be left out. I dont know who alerted those clever folk in the Ministry of Invention, but they were on the job in a flash.

The figures showed, so we are told, that during the last 110 years no less than 304 months showed above average temperatures. Conclusion: Portugal is getting hotter. Reports were rushed out to the press. There were computer projections showing that if this went on, within 25 years the Algarve would be like the Sahara Desert.

When I went to school 304 months equaled about 25 years. The last time I looked 25 subtracted from 110 left pretty close to 85. So, if 304 months showed above average temperatures, that means that 85 years out of those 110 had temperatures that were normal or lower than normal. So that is apparently why the Ministry of Invention could boldly state that Portugal has been getting hotter.

It’s been a busy time at the Ministry of Invention. They must have employed some pretty clever mathematicians to find their average. 25 years above an average, and 85 years at the average or below it. Sounds suspicious to me. But then what’s a Ministry of Invention for if they cant invent a new mathematical paradigm?

And do have a look at my Algarve letters at the Unique Property Site.