What’s the Difference Between a Flat and an Apartment in Southampton?

·       "An apartment is over £100 grand and a flat under £100k", said my friend.

·         Joking aside, there is no difference, call it what you will, the humble apartment/flat has served Southampton well over the years.

·         The average sale price of an apartment in Southampton in 2021 was £198,838, making it an excellent first-time buyer purchase and buy-to-let investment.

·         In this article, I want to look at the apartment/flat in Southampton and how it could solve the county’s housing crisis.

The word ‘Apartment’ derives from the French word ‘Appartement', which comes from the Italian form of the word, ‘Appartamento’. The core of that Italian word ‘appartare’ means ‘to separate’, as in ‘separate a building’.

The word comes from Roman times when housing costs were so expensive within the city walls of Rome. Savvy property owners split (or separated) their houses into what we know as apartments or flats today.

The word flat is derived from the Old Scottish/Old English word 'flet'. The flet is the interior of the home. Some also think the phrase stuck as most flats are on one floor, and so by definition, the accommodation is on the flat (i.e., no stairs inside).

The country has an enduring housing shortage. Not enough homes are being built, and even though the Government is aspiring to build 300,000 new homes annually to match demand and keep costs of housing affordable, less than 250,000 were built in 2019, the best rate in the last decade.

And that is why some say the simple solution to Britain’s housing problem is building more apartments/flats.

The British population has been growing by more than half a million every year for the last twenty years. Yet just over 175,000 homes have been built annually.

One solution is building more apartments – and on the face of it, the facts stack up as they are cheaper to heat, the views are often unique and they use less land.

To look at what we do as a country with our apartments, it's important to look at Europe to see how they live so that we can compare the percentages of flats/apartments lived in -

·         Spain 66.1%

·         Switzerland 63.1%

·         Greece 59.2%

·         Germany 56.3%

·         Italy 53.1%

·         EU average 46.2%

·         Sweden 46.7%

·         France 34.0%

·         The United Kingdom 14.8%

Quite a stark difference, isn't it!

Now let’s look at Southampton itself.

Of the 108,545 households in Southampton, 38.3% of them (41,577) are apartments / flats.

Even though only 1.2% of the country has residential property built on it (and an additional 3.5% are gardens), building houses is low-density land use. Is it sustainable in the long term to continue to build that way in Britain, a country with a similar population to France yet having less than half its landmass?

If we continue to build just over 5 in 6 new households as houses, surely sooner or later, the precious green belt around our towns and cities will have to go. And I know many of you will say use brownfield sites. Of course, there are brownfield sites, and …

in the whole of the Southampton area, there are 37 brownfield sites, totalling only 177.1 acres, which would provide 3,779 houses.

The country needs a decent supply of homes for its growing and ageing population. Many of you will frown when it has been suggested, even if it's for environmental reasons alone, most of these should be apartments/flats.

Don’t get me wrong, the love/hate relationship with the apartment/flat and the British is well-founded. Many apartments/flats in Britain are not suitable for happy family living. The high-rise ghetto council blocks built in the 1960s didn’t help with their poor communal areas, lack of maintenance and lifts that didn’t work.

Why do so many more Europeans live in apartments?

In mainland Europe, the apartments are larger. For example, in Germany, they are 974 sq ft; in Denmark, they are 1,452 sq. ft; in the UK, they are only 793 sq ft. Also, European apartment/flat owners have more storage areas, higher ceilings and better communal areas.

It is a vicious cycle. Poorly made small apartments make families side-step them, which makes new home builders construct apartments unsuitable for families, which means the situation worsens. This results in the British property market trying to expand our towns and cities outwards into the countryside with houses, rather than upwards into the sky.

I am not suggesting 20-storey high-rise tower blocks for one second. Looking deeper into the information from Europe, most people live in low-rise three and four-storey purpose-built apartment blocks.

To begin with, these new apartments/flats need to be justly desirable for families and be seen as such by the local population. The building materials used, communal spaces, the building’s functionality, and design specifications must not only meet but exceed current building specs on houses, or planning permission should withhold.

Maybe the Government could incentivise builders to build apartments/flats instead of houses to improve the supply of quality apartments/flats with tax breaks?  

Things will take decades to change, yet I thought it was appropriate to discuss the matter in such an environment as this.

These are my thoughts, what are yours?

Southampton’s ‘Generation Stuck’ and Their £9,198m Tied-up Equity

 

The predicament of the Southampton 20 to 30 year olds who rent and their inability to get onto the housing ladder is often discussed in the press.

There are 4.43m properties in the UK that are still in the private rented sector (compared to 2.13m in 2002).

This group of people in their 20s and 30’s, who rent from a private landlord, are often called ‘Generation Rent’.

Yet would it surprise you that since 2017, the number of UK households in the private rented sector has reduced by 260,000 whilst the number of homeowners has increased by 1.1m?

In this article I want to talk about another set of people, not ‘Generation Rent’, but ‘Generation Stuck’.

 

Generation Stuck are our middle-aged and mature homeowners of Southampton. They are the generation that could be described as late ‘Baby Boomers’ (born in late 1950s and early 1960s) and the early ‘Gen X’ (born in the mid 1960s to early 1970s).

These 50 to 64 year old people feel stuck in their Southampton homes, and therefore I have nicknamed them ‘Generation Stuck’. Their inability to move could be holding back those younger Southampton ‘Generation Renters’.

So, let me look at the numbers involved.

 

In Southampton, there are 13,833 households, whose owners are aged between 50 and 64 years old and about to pay their mortgage off on property that is worth £4,708.16m.

There are an additional 13,194 mortgage free Southampton households, owned by 50 to 64 year olds, worth £4,490.67m, meaning ...

 

Southampton ‘Baby Boomers’ and Southampton ‘Gen X ‘are sitting on £9,198.8m worth of Southampton property.

According to the Census, 47.8% of homes occupied by 50 to 64 year olds have two or more spare bedrooms.

This is backed up by the annual English Housing Survey that states nationally, 49% of properties occupied by these ‘Generation Stuck’ are ‘under-occupied’.

Under-occupied is categorised as having at least two spare bedrooms.

Looking at the statistics closer to home

 

36.3% of Southampton 50 to 64 year olds have two or more spare bedrooms, making it the 315^th highest local authority in the country (out of 348 local authorities).

The rising number of older Southampton homeowners who want to downsize their Southampton home are often held back by the lack of suitable housing options for older people and the difficulties of moving.

Lots of over 50 year old Southampton people cannot move home in the way that they would like, due to a lack of suitable housing options and so can find themselves ‘stuck’ in homes which are no longer suitable for them as they age.

 

Only 1 in 29 people over the age of 50 move home each year, compared to 1 in 15 for the rest of the population.

Helping mature Southampton homeowners (Generation Stuck) to downsize their homes at the right time will also allow younger Southampton people (Generation Rent) to find the Southampton family homes they need – meaning every generation wins, both young and old.

However, to ensure downsizing works, we need more choices for these “last-time-buyers”.

 

That means building more bungalows or more ground floor apartments suitable for the middle to older generation.

One way this could be done is by changing the planning rules to force builders to build these types of properties, whilst the other could be the changing of the stamp duty tax breaks for downsizers.

In this way, older Southampton people will be more able to move into homes which suit their specific needs, improve their quality of life whilst meeting their goals in life, all without them becoming detached from their friends and family locally in the Southampton area.

These are my thoughts, please let me know yours.

 

Will The Cost-of-Living Crisis Mark the End of the Booming Southampton Property Market?

 

Southampton property prices have increased by 19.1% over the last two years.

Southampton house prices have risen on the back of several things, including changes in how people see their homes and how they live and work (i.e. working from home), a lack of properties on the market and government tax incentives (the stamp duty holiday in 2020).

Yet, the tide could be beginning to turn as the number of houses coming on the market is increasing as supply is starting to catch up with demand - in Q1 2022, 389,811 properties came onto the market in the UK compared to 425,295 in Q2 2022. One would typically expect Q1 to be larger than Q2 in average years.

Yet some commentators are saying one thing that could stifle this growth is the cost-of-living crisis.

I wanted to delve deeper into what was happening in Southampton instead of reading headlines in the newspapers. Let me start with average incomes.

 

The average Southampton household income is £602.20 per week, compared to £660.10 in the South East region and £613.10 nationally.

 

Roll the clock back twenty years to 2002, and the average Southampton household income was £387.60.

I wanted to go into greater detail a few weeks ago; I stated that mortgage costs for first-time buyers were much lower today (as a percentage of household income) than in 1989 and 2007. Many of you commented on social media or sent me messages asking what happened to other household bills.

In 1989, 16% of people’s household income went on housing (rent or mortgage) compared to 17.5% in 2021.

Food represented 19% of people’s spending in 1989, compared to 14.4% in 2021. 

 

Also, gas and electricity were 6% of household income in 1989 compared to 4.81% in 2021.

(although that was before we saw the recent energy price hikes).

Interestingly, the UK household spent 15% of their monthly income on leisure activities in 2021, compared to 10% in 1989.

Household goods and services (i.e. household appliances, insurance etc.) have risen from 11% in 1989 to 14.9% in 2021.

Before I leave these stats, I had a peek at the 1957 stats (the earliest stats available), and in that year, food represented 33% of the household income and tobacco 6% (today, it's 2.34%).

So, compared to 1989, the big-ticket items of housing, food and fuel combined have gone down from 41% to 36.7% of the household income, whilst leisure has increased from 10% to 15%.

The fuel element of household bills will rise to around 11% to 12% of household income, and I suspect the leisure budget will be hit the hardest to pay for that. We are seeing food inflation of around 10% to 15%, meaning that food will go from its current 14.4% of household income to around 16% to 17%.

It's going to be tough, especially for those people in rented accommodation who may not earn near the average wage yet, as they have similar fixed costs for gas, electricity and food.

Next, let me look at the inflationary effects on housing costs.

A rise in the base rate will, in theory, slow inflation by reducing consumer demand. In the short-term, this increase in the base rate will increase mortgage rates, thus adding fuel to the fire of the cost-of-living crisis by growing mortgage costs.

Those Southampton homeowners on tracker or variable rate mortgages will instantly increase their mortgage payments.

Encouragingly though, just under 17 out of 20 people are on fixed-rate mortgages, the majority on 5-year fixed rate deals, so their housing costs won’t go up significantly in the short-term.

This will alleviate some of the interest rate effects, making it more challenging and expensive for new borrowers like first-time buyers.

However, as I have explained in previous articles on the Southampton property market, many Southampton landlords have been sitting on their hands in the last couple of years as owner-occupiers have outbid each other in buying their next 'forever home'. If there aren’t going to be so many Southampton first-time buyers, then I suspect we might see more Southampton landlords coming out of the woodwork and buying again.

This is especially true as investing in buy-to-let in inflationary times is an excellent hedge to protecting the buying power of your hard-earned savings (drop me a message if you want to read that article).

In conclusion, although the amalgamation of the Southampton house price rises in the last two years, the increasing interest rate rises, and the continuing cost-of-living crisis, there is no doubt the momentum in the Southampton housing market will be slower in the next 12 months compared to the last 24 months. Nevertheless, I anticipate Southampton house price growth will ease (and, in some months, be slightly negative). A better bellwether of the state of the Southampton property market is the number of people moving house (i.e. the transaction levels).

I expect transaction levels to be lower in the latter part of this year and the first half of 2023, yet they are most likely to stay close to the long-term average. The boom is over, yet it shouldn’t be a bust situation.

What are your thoughts on this? Let me know.