Sunday Supplement 28 Sep 25 - 3 years post-lettuce

“I don’t believe in guardrails” - Mary Elizabeth Truss, the “Lady Jane Grey” of Prime Ministers This week’s quote goes straight to the deep dive and tells you just how seriously the former PM learned any lessons from her fleeting tenure. Before we go into this week full hammer - Rod Turner and I will be running our next Property Business workshop on Wednesday 1st October, in London - subject matter this time is Investment, with an emphasis on what metrics you really need to be considering to run your property business properly, and building your business to scale. We’re digging into the real fundamentals of property investment for growth—from proper valuation and strategic debt structuring to the investment metrics serious pros use (hint: ditch ROI and yield). Learn why some deals work for some and not others, how to manage risk as your portfolio scales, and when to shift gear from side hustle to scalable business. We’ll break bottlenecks, build strategic pillars, and unpack real-life case studies of fast company growth. How have we done so many deals? We’ll tell you! This is your LAST CHANCE to book tickets, now: http://bit.ly/pbweight Trumpwatch - will this section ever be empty, it seems not……. 2025 when reviewed (won’t be long until those start) - will be remembered as the “year of the tariff”, I’m sure. New tariffs - 100% on imported drugs (still be about 500% cheaper than the US branded stuff I’m sure, as long as you accept “Trump math” as they call it on the other side of the pond). 25% on “heavy trucks”, 50% on some furniture and fixtures. Getting towards the end of the barrel, though, you’d think - although as already identified, depending on the legal action around the tariffs, we could be in for a complete round 2 in 2026. Results included US onshore biopharma stock surging, of course. US stocks up, Asian stocks down, another great Trump victory? The counter - the continued erosion of the US “safe haven” status. That’s an interesting argument that we need to pause on for a moment. We tend to think about investment in very short cycles - the amount of news pumped out around stock prices, crypto, gold, etc. etc. - but there are also long cycles. Cycles of dominance - like the global reserve currency period for the US which is not yet 100 years old, but more often called into question these days than it has ever been. Trump would most certainly not solely be responsible for ending it, if indeed it did end. There’s most definitely a “watching brief” being adopted on the US by a percentage of participants - John Authers who writes some excellent stuff for Bloomberg - there’s a free newsletter if you are interested - called points of return - said in the past fortnight or so that “US stocks are overvalued, and people are buying more” - tongue in cheek deliberately. What do we really know - because the longer-term effects are speculation-driven? Investors don’t like uncertainty, and another year of tariffs would mean another year of relative uncertainty, and may see an even weaker dollar. Once again the name Stephen Miran, Trump’s favoured stopgap appointee on the Federal Reserve board, comes up in this segment too. He talked about a fed funds rate down at 2.5% - somewhere between DT’s 1%-1.25% that he’s thrown out there several times, and the Fed’s current 4-4.25% funds rate. This position is drastically different to his colleagues on the board, needless to say. He also - in a quote that I suspect will be revisited again next year - said that it was “interesting” when the Fed didn’t have a formal inflation target, and whilst he thinks inflation should be down to 2% for a “sustained period of time” before this is revisited, he suggested that “low and stable prices” - rather than a number per se - would be fine. What’s lost in nuance in these reported situations, often, is the context - the Fed target range is 1%-3% being deemed “acceptable” on the path to 2%, which isn’t really the same as a 2% target - to drop the 3% ceiling would surely impact the attitude of bond investors, you would think, who already want a handsome return on their money for lending to an overburdened, overspending, United States. He also “confirmed” that Trump had not pushed him to follow any specific policy, confirmed he was operating “independently” and says that he does all his own analysis on how economics and the economy works. My quote marks - not going to apologise for being sceptical there. He’s a believer that fewer migrants means lower inflation - preferring the side of the argument that says that frees up housing and lowers rental costs, to the other side that says goods and services will be more expensive because the labour to produce them will be more expensive. Time will tell, and it is very difficult to do that analysis at a granular level, but it is a political position rather than a sound economic argument, ultimately. Miran has a temporary term at the moment, and has about a 15% chance according to Polymarket - the bible these days for political-related betting - of being the next Fed Governor - so by no means a shoo-in. There are 3 names ahead of him in the betting. You’d think he’d be taking a longer-term role at some point though - he’s most definitely a popular choice at the White House, regardless of the party line, but perhaps he is just the first trailblazer rather than the answer to what Trump and Bessent see as the problems. A former Trump economic advisor noted that the US job market appears to be weakening - which is difficult to disagree with, although Gary Cohn did row back and say “it might be temporary”. The US core PCE index, their preferred inflation measure, came in “on expectations” at 2.7%, with core at 2.9%. Doesn’t feel like we are too near the “sustained period at target” that Miran referred to. Consumer expenditure was up 0.6% in August, so that suggested resilience amongst the US consumer. The regular “debt ceiling” meeting is coming up, and the prep in Washington includes mass firings of federal employees in agencies whose functions don’t have clear statutory backing. DOGE-style, basically. There’s also been a freeze on $5bn of foreign aid which has been to the Supreme court, and has been upheld, as the executive authority/executive order powers continue to be challenged. The heavy hand this week wanted to swat away Lisa Monaco at Microsoft who had coordinated investigations into Trump’s 2020 election challenges. File under “overreach” or perhaps just “Holding a grudge”. The Justice department has also been through a “reshuffle” - getting rid of critics. The argument I think here - rather than the “conventional” left-wing of the press argument that this is complete despotism - is that Trump is just much more “open” about the sorts of things that go on on all sides, and doesn’t care about the optics. In his world - everyone in power does these sorts of things - and sure, I believe he definitely goes further than some but not as far as the Putins, Orbans etc. of the world. Is it too far? We can only watch and speculate. The former director of the FBI, James Comey, from Trump’s first term, was back in the news this week - a week of vengeance and vendettas, to an extent. The message is clear - get in the way this time around, and in future you’ll be in court/life ruined/etc. Etc. It’s a brutal game. Watch out for the markets this week coming as the shutdown approaches. OK - back to the comparative safety of the real time UK property market. Chris Watkin delivers as always - Week 37 in the book. Listings printed 35.9k, in what’s always a lumpy week. My “10% more stock than a normal market” ready reckoner is still working on the back of circa 2 years of overperformance in listings compared to historical averages. There have been 1.34m homes listed this year so far! We are 10.6% ahead of the 9 year average, but that does include 2020 which pollutes the figures somewhat. We are really inching back towards the 2024 numbers now, week by week, having been 6-7% above them at various points in the year - but we are still listing more than we are selling (as always), so it is all eyes on the withdrawal rate as a general rule. We are only 2.8% ahead of the 2024 listings YTD now, but are still 10%+ ahead of the 2017-19 average. Price reductions in week 37 - 26.2k. August’s completed number was only 11.1% for reductions - much lower than the 14.1% reduced in July, 14% reduced in June, compared to last year’s 12.1%, May’s 13.4%, and the 5-year average of 10.7%. 2025’s average is 13.1%. More stock, more reductions - absolutely and relatively. 22% more reductions than the 5 year average, if you take the difference between 13.1% and 10.7%. “25% more reduced properties than a normal market” also works as a ready reckoner, or is likely to even be an underestimate just because of the amount of stock out there. We’ve still had around 90k+ price reductions in the last month. Can’t find a deal? Just keep the legwork up and you’ll get there. You don’t tend to see 13%+ of stock being reduced in strong markets, by any stretch. Holidays slowed things a little but sideways pricing is continuing. As usual we won’t read too much into August’s activity. 25.3k homes sold subject to contract, healthy enough. The 2025 average is 26.2k. SSTCs are up 5.9% year on year and 13.5% on 2017-19, and still nearly keeping pace with 2022 (as we near the “day of the lettuce” in historical context, because these figures run a week behind, remember). With SSTCs up 5.9%, whereas listings now are only up 2.8% on last year, this signifies more “intention to transact” than 12 months ago, to this point in the year, for sure - or, put a different way, comparatively this looks like a more functional year than 2024 was (even though stock numbers have continued to rise throughout the year due to relentless listing). We went into September with 736,333 homes on the market - a reduction of over 25k on 1st August’s number. I have been waiting for this month, but am loath to draw conclusions given that it was after August. However - if we look back at the past years, September 1st’s number is not usually a drop - and certainly not a large one. It does look like we might well be past peak listings, but it will take 2-3 months to really establish a trend (and will there be a consistent one?). We need more sales agreed for that to happen, and in a week like this with only 25.3k gross sales but 35.9k gross listings, you wouldn’t expect that number to go down just yet. It’s all about the clear-out. For context, as the market got stickier before the pandemic that number was c. 660k, a sellers’ market is more likely to be under 600k. At the end of August 2024, 710k were on the market. September’s figure will be interesting as we don’t watch the number of properties withdrawn from the market week-on-week. Chris also looks at the per square foot on sold STC properties - it has a very strong correlation with prices that hit the land reg in 5 months’ time. This time round - August was at £338.78/sqft and that was 1.41% higher than August 2024 and 14.25% higher than August 2020 - but down 2.2% on June’s SSTC number of £346.45 and down 1.75% on July’s number of £344.78. This is a pretty dramatic drop and may well revise our number for this year, when the figures hit the land reg, down into the 1.5%-2% region for 2025 (it isn’t quite an exact science, although these figures are the most helpful of all of them out there). I think this can be put down to August plus stamp noise, potentially, but if you saw Halifax or Nationwide revise by that sort of number, all hell would break loose (bearing in mind what happens when they talk about prices going down 0.1%!). The increase of only 14.25% since August 2020 with the backdrop of what wages and prices have done since then signifies a big real-terms haircut in property prices over that 5-year period. Never judge by one month, especially when it is August! Fall throughs stayed slightly above the long-term average of 24.2%, printing 25% - there’s still been very little volatility around the long-term average for many weeks now, and that one is a bit noisier than most, but perhaps because of bank holiday “catchup”. The net sales are still there or thereabouts - 19k, 5.1% up on last year and 10% higher than 2017-19 - not quite at 2022 levels (about 11k behind, now, total, edging closer week-on-week, with there soon to be a big catch-up) but let’s see where we get to by the end of the year - I think it will be a close run thing on transaction volume compared to 2022 in a much less volatile year, and in fact I’m confident 2025’s volume will beat 2022’s in spite of 2022 starting as a white-hot market. Chris offered up yet one more interesting graph this week - he pitches it as average rental prices versus number of available properties. I’m less interested in the former - best adjusted for inflation, or wages, in my view - but much more interested in the latter. The numbers that keep things “straight” - pre-pandemic, there were around 350k rental properties brought to market in an “average” month. About 6.3% of all UK PRS stock, if you work on 5.5m being the size of the sector. In August 2025 that number was 299k - very similar to 2024’s number, and much better than 2023’s August number of 243k. So - at a base level - you’d suggest that a “normal” market looked like 350k, the new normal looks like 300k so down about a seventh or 14%, and constricted (with rocketing rents) looks like 250k or thereabouts, and indeed that’s what the graph shows. 350k was a very steady number for 3+ years before the pandemic. Anyone saying the PRS hasn’t shrunk in the past few years is not looking at these figures objectively in my view, but we will wait for the long-outdated (by time of release) English Housing Survey to “confirm” this politically - and there will still be many on the left who see the shrinking PRS as a good thing, without giving too much thought to the tenant during this transitionary period to corporate ownership of property, which is likely to be decades-long. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Over to the macro side of things - Macromuddle is the word of the week because so many metrics keep pointing in different directions - which leads to “sideways”. First up is the PMI flash numbers - and “flash” is the word as the past couple of very positive months look exactly like a flash in the pan, unfortunately. The rest of this week’s macro was all bond and rate focused, typical in a week after a Bank of England meeting, so I get the chance to go back and look at Rightmove and Zoopla asking prices and rents, and also an ONS report on housing purchase affordability, which is a report only published once per year. Bringing up the rear? Gilts and swaps, yes of course.

PMI flash report, then. “Private sector output expands at slowest pace since May” - so, we had a “flash quarter”. That’s a shame, but we never judge anything by one month, of course - so let’s stay positive. And - the composite index is still above 50 (flash print: 51). Manufacturing printed 46.2, a 5-month low, as woes continue. Services - 51.9 is only a 2-month low, and as always, that’s the driver. We don’t get construction in the flash numbers. The trend recently has been for the final prints to exceed the flash numbers - let’s hope for that once again for September. What’s the makeup of the numbers? Weakening growth, slumping overseas trade, worsening business confidence and more steep job losses. Ouch. Very negative sounding for a positive report, but of course we are looking at a drop from a composite print of 53.5 last month, so it will do. The good news for the month? Doesn’t take long - price pressures moderated - one of the smallest increases in prices charged for goods and services since the pandemic. Phew. The call from the Chief Business Economist at S&P is back to cutting rates, due to a faltering economy and 50,000 job losses in 3 months. It’s a solid argument - that conveniently leaves out the backdrop of the expected 4% CPI print for September, of course. You know what will bring up the rear on such a bearish report, as well. Saved for the last paragraph - budget worries mean worsening business expectations (which isn’t too realistic I don’t think - ALL the chatter is burden on personal tax, not business tax) - and the conclusion overall which is brought upon by last year’s action, of course (I am not blaming businesses for being bearish, and “not getting hammered again” isn’t much of a positive outlook either), is that nothing much good will happen in the coming months. Last year’s September is this year’s October, as well, of course, if you just think about the timing of the budget (last year October 29th, this year November 26th). We knew it was coming - let’s just focus on the 51.9 print for services, 51 for composite, and hope for a better final print than the flash print, and move on. Rightmove asking price index for September? Up 0.4% on the month (but then September always sees an uptick just as August always sees a downtick). The unusual bit - that was the first rise since May. Asking prices are still down 0.1% on last year, as the amount of stock continues to weigh on pricing. Sales agreed according to rightmove are up 4% year-on-year, so that’s positive. The next bit won’t necessarily surprise, and will put context into play for those who I speak to in the cheaper areas of the country. The strapline - annual price fall driven by south, which could be hit harder by rumoured property taxes. I wonder if the Treasury listens, or cares, about the damage that the leaked speculation does during the summer. I doubt it. There’s an interesting breakdown of the glut of stock - there are 9% more homes for sale in the south than one year ago, compared to 2% elsewhere, and they take 5 days longer on average to go SSTC. The 4% increase in sales is split 3% in the south, 5% in the rest of GB. Rightmove admit that they see nothing in the data with respect to property taxes, but are speculating on what will happen until end November in their headline. They are bullish for buyers about improved affordability, sensible pricing, and a high choice of property - all of which makes sense. The breakdown always interests me at rightmove - when they break back to categories, first-time buyer asking prices are down 0.2% YOY, second-steppers are up 0.6%, and top of the ladder are also down 0.2% YOY. A fair difference, when you add it up. The middle of the market seems to be doing OK, which is very similar to reports I hear on the ground from agents and those in the know. The average September bump in the RM asking price index is 0.6%, so the 0.4% was a little below that. More symptoms of the sideways market. The South West has asking prices down 1.3% YOY compared to the North West where they are up 3.2%, to give you an idea of the regional variability. Rightmove - as they do on a monthly basis - highlights the drop in the 2-year mortgage rate which is down about 0.5% since the first rate cut in August 2024. They don’t have the context that 75%+ of mortgages were written as 5-year while the inverted yield curve was with us - however, there will be more popularity for the 2-year again as memories of the lettuce fade. I wouldn’t be doing too much 2-year fixing before the NEXT election, personally, but there’s a lot of time to talk about that just yet. The rightmove graphs show that effectively, there’s been no change in average asking prices today compared to the top of the market in the first three-quarters of 2022. 3 years of sideways, on their data, which pretty much plays out with the prices actually achieved (nationwide, there are parts of the north and midlands that have still seen 10%+ price rises in the past 3 years, and also in Scotland and Wales too - and Northern Ireland is well ahead of that). Scottish properties are taking 33 days to find a buyer compared to double that, south of the border - just to note. That sounds and feels like quite a hot market to me. The hotter regions south of the border are taking 60ish days, the colder ones 70ish. In London, Westminster still has the dubious honour of the largest asking price drops year-on-year, down 8.8%. Islington asking prices top the table, up 2.6% YOY. How about the UK rental market index? Hometrack/Zoopla have 2.4% in as the new let inflation figure, with rental supply up 19% and rental demand down 24%. A dramatic shift in the market. They say these are the softest rental market conditions for 5 years. Why? Lower migration, and improved first-time-buyer affordability. Growth in supply is across all areas, but less so in London. The 2.4% figure is the lowest figure since 2020. The Zoopla exec director of research, Richard Donnell, frames this as the normalisation of the rental market after an imbalance between supply and demand - as usual from Richard, this looks both intelligent and reasonable. The context - 16 days on average to find a tenant versus 12 days in 2023 at the “worst point” (for the tenant) and 20 days pre-pandemic. So this is a shift back towards pre-pandemic normality, and the cooling after the white hot rental market of 2023. The gross yields reported - 6% in the UK, up to 7.5% in the North East and Scotland. BTL loans are up 60% YOY (or were in Q1, using the UKF data that is also analysed here on a regular basis). When we go regional, homes for rent are up 36% in the South West and 31% in the East Midlands. Rental supply in London is up only 6% on a year ago. The average deposit to buy a rental property in London is £187k, Zoopla claim. 31% of all homes for sale in London are landlord-owned, the largest percentage of anywhere in the country. This is keeping the supply of rental stock down, of course! First time buyer mortgages are also up 30% comparing H1 2024 to H1 2025 - the first-time buyers are doing more and more. This is of course impacting rental demand. Average UK rent is up £4,100 a year when we look over a 5-year period, which is huge of course, so the incentive to buy is therefore even higher. Bristol rents are down 0.5%, Leeds rents are down 0.6%, both of which might be a surprise but both cities are comparatively expensive compared to the surrounding area. Zoopla’s number for rent inflation for 2025 is 3%. Belfast rents are up 9.1%, but it is still the 2nd cheapest top 20 UK city behind Aberdeen. The best single-word takeaway from that report is “normalisation”, and this comparative calm (wage growth outstripping new rent growth) is helpful for prospective tenants of course. The disposal that’s going on also plays into the hands of first-time buyers, and the vast majority will be very happy about that. How about Housing Purchase Affordability, then? This report is going back to Financial Year Ending 2024 (5th April), although only just released (go figure). This looks at a few nerdy stats, such as the median house price to disposable household income affordability ratios: 7.9x in England, 5.4x Wales, 5.3x Scotland, 4.6x Northern Ireland. What are those numbers in context? £290k for the median home in England versus an average disposable household income that looks very similar to the other home nations - £37k, median. Affordability increased compared to 2023 (which I think we knew) - but according to the ONS metrics, homes have been generally unaffordable since 2006 (I am not sure if they know how silly this makes them sound, because they are not measuring the right thing if homes have supposedly been generally unaffordable for 18 years). Their favoured metric - a median priced home was affordable in Wales and Scotland for the top 40% of income-earning households, compared to only 10% in England. This is where the nonsense becomes more clear - if only 10% of households could afford a median priced home, prices would crash. Their metrics are just wrong, aren’t they? They also have a new modelled local authority dataset - 29/317 England and Wales local authority areas have homes affordable to those who worked there (9.1%), the highest number since 2004 (in line with my analysis on affordability and pricing, as it goes - completely different methodology but the same conclusion, interestingly) - but well below the start of the series in 1999 which they clearly regard as the good old days! It is all very abstract when you are making claims like only 10% can afford an “average” house (measured by the median) - in reality, you buy cheaper, of course, but if lenders or the regulator took a view on affordability similar to the ONS, there would be a huge crash in mortgage lending of course. The (frankly arbitrary) affordability threshold is 5x household incomes (so this leaves out the deposit, for example - average FTB deposits are 20%) - so you see how close everywhere apart from England is. The affordability threshold in England is down from 8.77 in FYE 2021, although incomes would have been trimmed by Covid then, or 8.68 in FYE 2023 which would have contained a “year of two halves”, bisected by the lettuce who is getting a lot of coverage today. Stability in England post-crash looked like about 7.5 times, on this calculation, which I would suspect is where we were at FYE 2025, although we will need to wait another 12 months to find out. The full report has a great interactive regionalised graph which is worth a play for the real stats nerds out there - I loved it. It’s here: https://www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingpurchaseaffordabilitygreatbritain/2024 For those who don’t want to click the link - it tells us about how the affordability clusters around the regional average, and (to me anyway) it shows just how affordable, or not, some areas are and thus where capital growth and rent growth might struggle a little more in the future. In “no surprise at all”, the 17 least affordable local authorities were in London, and the top 10 most affordable were - 4 North West, 4 Wales, 1 North East and 1 Yorkshire. The “clusters” of more affordable LAs were South Wales, West Lancashire, and Newcastle/Hartlepool. Again on the link there’s an interactive map to search for the data by local authority.

It is an interesting report particularly because you can compare years to other years (like 2007/2008) on the heat map and you can see just how very warm the market was in 2022/23 for example - and perhaps on that basis you might support the slightly tongue in cheek argument I’ve made before that the lettuce actually did us a favour, popping the smaller balloon rather than waiting for the really big bubble. There’s an element of truth in that, although you wouldn’t go about it the way she did!

Super. Gilts and swaps then - another ropey week. Weak demand for bond auctions didn’t help on Thursday and that manifested itself into a jump in yields mid-morning. US data was also deemed positive this week with stronger US GDP revisions than expected, and so that all meant the bond vigilantes were back out. We opened at 4.13% on the 5y and ended the week at 4.186%. The 30s by comparison were only up 0.01% on the week so the yield curve got a little shallower. Thursday’s 5y close at 4.178% compared to a swap rate of 3.81%, a nearly 37 basis point discount which is congruent with the pattern over the past year. Lenders won’t be worried as volatility is much lower, but the next slew of products released will be at higher rates than the last lot - so if you are sitting waiting before taking a price on a product - my personal opinion is “get on with it” (but that’s pretty much always my prevailing opinion, unless something unusual is going on!). Into the deep, once more, then. This week I want to commemorate the 3-year anniversary of the Kami-Kwasi budget, and also look at a couple of reports, which I’m going to start with. First up is Shelter’s “More than Bricks” released this week, an interim report on the Human and Economic Impact of Social Homes - in partnership with IKEA. Where do the facts lie on social housing, in general? Let’s look at the private case, first of all. Social homes yield around 1% to 1.25%, over time, on calculations that I’ve seen done. You very rarely hear the yield mentioned, and indeed most will argue that you don’t “need” to think about money in this case - however, resources are scarce and that’s why economics exist - so it seems pragmatic to at least attempt to gauge the yield. There’s a couple of things you might notice there. a) When money was nearly free of debt - think May 2020, the 50 year bond yields were 0.5% - this still would have stacked up from a commercial perspective (but still, almost any other investment class from a pure “returns” perspective would have beaten it) - and b), which follows on, is that it is effectively impossible to expect anyone to build social homes, right? Well, wrong. Of course there are altruistic motives - I imagine IKEA are involved in this project because they understand the powerful effect that good social housing has in a functioning housing market, and Scandinavia is famous for having great social housing (and a state that is a lot larger, of course). The UK remains pulled between the US model of smaller state and the European model of much larger state, and there’s probably a floating 55% in favour of one or the other at any point in time (52/48, some would say). Not just that, though. Social homes provide far more societal value than their investment yield. There are many more benefits, which you can (and you need to, I’m afraid) ascribe a value to. The issue is who captures that value. Inherently, only two groups in society. Firstly, the consumer of the social home - more likely to have a great EPC, cheaper rent, what’s not to like? The second group? Everyone. That’s right. The treasury is the only entity that can capture the value of people having higher disposable incomes, more stability and ability to invest in themselves, and a greater chance of becoming contributors to the public purse rather than net withdrawers. There are all sorts of studies that attempt to measure this - let’s stick to what we know. The £39bn contribution announced over a decade by the Treasury, with some rules to keep it fairly “level” year to year, is an improvement on where we were. The Green Book numbers - the official numbers on how to appraise public sector spending - tells us that there is between £1.50 and £2.20 of PV (present value) in upfront subsidy of social homes. I’m not going to try and take that assumption apart, although that would be a next step if there was genuine interest from the Government in making the sort of investment that’s needed (which likely looks more like £20bn a year, rather than £4bn a year, according to commentators who have attempted to put a number on this). The recent Shelter numbers - who proposed the 90k social homes built per year - suggest payback in 11 years and a net fiscal surplus of around £12bn over 30 years consisting of reduced housing benefit, tax receipts going upwards from stable employment, and lower public service costs. Savings go upwards when you are looking at higher-need cohorts and supported housing - which is why providers often measure their impact by “how much they’ve saved the NHS”, for example. There are then wider macro impacts, such as increased GDP thanks to the build, lifting PAYE, VAT and corporation tax, and reducing spending on homelessness and temporary accommodation. There’s one massive gap, though, between assumptions used for social homes (for example, £75k subsidy per unit) and the private sector’s idea of what it takes to subsidise a social home (more like £225k per unit). This is why so much section 106 building is not social homes - affordable, or other types of tenure/solution are much less lossmaking, or even more likely to make a profit, and subsidies don’t bridge that gap. When you look at the major variables, you need to disallow right to buy to not affect the numbers too badly, you need to target lower land-cost areas, and you need to target the high-need groups as well. Not ideal for social homes in Bristol, or London, you’d imagine. It’s not unusual for the Government to be pecunious and the private sector to claim far more money is needed. We know that much. However, the private sector has a limited amount of skin in the game here - they are not going to be building these themselves with their own money, they would only be delivering, and currently providers/housing associations cannot deliver many section 106 sites. We currently have something like 10k - 17k s106 affordable homes (forget social, to an extent) undeliverable in England and Wales - or “stuck”, at the very least. Then there are those that are built, but cannot be taken on by registered providers. Put another way, there was nearly £3bn in unspent s106 contributions across local authorities when a whole slew of freedom of information requests were put in a couple of years back. The best description of the current state of play is a “systemic bottleneck”. So, there’s the context as I understand it. It also offers some more viewpoints from all sides of the fence, before we get into Shelter’s report. This is an interim report on a research project that is tracking 400 tenants moving into a social rent home, and following 134 people - mathematically pretty robust, depending on other factors. Within 3 months of moving in - 61% saw a meaningful improvement to their mental health. 36% say that’s due to less stress about becoming homeless or losing their home, and 30% say their health improved thanks to sleeping better. Self-reported, of course, so conclusions that are self-reported (and you’d need to see the questionnaire or interview files to ensure that questions have been carefully designed so as not to be leading). 45% reported they could afford utility bills better thanks to moving into a social home. 51% of those who were in debt before moving in are no longer in debt, and 62% reported that the social home move had had a meaningful impact on their ability to plan for the future. 46% reported a sense of belonging to the neighbourhood. These conclusions are wholesome, great, and positive - but the money truck would be driven through these, in my view, by the Treasury. We need real measurement, free of self-reporting. How many times did you go to the doctors before, and how about now? Bank balances. Firm, unavoidable data - as much as there’s genuine upset when this is made “all about money”, the resources will otherwise be allocated elsewhere by people making better “business” cases for public funds, in my view. In terms of the economic analysis side, Shelter have had that carried out and it suggests not building 90k social homes per year (presumably, they mean building none), would cost the Government £117bn in a decade, £64bn in direct costs and £52bn in missed economic opportunities (and a billion there for rounding, it seems). That cost of debt - inevitably used to build social homes, arguably doable by changing the fiscal rules to allow social home provision on a critical infrastructure basis (without ruffling too many feathers) - at 5.5% for 30-year money these days, is far more problematic than it was a few years ago, sadly. However, I accept that Mr Sunak and his team were rather distracted at the time - even if I reflect on it regularly as “the one that got away” when it came to critical plans around infrastructure in general (remember, Boris’ new Government in 2019 were going to spend £600bn on infrastructure over the parliament, before the virus descended). 50+ (perhaps 100+ year) Covid bonds would have been the vehicle, most likely (rather than the index linked nightmare which has been propagated ever since). Had they been reading the Supplement back then, perhaps they could have put two and two together. However, we are now where we are. I’m afraid my conclusion on this report is that it needs more hard evidence than self-reported changes in personal circumstances - I don’t doubt for a minute that all of the things reported above are true, but it is too easy to argue that the percentages stated are in fact overstated, and colder, harder facts and figures are needed. I had a tilt the other week at the Joseph Rowntree Foundation for their report suggesting buy-to-let landlords had inherent advantages over first time buyers, which I posited was nonsense. Pre-2008, that argument held much more water - post-2016, it really had evaporated. The easiest way to understand the “advantage” is that the average FTB is around 25 years younger than the average landlord - so they have had more time to save/accumulate funds, and that is the biggie. Anyway, the JRF has released another report this week about living standards, and the past decade of falling incomes. This was inspired by the suggestion that average incomes will fall around £550 over this parliament (which was a figure thrown around at budget time in 2024) and this would therefore be the worst living standards performance of any parliament on record (which is obviously shocking). The kick-off is that household disposable incomes are still not yet recovered to pre-pandemic levels. They make the valid point that inflation has come down, but that doesn’t mean prices have - it is just the rate of acceleration that has slowed, which is a point many often miss. They make a few points - wages stagnating (they’ve still been up 1% or so in real terms in the past 12 months, which isn’t bad in the backdrop of everything going on including employers’ national insurance, the advent of AI, etc), inflation on the way up (yep), and unemployment up (yep). They do note (as I have) that inactivity has fallen, with fewer people looking after family or studying. The JRF also note that their analysis is in contravention with the RHDI stats, which I rely on on a semi-regular basis. It’s hard to appraise their methodology versus those used to understand real household disposable income (RHDI). That is expected to move upwards by 2.9% per head over the parliament. They do point out some of the methodological differences. Firstly, they expect housing costs to oustrip inflation. Right now - today - new rents are up 2.4% (existing rents are still lagging, and at a higher level) - inflation is expected at 4% - wage inflation is 4.7% - and expected household bill inflation is between 0% and 8% (a broad range I accept, let’s say 4%) for the coming year. I think you could probably expect council tax to be up something like 4.7% again. Historically, rents have lagged inflation in recent years, and the never-told story (that I’ve told a few times, in fairness) is that rents are a far lower slice of household incomes than they were in 2005 when the ONS first started collecting figures. These facts are never mentioned, and the reasoning behind housing costs going upwards over the next 12 months when conventional wisdom would suggest 1 or 2 base rate cuts in the interim (likely lowering mortgage payments, especially on 2 year loans) is not clear to me - it is simply stated as fact. With a sideways market at the moment delivering 1.5%-2% capital growth per year, I see limited reasoning behind suggesting that households will be worse off in a year’s time. Regardless, a long diatribe about whose methodology is better (the ONS or the JRF) seems unproductive. A sceptic would say that the JRF don’t like the official line, so they’ve come up with their own. When you break down their methodology, they rely massively on increased housing costs for their conclusions. The rest is lower earnings than might be expected (bringing things up less than expected) and then taxation (which will be correct, or an underestimate, as we all “know” that tax thresholds will be frozen at the coming budget for 2 more years hence). There’s one piece of analysis hidden in the data which speaks as to why the triple lock on pensions needs to go, however. The JRF sees average income from social security increasing by £120 per year per household by the end of the parliament (assumed in 2029). This breaks back as +£270 for pension age households, -£150 to middle aged households, and -£240 to younger age households (under 35s). The JRF’s prime concern, and this speaks to their purpose of course as a foundation, is lower income households, who will take it hardest as they always do in tougher times. Lone parents are the worst off, then couples with children. Pensioner couples, even with the JRF’s bearish assumptions, are actually better off. Onto the JRF proposed solutions, then. Remove the two-child benefit cap, reverse the health-related benefits cuts to universal credit, permanently unfreeze LHA, increase targeted support on energy bills, and reform the Household Support Fund. They stop a little short of Universal Basic Income, but are treading that path. An “essentials guarantee” in Universal Credit. How to pay for all this? Well, raise taxes of course. Yes, really. CGT rates in line with income tax (a drum they incorrectly, in my opinion, bang regularly). Equalize income tax on investment to PAYE - they see this as whacking NI on investment income, whereas a much better solution would be to get rid of employees NI and equalize the tax rates, but the “fairness” case for that is far better than the fairness case on CGT. Oh and whack an exit tax on those leaving the UK (skullduggery, but it would make money of course). It left me scratching my head and struggling to debunk the ONS figures over and above the JRF figures - I am concerned that their own agenda affects their adopted methodology in pieces like this, and they don’t really do anything to quell those fears. The ONS isn’t perfect - but if you are suggesting they are 4% out on disposable incomes, I think you need to do much more.

Lettuce move on to the history section - a little piece to commemorate the 3-year anniversary of “that” budget. The budget that blew up the bond markets - and potentially did us (at least) a couple of favours, although they all fall under the law of unintended consequences.

I’ve seen Liz around, on podcasts and the likes, giving her own “recollection” of the event, and of course defending her honour. She released a book, and did what you are supposed to do - did the circuit, promoting it. It sold 2,228 copies in the first week - compared to say David Cameron’s memoir which sold c. 21k copies in week 1, and Boris did double that. Proportional to their term in office (not quite)? The broad claim that she makes is that she was stitched up by “the blob” and the Bank of England specifically. That’s just a straightforward misrepresentation of the facts, especially the last one. The Bank of England announced active gilt sales (a terrible idea, on that Liz and I would agree I’m sure) - but they announced it - on 4th August 2022. Liz was formally made PM on 6th September, and on 7th September (unrelated to this news) the Bank confirmed they would begin active gilt sales on 3rd October. This really, really should not have affected any budget. If the guardrails put in place had been followed, there would have been a period where the OBR were asked to update their forecast and a new budget would have taken place in late November or even early December. That wasn’t Liz’s plan, though. Instead, just 2.5 weeks later a mini-budget (the Growth Plan 2022) was delivered, attempting to get around the guardrails by giving it a different name. There wasn’t much “mini” about it - £45bn in unfunded tax cuts, which was a UK record. The markets got spooked. It was a Friday, presumably to ensure the fuss could “die down” over the weekend, or whatever Liz and her team were expecting to happen. That didn’t play out, as on Monday 26th, gilt yields went through the roof, and sterling fell to embarrassingly low levels as people speculated the £1:$1 floor might be breached, and a dollar be worth more than a pound. In the background, there were pension schemes that had used leverage, that got margin calls. The worse the yields got, the more they needed to sell bonds to pay these calls, making those bond prices lower and the yields even higher. A true vicious circle. It took a couple of days for Bailey and the mob to get together, but they announced that they would buy gilts (a great time to buy, to be honest, when prices are low!) and would postpone the active gilt sales. Almost the direct opposite of what Liz claims - the stitch up - indeed, it was the rescue, rescuing a team that were hopelessly clueless about bond markets and macroeconomic policy. Now, some broader context. This was a mess - make no mistake. However, a bit like in that fantastically British sport of cricket, there was a nightwatchman-style batsman waiting in the wings. The recent bridesmaid of the leadership contest - Rishi Sunak. He was the one who could calm the markets down, and when Liz was ousted - on 20th October 2022 - he took the reins. Kwasi was booted on the 14th October, and thought of as Liz’s last straw - and Jeremy Hunt took over and made an “emergency statement” on 17th October. The sacking of Kwarteng was very much like the sacking of a bad CEO, or a football manager - the markets immediately looked more positive. Most of what Hunt did on 17th October was just reversing the crazy stuff from the mini-budget - there was no rocket science in there. Often you hear wannabe Liz defenders, or perhaps just those who are inherently opposed to a Labour Government (don’t get me wrong - at this point in time, who could blame them?) say that “bond yields are higher today than in the time of Liz Truss”. True. I’m not sure, though, if they are being deliberately obtuse. I’ve said many times before - a lot depends on what happens, but also where you are in the cycle at the time. If we view this through the lens of the 5-year gilt yield - which is what kept me up at night at the time - this decayed from over 5% in 2008 to 2.5% in 2009, and then spent the next decade slowly trending downwards. Beautiful times…… Then, in 2020 it went just a little negative. Yes, you lost money by buying 5 year gilts - but deflation was a concern, at one point, and that explains why gilts still changed hands - and by 1st August 2022, we were back to 2.4% on the 5-year, and that had been a steep climb before the lettuce even got into town. However - in a very short timeframe, we short-circuited to 4.4% on the week that started after the mini-budget (the fateful 26th September) which is a move of unbelievable magnitude for a bond market. Remember, these are medium-term debt instruments that are not supposed to be volatile! We stayed around that 4.4% level until Kwasi was gone - there was a direct correlation - and then, frankly, a plunge that got to an unjustifiably low level. We dipped back to 2.9% in late January 2023, such was the market’s confidence that Sunak and Hunt had all of this under control - in spite of inflation at the time being in a double-digit hole. This was never right either, but it was symptomatic of markets and trends. The vigilantes came back as inflation looked stickier than the “transitory” players had predicted (I still don’t really believe that they believed all that, they just said it because they had to) - and indeed we hit a new higher-high on the 5y yield at 4.98% in early July 2023. I’m happy to say we haven’t seen that again, and although we had a nice Christmas present in 2023 with yields back to around 3.25% briefly, the “service” at 4% was quickly resumed come the new year, and we haven’t been much out of the range I’ve been using for some time - 3.75% to 4.25% - for over 18 months now (there have been a couple of wobbles in that timeframe, but they’ve been relatively temporary). The 5-year is the one that best suits two things - firstly, my business, and secondly and more importantly, the majority of UK mortgage debt. It is what underpins the housing markets. Swap rates are heavily influenced by it, and have in fact traded in an even tighter range than the gilts since Feb 2024. Rates haven’t changed much - as I’ve been saying - for that sort of timeframe, a little over 18 months, in spite of base rate cuts and the likes. Let’s just explore one more point of order before we consign the lettuce to the history books one more time (until I bring it up next week, of course, which I reserve the right to do!). The “right ideas, wrong timing” defence. A bit more context here. Truss thought she might be Thatcher-esque. What did she do - £45bn of unfunded tax cuts. What evidence did she have that this would actually increase the tax take over time? None. She didn’t care. Growth - sure - but who would be the beneficiary of that growth? The point isn’t even really if she was right - indeed, under the current tax regime, you’d suggest that some cuts would be extremely helpful for growth, as the private sector has actively been battered by the Reeves budget of 2024. However, the game when you owe trillions to international investors, is that you have to justify what you say, not just guess. That’s where the OBR actually helps, and is their raison d’etre, to an extent. Thatcher’s tax cuts came from a place where there was genuine stagflation - double digit inflation, weak growth and high unemployment. Inflation control wasn’t the overarching strategy at the time, and it became so (and overall, it has been a macro success around the world since that time). In 1979 the budget cut the top rate of income tax from 83% (yes, really) to 60%. Basic rate went from 33% to 30%. But this was FUNDED - VAT went from 8% to 15% to compensate. The top rate was down to 40% by 1988. Why did this work, and keep people happy? Because people look at comparatives not absolutes. It was “lower than before”, so 60% was a “good start”. If you put the top rate of tax up to 55% today, that would be viewed as horrific (certainly by the aspirational and the higher earners, of course) because it is currently 45%. The mini-budget was much less ambitious, in a way - 45% went down to 40%, in terms of the top rate. Basic rate went from 20% to 19%. National Insurance was NOT to go up, and the planned corporation tax increase was scrapped. How was this funded? Just to confirm one more time, it wasn’t funded at all. It was just more debt to take on. Thatcher had a clear monetarist plan, and a medium term financial strategy. There were full Treasury Red Book tables and spending plans. Fiscal credibility was restored by controlling the money supply and this medium-term planning. Truss had no forecast published and made this sudden announcement. No medium-term fiscal anchors. No spending cuts - and no respect for convention, guardrails, and - effectively - the investors who fund the UK debt. So - right idea/could have worked? Maybe, yes - but the methodology was doomed to failure from day one, and frankly a 16-year old advisor could have seen that coming. I still just have no idea what they were thinking, or indeed if they were thinking at all. There’s no timing in just ignoring the rules. How about the favours that were done, though, unintentionally, just to finish us off? The shock to rates pricked any bubble in the housing market - which was created by even cheaper rates, and a lack of supply in homes on the open market. You could argue that still today we are seeing more homes for sale because of the pandemic slowing people’s plans down by years and years (I think that’s the only other credible argument, other than landlords disposing - and the truth is some of both, of course). The shock caused mass fallthroughs in the market, and was directly responsible for an immediate adjustment in pricing in 2023 by a few percent, as inflation battered the real value of housing. Something did need to take the heat out of the market though, and it wasn’t anywhere near as painful as previous crashes by any stretch - mostly thanks to the way that inflation impacted everything. What’s the other big one, that becomes more clear (and perhaps more pertinent as there’s a circa 50/50 chance of a Reform Government, next time out, according to the markets)? How not to do it. We were at the time the laughing stock of the world. It was such a naive, clueless move even if you wanted to argue that Liz had “good intentions”. That will last in the memory until the next election, and hopefully will inform Reform, if they do get in, about how to treat the checks and balances in place. If they come in and immediately set fire to the OBR (perfectly possible), without replacing the mechanisms somehow and just seeking “Government by executive order” a la Trump, then the markets will wobble immediately - but this time there will be no 1922 committee, and no Farage replacement - although there’s an awful lot of water to go under the bridge until the next election, which still looks like 2029 to me…… Food for thought for the week anyway! Before I do close, LAST CHANCE to book your tickets to the next Property Business Workshop that Rod and I are running on Wednesday 1st October in central London. This time around - investment metrics and how to run your property business at scale. My favourite topic of all! Book here: http://bit.ly/pbweight Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. It will be slow(ish), and take a little while longer to get off the ground - and the amount of stock around is still keeping things suppressed at the moment - but as rates currently continue to improve slowly, it is a case of “here we go” in my opinion.

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