Having spent the last 100 days at home has given me plenty of time to consider how we view, use, and value our homes. My conclusion is that we could be at turning point in society similar in scale to the industrial revolution. This informational revolution could address housing and financial inequality and be kind to our climate. We may also start thinking more about how we value our homes than the price we pay for them, after all home is where the heart is not the wallet
Setting the scene
A day in the life before Covid-19 (Lennon & McCartney)
Woke up, fell out of bed, dragged a comb across my head. Found my way downstairs and drank a cup. And looking up I noticed I was late. Found my coat and grabbed my hat. Made the bus in seconds flat….
A day in the life during Covid-19 (definitely not Lennon & McCartney)
Woke up, remained in bed, dragged a sheet across my head. Found my laptop turned it on and drank a cup. And looking up I noticed I was already working, found my phone, grabbed my cap. Made the zoom call in seconds flat…
A possible day in the life post Covid-19 (also not Lennon & McCartney)
Woke up refreshed, more time in bed. Feeling good inside my head. Found my way downstairs and drank a cup. And looking up I had time to spend with my family. Made the home office in seconds flat…
Working from home has come of age
Office of National Statistics data released in May 2020 revealed that almost 50% of the UK workforce worked from home between 6-19 April 2020
Covid-19 has put to rest the view that that ‘working from home’ is holiday by another name.
As a knowledge worker I appreciate that I am in a privileged position, aside from basic necessities (i.e. food and clothing) all I need to work from home (or anywhere for that matter) is a reliable broadband signal and electricity; this will cause us to change the relationships we have with our homes.
In the information or digital age it appears that location is not as important as digital connectivity, perhaps broadband broadband broadband is the new location location location. This, in my view, causes us to question not just how we individually choose to work, but how we structure society itself.
Ironically, mobile phones question our need to be mobile
Whilst many of us are familiar with a commute where we all we can see is an army of workers hunched over their phones, harnessing those ‘commuting computers’ questions the need to commute at all.
We are trying to play the digital game using analogue rules
The industrial revolution saw the shift from home working to large factories as the new manufacturing technologies emerged. The shift also brought about changes in culture as we moved from rural areas to ever growing towns and cities.
The capital (machines) required that the workers gathered centrally (in the factory) as we moved from the fields. Centralised large-scale production processes were more efficient than decentralised ones.
When we transitioned into a service and office-based economy, we kept to the script that everyone needed to be in the same place, huddled around the means of production. Despite having the technology to work anywhere, the speed of urbanisation accelerated.
However, the digital age challenges these assumptions
The term cottage industry is generally used in a derogatory sense. Defining amateurs trying to compete on a shoestring against a bigger better organised business which has access to more capital and resources. But times change, the average smart phone now has more than 100,000 times the processing power of the computer that landed man on the moon 50 years ago. The means of production can now be carried in our pockets so there is no need to be tied to a central location.
If we take away the need to be physically present, suddenly a lot of the issues facing our economy, climate and society seem less daunting
Cast aside the commuter belt
In my view infrastructure projects such as Crossrail and HS2 do one thing; they increase the size of the commuter belt. But do we need a commuter belt at all? If we can work from home, why do we need to spend more than two hours a day going to and returning from an office to sit in front of a computer that is probably older and slower than the laptop we have at home?
What no location?
It is often said that the three most important drivers of house prices are location, location, location, but if we chip away at those foundations will house prices fall? Probably inside the commuter belt yes, but it may lead to a reduction in the inequality of housing wealth across the UK. I believe that working from home could do more to rebalance the wealth distribution of the UK than any physical infrastructure project. We should focus on our broadband and fibre networks rather than roads and railways. Working from home reduces the need to be mobile and reduces the demand on our creaking physical infrastructure. Less travel will also help the climate.
And so it comes back to house prices
With almost 50% of the UK population working from home Covid-19 may usher in the informational revolution, which in my view could be as transformational as the industrial revolution. We could be on the cusp of a paradigm shift of how we view, use and value housing.
With a more footloose work force, we will release some of the pressure on the housing markets of London and the South East. If the highly paid London commuters no longer need to commute to London, we may see commuter belt house prices fall whilst regional housing markets (and their economies) start to thrive. Could one of the unexpected consequences of Covid actually be a rebalancing of the UK’s regional inequalities? Could Covid actually do more to reduce housing and wealth inequality than any UK Government has been able to?
The Land Registry has suspended its house price index due to lack of housing transactions as other house price indices, based on alternative views of the market, continue to tick upwards. This to me is madness. House prices pre-covid were based on society then, but society is a changing and house prices are likely to change structurally.
Buying a home today could be the same as buying an expensive horse the day before the motor car was launched. The buyer may find they have bought the wrong product at the wrong time and the wrong price. The seller, long of cash, may be able to buy the housing equivalent of a car in this analogy.
Turning points are difficult to predict, but it is not difficult to take a wait and see approach when it comes to a house purchase. Rushing back in may see you long of a horse when the rest of the world speeds by in a car.
If we take location out of the equation, how we use and value housing will change. Searching for homes by price, postcode and number of bedrooms will very quickly seem out of touch. At the very least we need to be focusing more on broadband speed, suitability for working from home and access to outside space.
Rather than looking at top down house price indices, we need to look at value from a bottom up basis – and yes, I intentionally referred to value not price.
My younger self was an ardent believer in the efficiency of the price mechanism. All you needed to know about anything was elegantly summarised in its price. But as I get older, I question my younger self’s views, especially in the context of housing.
Young people, already inured to renting in the face of too-high house prices, may also think differently and, certainly, act more quickly. More mobile and tech-savvy, they may reject the expensive bright lights and take themselves to new centres which can be moulded to their way of life.
With the catalyst of Covid, we may be about to witness the true implications of a technological and communication revolution, whose scope and impact may be every bit as significant as the last upheaval.
Upheavals are never linear, and they almost always have an impact on price.
The elephant of negative equity….
As day turns to night, talk of house price falls quickly turns to negative equity, the risks of which, in my view, are smaller than you may think.
For a start, the Loan-to-Value of the overall £7 trillion UK housing market is less than 25%. There is an awful lot of equity in the housing market.
Negative equity impacts those who have purchased most recently the most. I show below a ready reckoner negative equity table, showing who will be hit by negative equity by when. It is worth remembering that during the Global Financial Crisis the average peak to trough fall of UK house prices was around 20%. If house prices were to fall by 10% on average negative equity would only potentially impact those who have purchased their home since February 2016.
House Price fall Negative equity if purchased after
Negative equity is a real risk given the potential for house price volatility. It is a flag to the media, and other commentators, that “something is wrong”. Yet, its impact may be limited and, it should be remembered, may occur in a period when the Government is intent on mitigating any “Covid cost”.
So, Day in The Life more than Helter Skelter.