Socio-economic Factors and Trends affecting Property Investment Potential
This section covers:
- How to use socio-economic trends to drive investment decisions
A survey of major current socio-economic trends including:
- The impact of Baby-boomer power on the economy
- The impact of the global economy on property prices
- Will globalisation lead to an exodus from the UK?
- Will globalisation reduce the cost of building?
- The opportunities for the buy-to-let market created by EU expansion
- The impact of the Barker report
- The impact of Property Investment Funds (PIFs)
- The effects of the Nimby ('not in my back yard') factor on supply
- Using the UK Planning process to your advantage
- The shift from suburban living
- Predicting the next ultra-popular UK holiday resort
- Will Victorian seaside resorts come back into fashion?
- Is London Property Investment still a good bet?
And finishes with:
- Summary of Current Socio-Economic Trends
- Favourable areas for investment based on these trends
- Crystal ball gazing - what about future trends?
Using Socio-Economic Trends to drive investment decisions
I am a great believer in the value of monitoring and taking appropriate time to think about economic, social and marketing trends. They guide the way I invest and help make for a better investment decisions and improved performance for the longer term. Thorough analysis often leads to a more predictable, deterministic (or measurable) investment outcome.
Let’s take an example of trends in new transport/communication impacting property prices. As a rule, I only invest in property in areas that are “positively changing”. This normally means that a new train station/road is being built close by or regeneration is ongoing. It remarkable how little the average person considers when they buy their homes – they won't notice until they can actually see and use the newly built station – which is when the prices start moving up dramatically.
The trick is to get in well before the station opens, before it can physically be seen even being built. I did this with good affect in New Cross and Lewisham in SE London – the new Dockland Light Railway arrived October 1999 – but it was remarkable that no-one seemed to notice until they all got off the train in November 1999 and the prices shot up! I am currently buying property in Stratford/Forest Gate in East London because the new channel tunnel station is being built and will open in 2007 – they will spend $5 billion on new developments in the area so I cannot think of any reason why the prices wont go up. It’s not that difficult.
The same is true for Gravesend where I have bought a house in north Kent – the location of the other train station due to open in 2007 – you’ll be able to get to St Pancras station in about 20 minutes so prices are very likely to zoom up! Another example is the extension of the Dockland Light Railway to Woolwich (south of the river) scheduled for 2008 – this should add 20% to Woolwich property prices. This is not rocket science – I might be wrong – there could be a property bubble and then crash, but I think I’ll make some money from buying property in Stratford and Gravesend in the longer term.
Baby-Boomer Power – Impact on Economies and Change
One outcome of the European demographic shift to an aging population will be a concentration of power and wealth with the retiring population. The voter turn-out amongst the low numbers of younger people will be very low compared to elderly – hence the politicians are likely to pander to the baby boomer wishes to capture these votes.
This is likely to lead to slower pace of change, lack of economic reform – undoubtedly high taxes for those working. This will be particularly marked in Italy, Spain, Germany and France. It can already be seen in Germany with Chancellor Schroder’s inability get significant economic reform to improve flexibility of the workforce and reduce pension liabilities. Early signs of similar problems have arisen in France in April 2004, when Jacque Chiraq backed-down from some tough plans to reduce France’s deficit.
One just needs to look at what happened in Japan since 1990 as an example of these dynamics – Japan’s baby boomers started retiring in the late 1980s – the Nikkei was at 38,000 and when the pensioners started pulling on their retirement funds, the Nikkei crashes to below 10,000, growth stopped, deflation set in and economic reform was very slow. Only now is Japan coming out of a recessionary phase that has lasted some 13 years – led by Chinese growth.
Germany, Italy and France could be afflicted with similar sluggish growth or recession and deflation if an aging population and low fertility rates leads to lower population, lack of change / economic reform and higher taxes. The threat in such an environment is that innovation and flexible working practises are stifled and the power rests with aging politicians who pander to the baby boomers pressures on pensions, healthcare and not wanting change. This would definitely negatively affect property prices since demand would be reduced, investment conditions worsen and taxes would rise.
Global Economy Helps Property Prices
Globalisation of industry has lead to more companies operating efficiently across countries and regions. Outsourcing of services and a shift of manufacturing to new low cost and wage centres is a trend set to continue. As under-developed countries are able to apply and manage new technology to produce goods and services cheaper, this should lead to lowering of prices over time and keep a lid on inflation.
The internet is an example of a medium that cuts across country boundaries to provide goods and services cheaper. Developed countries will have to shift towards knowledge based high-end services (bio-technology, financial management, services) and will be maximising profits and economic potential from low cost mass manufacturing centres such as India and China. This should all lead to lower prices, keep a healthy lid on inflation, drive down the cost of capital and keep interest rates low. Any significant wage inflation in a country would have to be met with increase productivity, otherwise goods and services would be moved to a lower cost centre quickly.
Hence my prediction is for benign inflationary pressures, higher company profits, margins and productivity and low interest rates over the longer term – both fixed and variable. I see interest rates may be rising to about 5% or 5.25% then coming back down to less than 4% as the UK starts thinking about Euroconvergence and inflationary pressures die away. This should all support house prices as the new order will be that households and individuals will be allowed to borrow higher and higher multiples as capital becomes more plentiful and cheap, particularly for the stronger currencies.
One could argue this same globalisation could suppress house prices since people can buy abroad cheaper, particularly holiday homes. However, this ignores the fact that most UK citizens either have to or want to live in the UK because of they want to be near their family, friends, work and schools. This is true for most nationals in respective countries around the world.
Will Globalisation and Retirement Lead to an Exodus from the UK?
I personally do not believe there will be a mass exodus. My theory is that the average UK citizen will not move permanently from the UK after retirement. The more wealthy may have a second home in say Spain, France or Greece but will still spend the bulk of their time in a home in the UK because of their family, friends, links to their old job and network, continuing education, interests and culture. As long as people see the sun during the summer, supplemented by a few doses through the winter, this will probably be enough for the bulk of UK citizens – further supporting house prices.
A large proportion of the wealth created by low cost labour in countries like India and China could very well end up back in the UK in the form of company profits, shareholder returns and capital market trading and services. The “offshoring” trend is a strong opportunity for value creation for UK firms as well as a threat to certain lower-end jobs. Since unemployment is running at about 3% in the UK, it would need a lot of offshore and low job creation to increase the unemployment rate significantly.
Globalisation and Building
One could also argue that building could become cheaper in the UK as new technology and building practices helps and we have access to cheaper foreign labour. This is partly true, though advances in technology in building have been painfully slow, foreign labour is cheap but these citizens come to the UK to make a decent wage and there is a big shortage of skilled builders/tradesmen. Furthermore, any advantage or value because of cheap foreign labour in building is likely to be captured by the building company in higher profit margins – not with the end customer.
Hence I think the building companies operating on price/earnings ratios of about 6 look like good value since I’m not sure the interest rates will go up much. Demand should stay strong with supply constrained because of the slow planning process. New building practices slowly feeding through will likely improve profitability further, though I cannot see any material impact from the recent Barker report on Housing until say 2006 onwards. Technology will not take the place of housing. Building innovation is slow and is likely to remain so because of a conservative approach to lending by banks and traditional housing views of the customers.
Impact of EU Expansion
According to The Association of Residential Lettings Agents (ARLA) and Homebuyer Events, the expansion of the EU will attract hundreds of thousands of immigrants to the UK and generate massive new demand for rental accommodation. Nick Clark, Managing Director of Homebuyer Events, who runs the Homebuyer Show and Property Investor Show, says:
"With the UK already among the most popular choices for asylum seekers, the prospects of significant inflows of workers, both manual and professional is significant. We are talking about potentially hundreds of thousands of people, which is likely to create a marked increased demand for rentals. With limits to supply, this can only bid up rents, and send the buy-to-let sector into another boom phase."
John Wrigglesworth, Senior Economist for Hometrack, added in January 2004:
"There is no doubt that the new members to the EU will open up the floodgates for migrant workers into the UK - I would expect well over 100,000 extra job seekers, nearly all of which will require rental accommodation. This could have a major impact on the buy-to-let market, especially in London and the South East where most new job opportunities exist. I would expect rental yields to rise this year as a result."
The influx of lower cost Eastern European labour should help keep a lid on inflationary wage demands at the lower end of the labour market, reduce inflation, help increase cost productivity and help GDP grow in the UK – there is already a shortage of construction workers and skilled tradesmen, and unemployment is already very low, so this influx should help growth and the economy generally. It will of course help the buy-to-let market since most of these workers will not be able to afford to own a property initially, or have the citizenship to raise finance from banks.
On the flipside, Peter Bolton King, Chief Executive of National Association for Estate Agents believes the EU expansion will pave the way for property investors to make purchases further afield.
"There is no doubt that the British continue to show considerable interest in owning property abroad mainly as second homes but also for retirement. Some 1.2 million own properties in Spain and France with considerable interest continuing to be shown in places such as Florida, Greece and Italy. We anticipate, as the EU enlarges, that over the next 10 years, we will also see an increase of second homes in Eastern Europe. Many areas offer superb value for money and this is bound to attract interest. It will however be important for people to look into this very carefully especially with the very different legal systems. Professional advice is essential”.
The ten joining are Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Bulgaria and Romania are expected to join the EU in 2007.
So in summary, as from May 2004 there will likely be a moderate amount of migration of mainly skilled mobile workers from these countries to the UK in search for higher paid opportunities – probably about 150,000 people over the first year. Examples of the type of employee will be experienced builders, plumbers, financial services staff and medical professionals. Far from a perceived threat to the UK economy, these new workers are likely to make valuable economic contributions to the UK by filling skills shortages and helping efficient property development in the process. Such numbers are not unlikely to be noticed in places like London where the cosmopolitan internationally diverse mix of people is strong and has been for decades.
What Impact will the Barker report have on property prices and investment?
The Barker report was commissioned to find out what drove the UK housing market and what could be done to improve housing. The recommendations were quite well received by both Government and public. The report highlighted a housing shortage because of the slow planning process, building companies holding land banks and increasing demand. It recommended building far more houses in special development area and speeding up the planning process.
However, I am personally sceptical about how fast changes will occur to increase supply mainly because of the “Nimby” factor and local politics – more regional planning control will help in the longer run, but I do not see any material change to increase housing supply in the next 3 years. In say 7-10 years, housing stock could increase dramatically in development corridors, though I think the quality and price of such housing will likely be high and expensive. Rather than reduce the prices, it could even increase the price of surrounding lower cost older housing in such areas (e.g. Thames corridor, Stanstead – Cambridge corridor).
What Impact will Property Investment Funds (PIFs) have on property prices and investment?
In April 2005 or shortly after, a UK form of the US style Real Estate Investment Trusts (REIT) will launched called Property Investment Funds (PIF) for residential property. This was first mooted late 2003 by the Chancellor and much to most peoples delight he confirmed the plan in the March 2004 Budget. PIFs will allow individuals to sell their properties into the fund to reduce capital gains tax and inheritance tax liabilities, though the income/dividend stream will be taxed as appropriate.
The Government Treasury is designing PIFs in part to stimulate investment in residential properties probably to increase housing supply. A form of PIF has been available for UK commercial property investment to date.
It is uncertain what conditions will be attached to such residential property PIFs – for example, the maximum gearing available. Gearing of 50% or less will be viewed as disappointing by many investors since traditional individual property investment allows gearing up to a maximum of 85%. However, if the regulations and conditions are favourable, there could be a huge influx of private and company funding into such residential (and commercial) property investment.
In essence, many individuals will choose to use PIFs as a retirement fund – many companies may choose to weight their pension funds with UK residential property using PIFs. Much net capital worth may be transferred for property investment purposes to reduce tax liabilities and create a longer-term income stream for families and companies. Consultation is ongoing by the Government – it is viewed as an attractive positive move by banks, building societies, property investors and analysts.
So the effect will be anything from neutral if the conditions are not attractive, to very positive if the conditions are attractive (e.g. if low tax burden, high gearing, low costs, flexible portfolio management is allowed). Check PropertyInvesting.net for the latest news on PIFs through 2004, as things evolve and become more concrete.
The Nimby Factor
So what about the much talked about “nimby” (“not in my back yard”) effect? Listening to John Porritt, the CEO of Friends of the Earth, convinced me that this is only likely to increase. John said that the environment will always become more important to people over time. In a given period, it will either stay on a plateau or increase – it will never decrease.
This is what we see with nimbyism. These people are genuinely angry with development in their community or immediate area or sphere of interest. We are facing a housing shortage on the one hand and nimbyism on the other. Nimbyism leads to supply decrease – if demand stays the same, then prices will move up. These factors are of course making it ever increasingly difficult for first time buyers and key workers to get onto the housing market.
One unknown factor is how much “help” first time buyers get from their parents these days. Their parents are likely to have large amounts of equity tied up in property – releasing some would be enough for a deposit for a first time buyer. If this equity release and gifts to offspring occurs systematically, it would support the lower end of the markets and improve ability for housing chains to occur. I suppose it may also decrease elderly people inheritance tax liability by helping their offspring buy property.
The Planning Factor
The planning process is a slow, bureaucratic, cumbersome process – much news and literature has been published on this. The reasons for difficulty getting plans through are numerous. Number one is probably Nimbyism of locals and communities. There may only be a small minority of the population, or even one or two very vocal opponents, but this can either stall or kill any developments, often for very good reason.
Related to this, it is often not politically acceptable from a local stand-point to agree to new developments – planners and councillors do not wish to upset their stakeholders – the general public or the most vocal public in the local area. These public citizens after all vote in their councillors, so their power is not to be underestimated. These protests also constrain development and to a lesser extent probably reduce local economic growth.
However, if an area is particularly attractive, hideous developments can actually damage tourism and reduce the quality of life for residence living in the area. For areas that are less attractive and have higher unemployment, less reliance on tourism, and areas that have degenerated, barriers to development are far lower.
An example is what has been possible in the docklands areas of London and Liverpool – new offices, housing, rail, roads, airports – all with little more than minor objection. Yet it took 10 years to get agreement to add a lane to the M25 on the south-west fringe of London (a 6 metre strip of tarmac).
So if you want to build a new house, you’ll find it a whole lot easier where the “Local Plan” caters for new housing and sustainable development. You’ll probably be wasting your time in an established small village or town with constraints on development, unless you find a good brownfield site.
More should probably be done to develop brownfield sites in existing cities and towns (rather than straying onto Greenfield sites). It seems we are slow to develop such plots – probably because of the cost of preparing land and improving the infra-structure, and constraints placed on developers by planners.
An example is the requirement for a certain percentage of affordable housing along with the main development – something that reduces overall returns and can make it slightly more difficult to market the main properties. Other negotiated improvements such as upgrading sewerage systems, roads, access and donations to schooling / social services provide further burdens on developers that can dissuade them from investment or fast-tracking plans. The tension is often very healthy in that developers should foot a certain bill for infrastructure – this said, the slowing of development has compounded the housing shortage and driven up prices for those citizens that need such accommodation.
One observation is how few affordable “houses” one actually sees being built – most properties being built in southern England are 3-4 bedroomed houses for 250-400,000 pounds crammed on tiny plots of land. Overall, most people like to live in houses, but by far the most popular new build property is apartments – the reason is land shortage, land prices, planning constraints and nimbyism. It seems a pity to some that what they aspire to own – a new house – is an aspiration that can only be afforded now in the south of England if one has 250,000+ pounds to spend (500,000+ pounds close to London).
As land becomes scarcer, more properties will be demolished and re-built as bigger homes – particularly those on large plots with good views in private locations.
I also think the planning process is slow and land so difficult to acquire for building purposes that homebuilders will be able to keep prices high because of high demand and some degree of drip-feeding supply, or some would say “step-by-step supply”. Part of the reason why drip-feeding of supply takes place is related to financing. It seems the capital markets have not forgotten about the boom-bust cycles caused by interest rate hikes and employment swings – the building companies also do not want to get into a precarious cash-flow squeeze, in part because this would lead to a takeover threat or worse bankruptcy.
Funding is not easy to come by for large capital-intensive developments that require much of the infra-structure costs committed up front and very expense planning processes. To be on the safe side financially, and also because of acute shortages of skilled building labour, developers have to build in a step-by-step fashion.
Shift from Suburban to City Centre, Seaside and Country Living
There is likely to be a general trend away from suburban living (e.g. 3 bedroomed semis) to either city centre luxury flats and holiday homes in the country or seaside (houses and cottages in the country and flats/cottages/house next to the sea). This will follow the trend of the baby boomers retiring. The reduction in the numbers of your “average” company suburban working family could lead to less demand for suburban houses.
A trend over the last twenty years has been the increasing number of middle class families that aspire to live in a countryside setting, preferably in a character house or cottage, with land. Maybe it’s the Englishman’s castle or squire mentality coming out in people, but it is certainly the trend that has given rise to the term “green welly brigade” – namely, city dwellers that are part time or aspiring country dwellers.
As land becomes less economic to farm and the farms that remain become more mechanised and intensive, farms are merging and old farms are bought for purely residential purposes. It is mainly the city dwellers who have made enough money that are buying these properties – this trend is likely to continue and the value of such farms, particularly those with a bit of recreational land, is likely to increase on or above average trend for UK house prices.
One investment model is to buy a farmhouse only, then negotiate the purchase of some land around it thereby considerably increasing the overall value of the property. Before exchange of such property, an option can be bought from a farmer for such a purchase, thereby reducing the risk that the land cannot be acquired prior to the commitment to purchase the property.
I would envisage that farms with a reasonable amount of land (say 3-7 acres), particularly with countryside or sea views, will be able to command an ever increasing premium over normal properties, as retiring city dwellers chose to move to quiet locations, where they can enjoy recreation, walks etc.
UK Holiday Resorts Go Upmarket
Certain holiday resorts have gained hugely in property prices in the last 4 years – these are select “bucket and spade” type resorts which the middle class used to frequent in the 1970s – the parents are now coming back either with their families or to retire. Examples include: Rock, Padstow, Mousehole and St Mawes in Cornwall, Burnham-on-Sea in Norfolk and West Whittering in West Sussex.
Identifying the next ultra-popular small resort to invest in is a way of maximising value for your property portfolio. Resorts I believe that have particular potential are Portreath, Perranporth, Newlyn, Porthtowan, Penzance and Newquay in Cornwall and Ilfracombe in North Devon – these have good beaches or harbours, and are re-generating or have plans for regeneration and positive change. Indeed, Newquay now has a number of low cost flights a day to Stanstead and Gatwick Airports, so it is now possible to commute to London from Newquay!
Properties with sea-views should be targeted. The bottom line is, there are not many properties in the UK with sea views – many of the 15 million or so baby boomers will want these views, so the prices are more likely than not to go up for such property, especially as it is so difficult to obtain planning permission for new properties with sea views – land is scarce, “nimbyism” is omnipresent and people don’t seem to like the coastal views or character altered.
Victorian Seaside Resorts to Come Back into Fashion
Traditional British Victorian seaside resorts have been generally on the decline since the 1970s when mass tourism to Spain and other sunny destinations took hold. The closing of Butlins camps and decline of all but the weekend or day-trippers has lead to very cheap property now being available in some of these “old fashioned” sea-side resorts. Some have prospered with improved communication links to major cities (commuting) like Brighton. Most others, outside commuting distance to London have declined (e.g. Margate, Broadstairs, Hastings/St Leonards, Eastbourne).
People have always desired to be at the sea for a mixture of fun, kiss me quick decadence, nostalgia, thrills and spills. People have tended to lose their inhibitions at the seaside and it reminds people of their childhood and family. I predict the resurgence of interest in these resorts in the next 15 years as baby boomers retire, and wish to live at the sea-side.
In these resorts where improved communications to major employment centres and facilities occur, gentrification should drive up prices, particularly in property with sea/coastal views. I do not believe most UK citizens will want to move to Spain and other Mediterranean countries permanently – they may have a holiday home there, but their desire to be close to their families and friends will keep them in the UK – and the best place will be along the south coast of England, with good communications to London (re: family, business, airports, services).
I particularly like Folkestone (because of the new rail link to London St Pancras in 2007) and Hastings (new University, general re-generation, proximity to the South Downs, slightly improved communication to London). I believe property with coastal/sea views in both these towns is particularly good value.
I also like Blackpool because it could benefit hugely from Las Vegas style casinos on the sea-front. Other amusements and leisure activities make Blackpool a year-round attraction. Rich retirees from Manchester, Liverpool and Lancashire will want to have apartments close to these facilities, employment would improve and Blackpool is one of the gay centres for the UK – all these should support prices and regeneration.
London Property Investment
I am frankly quite positive about all London locations for the following reasons:
- Jobs - employment it healthy and is likely to stay so with the city being a financial centre, technology, education, transport links and proximity to mainland Europe
- Demographics – another one million people are forecast to live in the London area by 2020 – a massive increase which should sustain demand
- Intra-structure – new airport runways at Stanstead, Heathrow and improvements in hospitals, universities, public sector expenditure, rail etc (channel tunnel high speed link) should help demand
The most significant risks are terrorism and financial services jobs being lost due to a global economic downturn.
Current Socio-Economic Trends
To further develop the argument for the importance of trends, the other reason why I believe in the longer-term investment potential of property in the UK is because of the following current trends:
- Lower unemployment and higher employment levels
- Low interest rates and low inflation – cheap borrowing
- Euro-convergence leading to sustained lower future interest rates
- UK has a relatively dynamic economy – with much immigration to keep the working population younger (when compared to countries like Germany and Italy)
- SE England is a huge economy with much new investment in service sector and high-tech related – this should continue to stimulate employment as long as the country stays competitive
- London has beaten Frankfurt as the number one financial centre in Europe and is now challenging New York for top global financial centre
- British people strongly aspire to own their own property – this should continue
- Property taxes are not too high – this should continue as the government would lose too many votes in “middle England” if they raised property taxes significantly
- There are more and more single person households (or small numbers of people per home) – caused by an aging population, more divorce, more individualistic behaviours – e.g. young unmarried couples often keep two properties for security in case they split up
- It seems people are becoming more selfish – wanting to maintain their own independence and financial security – property is one form of asset that supports this behaviour
- Easier and more competitive financing available to the average person and high debit to earnings multiples accepted as the norm by banks
- Economic attraction of purchase over rental
- “Englishman home is his castle” – homes (often more than one) have become the most desired status symbol for all age groups
- Shortage of land, both Greenfield and Brownfield
- Low amount of building of new properties, especially low priced properties, in part due to the “Nimby” effect – (not in my back yard) and in part by stricter planning regulations (e.g. 50% of housing being for social housing or key workers, which can put developers off by decreasing profitability)
- People like to live close to work, and city living has gained in popularity recently – more amenities, café culture, arts, networks, social aspects, lower or stable crime rates, diverse cosmopolitan environment.
The key risks that would work against property prices rising are higher unemployment, higher interest rates, and poor affordability leading to the average person preferring to rent property instead. I believe in the medium term we still have some way to go and that London property prices (particularly in the East) will rise by say 20% in the next 3 years. I might be wrong, it’s only one person’s view – for your consideration, and as an example of how one can use trends for investment purposes.
I have found reading books there is very little concrete investment advice about where specifically to look for property opportunities – it seems people either want to charge for this type of service, are not willing to share it or it just does not exist. I have a different strategy – I like to share investment advice on property – I see nothing to lose with this.
Some of the Most Favourable Investment Areas
I will give you the areas I most favour at the moment for 5-10 year investment horizon - Gravesend, Stratford (East London), Woolwich, Silvertown, Folkestone – because of the channel tunnel rail link, new communications and communities, and re-generation of London Thames Gateway area south-eastwards.
I also like in the medium to longer-term south coast resorts – particularly flats and houses wih sea or harbour views – these are the future retirement homes of the baby-boomers (e.g. Hastings, Southsea, Broadstairs).
I also like low cost towns and cities that will be re-generated like central Birmingham, central Liverpool and central docks area of Newport and Bridgend in South Wales.
All the above are micro-to-macro socio-economic trends, which can be used to justify (or not) investment in small properties (1-2 double bedroomed) in London. If you don’t believe them, then best to avoid buying property in London!
Possible Future Socio-Economic Scenarios and Trends
I would advise it is good practice to take an active interest in trends - you may find these helpful to consider with regard to how your lifestyle could develop or be impacted in the future. I would like to flag these so you can consider them when planning your lifestyle, investments, and retirement.
Please consider them as “possibilities” rather than “most likely to occur” – they are both opportunities and/or threats (risks). The purpose of listing them is so you can at least consider them for planning purposes, so they don’t hit you in the face one day! The possible future trends below also contain more detail on the current trends outlined above. And no, I do not have a crystal ball – all the same, here goes:
- EU regulation enacted that puts consistent retirement age of 70 for all member states by 2015
- State pension reduced to 50% of current value – affordable levels to maintain stable Government deficit levels
- One last stock market bull run ends in 2008 when stock market crashes for good (Dow at 7000, FTSE at 3500 and never recovers) – no public capital equity markets needed any more as industries become non capital intensive. The aging “baby boomer” population start mass withdrawal of equity funds for retirement from 2004 peaking in 2016 - this creates a prolonged 15 year stock market slump from 2008 to 2023 in Europe and USA.
- Serious pension crisis in countries with low population growth as the baby boomers retire and live longer and health care costs escalate – life expectancy of 90 in developed countries by 2050.
- Environmental standards go up further and stricter legislation introduced to conserve energy and the environment
- Hydrogen economy kicks-off in USA and Europe in 2005 due to oil shortage and security concerns – energy and housing are the two main items where prices increase above inflation trend
- Large tracts of land in the UK and USA given over to environmental groups to let go naturally wild as farmers retire, farm land prices drop and over supply intensifies (caused by biotechnological advances)
- Building land prices go up further as planners and environmental group continue to complain about development in green-field areas – all remaining brownfield sites are used up - people start demolishing old buildings to build new more intensive housing in good locations
- Best people bail out of large companies into private equity funded companies, making publicly traded capital equity markets almost redundant
- House prices in retirement centres (on coasts) double (again) in UK and USA, as environmental constraints stifle further building – an example of a most prestigious “status symbol” becomes a two-double bedroom luxury flat looking over a marina, beach or bay in southern England
- Super-rich individual’s charitable foundations become all the rage – with celebrities vying to be seen to do the most – e.g. organising high profile prestigious events
- Retirement homes on golf courses become even more popular throughout Europe and command premium prices as the “grey tigers” retire
- Mobile telephones with built in video-cameras allow people to communicate live over the internet / teleconferencing using their phones
- Internet shopping becomes established – only the largest and most glamorous shopping malls stay popular for social aspects of shopping – massive increase in retail internet spending.
- Despite new technology, the norm by 2015 is still the 9-5 job working for either the public sector or companies – however, more flexible hours are offered, and more occasional work done from home as people get used to workers using quiet time at home to do certain focused tasks (with face-to-face meetings in the office, and video/teleconference calls over the internet supplementing these when possible)
- People commute from southern Spain to London as more business is done virtually using the latest technology
- Work-life balance becomes more important to people and tensions build with companies who view this as a threat – many more people “down-shift” to lower paid jobs with better work-life balance. Many can afford to do this because of acquired property wealth. High stress, high working hours, high wage jobs start to be considered old fashioned - younger people aspire for less “corporate” type jobs with more flexible hours and working conditions. The best talent “goes it alone” and join private investment equity companies, where they can more readily dictate their own terms and working conditions.
- Eastern European countries join the EU – their growth rate and prosperity soars – this puts additional pressure on German, French and Italian economies that suffer from very low growth rates for many years as work is “outsourced” to neighbouring lower cost centres (e.g. Czech Republic, Estonia and Bulgaria)
- Divide between the “haves” and “have nots” gets bigger
- Greece, like Spain, becomes a popular European retirement centre – property prices double, kicked-off by the Olympics in 2004 and new infra-structure developments.
- At least one European country “hits the rocks” – all confidence disappears and there is a flight of capital caused by over expenditure (e.g. could be Portugal, Italy or Slovakia? – or at a stretch Germany).
- UK and US economies motor on because immigration means the working population is younger, vibrant and mobile – meanwhile, Germany and Italy suffer economically because of low birth rates, stagnating elderly workforce and lack of economic reform.
- Regulations by the governments of developed countries will dictate that 50% of all vehicles by 2020 will be powered by alternative fuel sources (e.g. hydrogen, electricity, battery)
- All UK steelworks are closed (cannot compete globally) – and the sites regenerated into services and light industry centres – employment eventually is higher than before the steel works closed.
- No more open cast mines in UK – all old mine sites are reclaimed and many become lakes, leisure centres and parks
- Low cost air travel to regional airports makes it increasingly popular to take long-weekend breaks from UK to destinations in Spain, France, Italy and east – whole industries develop around offering air travel customers value propositions (e.g. property, car rental, leisure, financial services, retirement services).
- There will be a doubling of air travel and a 50% increase in vehicles from current levels by 2015 in Europe – governments introduce tax on air-travel (and fuel). Regional airports are expanded, with much opposition from immediate local populations.
- Business and jobs are increasingly located close to regional and international airports, since worker need access as employees do more European and global business and leisure related travel.
- Employees increasingly regard themselves as individuals rather than collective institutional groups – negotiating individual deals and working conditions. The best elderly employees urged to stay on as a shortage of experienced / knowledgeable workers in certain industries takes hold as more talented individuals retire – “early retirement” is a thing of the past since people wish to stay mentally active even if they are financially secure.
- Road transport mileage grows by 50% in Europe by 2020 leading to far more congestion – tolls on key motorways introduced to discourage use by private motorists – new motorway building at very low levels due to “nimby’ behaviours, further exacerbates the problem. More investment in fast trains, but this is not enough to significantly reduce congestion. People start to travel overnight or in off peak periods more – increase in budget hotels along key routes. Big price premium for property with car parking space or a garage.
- Environmental legislation introduced to stop farmers cutting down hedgerows – the North Downs, The Chilterns (part of it) and the South Downs become national parks.
- All docklands are developed along the Thames corridor to Grays/Gravesend, in Hull, Newport, Merseyside, Hull, Teeside, Newcastle, Cardiff, Swansea, Plymouth, Southamption, Hayle etc. These apartments increasingly become pied-a-terre for the retired “grey tigers”
- Some form of “fat tax” introduced on junk food in the USA – to encourage fast food companies to reduce fat levels – litigation begins with lawyers branding the food industry the next “tobacco industry”
- Environmental legislation gets far stricter
- Central London becomes partly pedestrianised by 2010 – like Barcelona – a pleasant café culture breaks out
- Deflation hits Germany (almost so in France and Italy) – the ECB belatedly reduces interest rates to 1½ % though this is too late for Germany to recover - the Euro crashes late 2004 as the US economy picks up, the currency union breaks up by 2006 after economies get out of synch and inflation takes hold in lower cost member states.
- Increasing interest in charities as wealthy individuals become increasingly competitive to be seen to give to charitable causes – this gives status and prestige and mitigates guilt on behalf of wealthy individuals.
- UK and European oil and gas show serious signs of decline in 2004 - increasing reliance on Norwegian, Algerian and Russian imported gas to secure supply and power.
- New popular holiday destinations are Bulgaria and Crimea Black Sea coasts, and skiing south of Almaty in Kazakhstan.
- India/Bangalore becomes the aspire centre of software excellence – European and US companies outsource all back-off and IT services to the Indian subcontinent
- Oil prices remain high ($35/bbl) as OPEC cartel maintains control of price and the US finds it is in their self interest to keep prices high to safeguard domestic oil production/supply as well as helping keep Middle East revenues high to maintain regional stability – non oil producing countries such as Italy, Germany and Japan feel the brunt as this has the effect of knocking 0.5% off their growth rate.
- UK oil and gas supplies decline as the North Sea becomes more mature - imports are only 50% or requirements by 2015
- Second dot.com boom kicks in 2005 as investors again go for the high-tech frenzy – this time, its staying power is more as investors select the best companies – the “Microsoft’s of the internet world” such as Yahoo!.com, Lastminute.com and eBay.com.
- Heathrow, Stanstead, Birmingham, Liverpool and Leeds airports double in capacity by 2015 – requiring upgrades of road infrastructure and providing many new jobs.
- Thames Gateway (north Kent and East London) becomes the main development area for SE England, with tens of thousands of new houses build and new service industries starting
- London to Paris return by Eurostar costs 40 pounds and takes 2½ hours by 2008 – Ashford, Gravesend and Folkestone in Kent become boom-towns
- Media hype and horror increases on TV as media becomes even more intrusive and “live” – graphic images are beamed into our living rooms of bombs, violence and unrest, creating impression that the world is going down hill – in order to capture more viewers, improve ratings and increase advertising revenues.
The key question you should ask yourself in relation to these trends is - how can I maximise my value from these trends, both financially and lifestyle? The key way to gain financially from these trends is to invest money where you can see positive changes occurring. A simple example is purchasing a 3-bedroomed town house close the Folkestone train station – in a few years, people will be commuting to London in 50 minutes (and to Paris in 1½ hours) – if the prices don’t go up, I’ll eat my hat!