Monday, 26 September 2011

Location..

This post is the first of a series about the effects of wind farms on property prices. Hmm, wondered when this one would surface ehh? This is quite a tricky topic - and one that'll take a few posts to get through I'm afraid.

First, I think we need to establish some basics. Wind farm proposals, I believe, are as likely if not more so to impact the saleability of a property close to a proposed development before a planning application is submitted than after construction is complete. This I believe, is largely due to the uncertainty involved in wind farm development proposals - how many turbines, how big, where are they going etc. etc. And then there's the construction traffic to contend with. It really doesn't take the brains of a rocket scientist to accept that the mere sniff of a proposal is, to a certain extent going to impact the local property market - particularly in a buyer's market. I certainly don't see queues of people waiting to buy properties next to proposed wind farm developments - nor do I see estate agents using a wind farm proposal as a marketing tactic (which in the normal course of things, would be a 'strong' indicator of desirability). Once built, the uncertainty is removed and you are left with a Marmite situation - you either love it or hate it.

Now, the next thing we need to get out of the way is the similarity of the UK and US housing markets - or lack of it - and I want to do this for a very good reason. I believe they are very different markets. In the UK, property ownership is still regarded as a highly desirable aspiration and in the USA the situation is similar. According to the US Census Bureau, home ownership in 2005 stood at 68.5%. In the UK, the current rate of home ownership is 68%. So, ignoring the differences in ownership definition, and the fact that the USA statistic is 6 years old why are the apparently similar markets different? One of the differences comes in the shape of mortgage debt and more specifically, how it is structured. 27 states in the US, including California and Florida allow non-recourse mortgages. Such mortgages allow homeowners to avoid the issue of negative equity debt - pretty well all they have to do is return the keys and they can walk away from any negative equity liability. Not so the UK. I am not aware of a single mortgage company in the UK offering such a deal. Doubtless the flexibility of non-recourse mortgages comes at a price - but it's a great way to negate a large chunk of risk. In the UK however, the value of a property is very much in the interest of the occupier and the spectre of slipping into negative equity has kept many a mortgage holder awake at night. Add to this the growing number of people who find themselves saddled with lifelong debt or face the possibility of personal bankruptcy to clear the negative equity on their repossessed property, and it's easy to see why property values are a major concern for some. We should also not lose sight of the fact that there is considerably more building land available in the USA than the UK, which allows more a great deal more flexibility in terms of locations for residential building projects. These two factors alone, without even considering social factors are sufficient to ensure the two markets are in actual fact, fundamentally different.

Why is this important? This report from the USA is often touted in the UK as proof that wind farms do not impact property prices. What's wrong with this then? First of all, the report is in my opinion not relevant to the UK housing market for the reasons outlined in the preceding paragraph; they are fundamentally different markets. Next, the report draws on completed property sales; properties that have not been sold and houses that didn't enter the housing market due to their proximity to wind farms (and thus may be completely unsaleable) are completely ignored. So the report is in no way a definitive investigation - it simply summarises convenient sales statistics. Even if we do accept this report as applicable to the UK housing market, there appears to be a bit of a chink appearing in the 'no affect on prices armour. This RICS web page, summarising various reports on house price effects, paraphrases the US report by saying 'A recent study in the USA continues the theme of a minimal effect on house prices.'. Notice the word minimal - acknowledging an impact. If you do nothing else, I suggest you read the Abstract of the report on page iii). I will quote just one section of the report, the last paragraph of the abstract: Although the analysis cannot dismiss the possibility that individual homes or small numbers of homes have been or could be negatively impacted, it finds that if these impacts do exist, they are either too small and/or too infrequent to result in any widespread, statistically observable impact. So, in actual fact, this report doesn't rule out an impact - quite the contrary. This web page is an example of how this report is jumped upon by the renewables industry with misquotes, unsound conclusions and headline grabbing phrases.

In my next post on house prices impacts, I will look at the UK based evidence and explain why house price impacts have far wider implications than the immediately obvious. In the meantime, I will leave you with this article to read. This is a very important case, since it demonstrates that the law (which is not noted for its speed of operation), is the first 'official body' to acknowledge that wind farms can have a significant negative impact on both house prices and people's lives.

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