At least I’m listening

I thought that I had finished my series on the Property Compensation Consultation 2013 for the London-West Midlands HS2 route, but in recent days two new people have joined those posting comments on my blog and they have chosen a common theme. The issue that is troubling them is the requirement under Criterion 3 of the proposed long-term hardship scheme (and both of the exceptional hardship schemes currently running) that part of the proof that applicants have made “all reasonable efforts to sell” is that they have not received any offers within “15% of the realistic un-blighted asking price”.

Now I really thought that in sixteen blogs that I posted in December 2012 and January 2013 and eleven in this current series, not counting today’s, that I must have covered all of the angles somewhere. However, when I checked back I really haven’t done this particular issue justice, and this posting is an attempt to address this shortcoming. So David and Barbara at least I’m listening, even if we all expect that the Government is not and will pay scant regard to anything that any of us will say in our responses to the consultation.

Barbara comments on my penchant for examining the minutiae and, in particular, trying to understand “what words mean”. The 15% threshold is surely an issue that merits such examination. The two paragraphs in the consultation document that we must consult are 4.3.18 and 4.3.19.

The first sentence of paragraph 4.3.18 makes the assertion that:

“We know that buyers and sellers often agree a price that is lower than the asking price – a long-term average of 12% below.”

No reference for this bold statement has been offered by the Government. In his comment David points us to a very useful resource, which is a graphical representation of Percentage asking price achieved over time by region that analyses data from the  monthly house price survey carried out by property analytics business Hometrack. This company describes its function as to “collect, analyse and interpret data, delivering accurate, independent and unbiased insight to inform critical decision making” and claims it owns the “largest database of residential market information in the UK”. So I regard it as a copper-bottomed reference.

The Hometrack graph is interactive, so you can play about with the information presented in terms of the time frame and the regions of the UK that are shown. However, it seems quite clear to me that Barbara’s observations are correct; over the past ten years the only time that selling prices sunk to the region of 12% of asking price was for the comparatively short period between summer 2008 and summer 2009. Whilst it is difficult to estimate from the graph, I would not regard David’s estimate of the average being around 5% or 6% down, or Barbara’s slightly more conservative 7% as being too far off the mark – whatever the true figure is, it is certainly not much more than a half of the Government’s 12%.

I also take Barbara’s point that in HS2 land the percentage of asking price achieved is more likely to be higher due to sellers having more realistic expectations in the face of the blight conditions.

So having got only one sentence into the Government’s rationale, it is already looking shaky. However, if we look at the remainder of paragraph 4.3.18 and also paragraph 4.3.19 it gets worse, because the “effort to sell” criterion requires that there should have been no offers within 15% of not just the “asking price” but a “realistic … asking price” as they would be in a market unaffected by HS2 blight. This really underlines Barbara’s point about the impact of “over-optimistic asking prices”. I don’t think that it is too fanciful to content that, in a normal market, asking prices are often higher than what a valuer might determine as realistic, and have a factor built in to allow for the discount that most buyers expect. So if the seller of a property blighted by HS2 accepts an offer 15% below the realistic offer price, he is actually taking a bigger hit than that because this does not take into account normal seller asking price inflation.

Barbara’s conclusion, from her own research, about the negative equity situation that the 15% criterion causes in her local community – “everyone who purchased since mid-2004 would make a loss on what they originally paid” – is also somewhat worrying.

In paragraph 4.3.19 we are told that the evidence of no offers having been made that are better than 85% of the realistic asking price “helps to demonstrate the effect of HS2”. This leads to an interesting aside:

“Our interest in these figures does not mean we would expect an applicant to accept the blighted value of the property (i.e. the amount the property is worth following the HS2 announcement).”

Now that really has me puzzled; what on earth are they getting at? The “rules”, such as they are expressed in the consultation document, clearly require the seller to accept an offer above the 85% threshold from a potential buyer who is making that offer under the full influence of HS2 blight; if the seller doesn’t he makes himself ineligible for help under the long-term hardship scheme. So the buyer’s offer will surely reflect the full impact of HS2 blight, as the buyer sees it. So it is, for all sensible purposes, the “blighted value”. So providing the effect of blight is within 15% the Government, despite what it says, does “expect an applicant to accept the blighted value of the property”.

Now I do understand that the vagaries of the property market make the determination of whether an owner has truly made an “effort to sell” problematic, but I’m not sure that the Government has really thought through some of the consequences of its 15% requirement.

In the first place, it seems totally unfair for a successful vendor to be expected to stand a loss of up to 15% on the sale of his property, when an unsuccessful vendor, but successful scheme applicant, will receive the full unblighted market price in compensation.

There is also a risk that this stipulation dictates an automatic discount, since buyers will be aware that the seller is essentially obliged to accept any offer that is within 15% of the asking price or lose his right to sell to the Government.

Also the requirement, as currently proposed, fails to distinguish between an “offer” and a “sale”. For example, there was a recently well-publicised case where a sale was agreed but the purchasers were unable to contract for the sale due to an inability to secure a mortgage on a property blighted by HS2; the surveyor appointed by the mortgagee valued the house at £0 for mortgage purposes. Did that offer render the applicant ineligible – the rules seem to indicate that it would? As I understand it HS2 Ltd did the right thing on that occasion and a concession was made, but shouldn’t the rules cover such eventualities?

PS: What a good day we all had at the Parliamentary lobby on Monday (25^th November). The highlight for me was 89-year old veteran of the World War II arctic convoys Don Hitchcock, resplendent in his white beret, treating us to a hearty rendition of HS2 Choo Choo, his own take on the Chattanooga version. I agree with Don that humour is a good weapon to use against the opposition. I managed to catch the first half-hour of the session in Committee Room 14, but had to leave early to catch the coach home. However, I was able to hear Kelvin Hopkins MP talking a lot of sense about HS2 alternatives – I hope to find out more and report on his ideas in a future blog.

PPS: Now that I have finished my compensation series, I have no need to submit myself to the pressure of posting every two days and will return to the normal four-day cycle. My next blog will, therefore, be posted on 2^nd December – what a relief!

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