As they
struggle to meet demand, Argos have
had to increase the wages of their HGV drivers from £11.41 an hour to £15 an hour – a rise of
31.2% meaning their pay goes from £27k to £35k. Care home providers
are offering signing-on bonuses of many thousands of pounds to entice nursing
staff away from their competitors, and new homes contractors say labour costs
are growing as the housing boom pushes up demand for bricklayers and joiners. Restaurant
chains, coffee shops, blue-collar workers in factories and warehouses are
seeing wages rise at an extraordinary rate.
The average wage for a worker in Neath in
full-time employment is £534.40 per week (before
tax).
We can all argue over the reasons behind it; some suggest
the ‘B’ word (ending in ..xit), whilst others put it down to the pandemic and some
the demographic changes of UK population.
So, before I look at what it could do to the Neath
property market, let me look at why wages are rising. You will note all the
above inflation wage increases are in blue-collar industries.
(Blue-collar workers
refers to any worker who engages in physical or manual labour, such as building,
hospitality, maintenance etc., whilst white-collar workers are those classed in
the professions and service industries).
What are the reasons for these
wage increases?
- In the past,
the demand for inexpensive ‘blue-collar’ labour has been fed by a steady supply
of Eastern European workers since 2004. Yet with the ‘B’ word, that has now
ended. - Also, even in
late July, the furlough scheme has kept 1.9 million Britons from their jobs. - Fewer ‘Generation
Z’ (those in their late teens to mid 20’s) who normally would work in the
hospitality industry are not working at the same rate they used to, when compared
to before the pandemic. - And finally, fewer
‘Baby Boomers’ (those born before 1965) are working since the end of the first
lockdown.
How could these wage increases affect the Neath property market?
White-collar wages, since the turn of the millennium, have
risen in real terms, yet blue-collar wages have remained stagnant (although
they started to pick up slowly just before the pandemic).
So, if all blue-collar workers are now seeing a
substantial increase in their real wages since the pandemic, what will this
mean especially for the Neath property market? It would mean the following…
- Continued reduction
in unemployment - Growth in consumer
spending - Rents will continue
to rise in the short term - Rise in homeownership
in the medium term
Starting with unemployment:
1,435
Neath Port Talbot people have come off the dole queue in the last 12 months
alone, reducing the unemployment rate by 2.1% to the current 5.2% in our local
authority area.
If wages continue to grow for everyone, that means
unemployment will continue to reduce.
Secondly, these pay rises will start to burn holes in
people pockets. We should assume those people with the extra cash will spend it.
In fact, it is a recognised trait in economics that blue-collar workers tend to
spend a lot more of any increase in disposable income (when compared to white-collar
workers). This would give a boost to the retail, hospitality, leisure and
travel industries very quickly.
Neath
rents are already 12.9% higher than 12 months ago,
and if wages continue to grow,
then rents will increase even further. This is because rents in the private sector tend to rise in
line with wages rather than with property prices.
This is excellent news for Neath buy-to-let
landlords.
Next, if wages for blue-collar workers continue to grow, I
believe we will finally see a long-term growth in home ownership again. In
2008, 68% of people owned their own home, yet that had been slowly reducing
over the 2010s to 63% in 2018. Yet since 2018, this has increased slightly to
65%.
The Brits who had the biggest problem jumping on to the
property ladder were not just the 20 something’s, but also middle-aged blue-collar
workers. With blue-collar wages stagnant over the last two decades, and accelerating
house prices, it was much tougher for them to save up a deposit for a mortgage.
Yet with the Governments recent 5% deposit mortgages and
more disposable income (because of the wage rises), some might decide not to
spend the extra on going out and holidays and buy their first home instead (because
most people want to own the place where they live – if they can afford it, they
will buy).
Overall, if this increase in blue-collar wages
is across the board, then this could be one of the greatest things to happen
to the Neath property market in a long time.
It is certainly long overdue. Since
the millennium, wages at the bottom end of the pay scale (i.e. blue-collar
workers) have deteriorated, while the professional white-collar middle
classes have done much better. The disparities between both classes/workers are
both imbalanced and harmful to the economy and society as a whole.
But what is the real story behind
the headlines?
One school of thought is that
some fear these wage increases will fuel hyperinflation (and in turn, interest
rates will have to rise to counter that).
As I have mentioned many times in
my articles on the Neath property market, the last thing we need is a rise in
interest rates (as mortgage rates will increase accordingly). A rise in
interest rates will put a massive brake on the Neath property market – which is
not good for anyone.
Also, we have to remember a few
things…
There are still 1.9m people on furlough (which stops at the end of September).
Not all of those people will go
back to their original jobs, meaning they will need to find
a new job, so the pay pressures could just as easily diminish as employment
bottlenecks clear.
Also, the 8.3% wage rise is
based on a year-on-year figure (i.e. a snapshot of now versus a year ago)
and therefore the headline figures have been profoundly distorted by the large
numbers of blue-collar workers on furlough in 2020 (i.e. they were on 80% pay).
The Office for National Statistics have gone on record saying that, accounting
for some of the distortions caused by the pandemic, real wages for blue-collar
workers are more likely 3.5% up.
Finally, as with all things, the
devil is in the detail. The newspaper headlines reporting the over inflated pay rises this spring are true. However, in truth (of
course we all know bad news sells newspapers) these wage rises were focused on professions
with specialist skills. For example, whilst wages for HGV lorry drivers have
risen by double digits, pay rates for courier drivers have remained stagnant.
At the same time, wage growth for white-collar jobs is almost at zero for yet
another year.
To conclude, there are
interesting times ahead for everyone involved in the Neath property market. I do
not profess to know all the answers, however, I do have my own opinions.
Whether you are a Neath first-time buyer, second-time buyer, homeowner,
landlord or tenant and would like to pick my brains on any aspect to do with the
Neath property market, please do not hesitate to drop me a DM, give me a call
or send me an email.
