Lola pointed this out on the Goblin post yesterday. Over at ConHome, John Moss is arguing for more government regulation and more big-money institutional participation in the rental market. Some might call this corporatism, but lets face it, we live in a real world and it is a corporatist one.
Lola described it as "wonderful set of loonies debating over at Conhome" and valiantly set about demolishing on the old 'rent is dead money' argument via discussing opportunity cost and location value. I get this all the time and I tend simply to respond with 'So is mortgage interest, its just rent on money' I'll take notes from Lola and try harder next time!
Your host would no doubt have something witty and/or clever to say about this. Alas he's on holiday and you're stuck with me, and I can't speak for MW. My thoughts (speaking as a squeezed renter in the south east) are quite simply that
a) Failing a proper LVT, I'd welcome institutional money and more supply in the rental market.
b) Lola is right, most of them are loonies over there, although special mention to Tony Makara who tends to talk sense and I remember was particularly good on the credit crunch too back in 2007/8.
What does anyone else think? Feel free to start an intelligent debate (or just mock the loonies) in the comments!
Forbidden Bible Verses — Genesis 42:18-28
4 hours ago
17 comments:
Getting money from a conventional bank is too difficult and time consuming in most urgent monetary situations. Obtaining a guaranteed payday loans is most likely your best solution. Such loans are easy to receive, and the requested money is delivered within just a few hours.
I have a question. I'll start with a premise, stop me if I'm wrong. Rents are more stable pricewise than sales, so you would expect that there would be certain times when you actually are better off buying (assuming permanence) than you are renting and times when you are worse off.
My question is, how do you determine when those times are? What information do you need to gather (and some pointers on where to find it would be good) and what is the algorithm?
If anyone says Rent is dead money, then ask them to hand over their land title, so that you can remove the burden from them. Fair deal aye?
In the end, tax is rent is mortgage interest is rent is tax:
The Robin Smith Institute: Tax is Rent is Mortgage Interest is Rent is Tax
We can see this very clearly just by looking at the observed facts:
The Robin Smith Institute: Tax is rent is tax is rent - again
Anyone denying this is just seeking protection, for private property in land.
Tax on production is just that, protectionism. As much as is a trade tariff.
Is there not a question of specialisation to be asked as well?
Might it be possible that huge corporate landlords might be able to provide accommodation more efficiently than cottage-industry landlords or even home-owners themselves?
Fraggle, a good rule of thumb would surely be "how much actual cash out of your pay packet does it require to service the mortgage or rent?".
If the monthly interest payment is less than the rent you would pay on the same property then, assuming you aren't losing money on capital depreciation, you are surely better to buy?
"Elaine Turner", despite being fairly loony, makes a good point: if trusted tenants could be given longer tenancies, then they would be encouraged to carry out small improvements/maintenance themselves. Where I live was once part of an aristocratic estate and the tenants all had three-generation tenancies, with the original tenant having the right to pass the tenancy on to his son and hence to his grandson.
Sharia mortgages give an insight into the finances of renting versus buying via a mortgage: since they are not allowed to charge interest, the Sharia banks charge the "homeowner" rent on the proportion of the property that they own, which proportion decreases as the homeowner buys the property in instalments. It works out the same as a mortgage; funny that.
We've just moved into a new place and we've got a 1 year contract (with the hope of renewing at the end of it, for a good few years with any luck).
Didn't stop us painting the walls... If we have to put it all back at the end of the tenancy, then fair enough - but I want my wife to be happy where we are for as long as we're there, and we really don't want to feel like we're living there on sufferance.
Putting it another way: Let someone make the place their own and they'll take better care of it.
That was odd - said I was logged in, but the comment came us as Anon :S
For the record, the comment immediately above was mine (hoping it doesn't happen again, or I'll look slightly idiotic) :-)
Fraggle asked how you determine when renting is better than buying.
It's a bit complicated to work out and really requires perfect knowledge of the future if you want to be right every time. However, broadly speaking, you just compare the total cost of owning versus the total cost of renting, now and in the future, and go with whichever is cheaper at the time of calculation.
The trickiest (and most error prone) part is estimating the Net Present Value of all the future costs. That's because it involves knowing what the rates of interest and Acts of God for the next 30/40 years are going to be. However assuming that you can do that reasonably accurately (ha!), the cost of ownership is the sum of (The capital loss in the property value + buying and selling costs + the interest part of your mortgage payment + the lost interest on the principal you have already paid + the property-related part of any tax due + building insurance + contents insurance + maintenance costs + repair costs + utility costs + condominium or home-owners-association fees - the capital gain in the property value - the property-related part of any subsidy due) going forward. The cost of renting is the sum of (rental payments + the lost interest on any damage deposit + contents insurance + repair costs + utility costs - any perks offered).
That list is a bit rough and ready and the reason that I include utility costs is that some lucky renters get their electricity and gas included in their rental payment. Perks might be a swimming pool or gym or other communal resource which some large apartment blocks offer. The difference between maintenance and repair costs is that maintenance covers "fair wear and tear" which tenants are not normally responsible for whereas repair covers damage caused by the tenant which the tenant is normally responsible for.
Even as it stands (and I may have missed out some minor stuff or got it a bit wrong. Corrections are welcome) this is a difficult calculation to do and includes a fair bit of guesstimation for some of the future costs. However there are online calculators to help out. And there's always the trusty spreadsheet.
The reason that owning has worked out cheaper over the last 40 years has been because of the capital gain which has outweighed all the other ownership costs. Given that, you might wonder where commercial landlords make their money when there are no capital gains. The answer is that
a) there have been capital gains for the last 40 years
b) there are economies of scale in apartment blocks owing to shared costs
c) some people don't qualify for mortgages or need to be mobile and so will pay more
d) specialising in renting out slums means you don't have to worry about maintenance, expensive insurance or the demands of whining tenants.
More institutional money would not necessarily be desirable.
If you think about it, unless more houses are built, then the ratio of people wanting houses to available houses is the same. If more buy to let investors come in, that might increase the number of houses available to rent, but it would also reduce the number available to buy. So basically rents would go down but house prices would rise. (And that in turn would discourage home ownership and encourage renting.)
This is really just a variation on home-ownerism. Home-renterism if you like!
The way to improve the supply of homes is to BUILD MORE, rather obviously. That is constrained by planning laws, not by availability of capital.
Buying is ALWAYS better than buying.
If one cannot see this yet then one does not understand the institution of private property in land.
As a tenant you will always pay rent forever. As a landowner you buy the land title which usually costs about 20 years rent.
Land is the only as that ALWAYS goes up in value over the long term. In an advancing Society. The only time it does not rise is when that society is in decline.
Oops, I meant buying is always better than renting. (:
Good comments all!
Robin: Leveraged home-owner-ism only really works with price/wage inflation and an expanding money supply.
Debt-deflation will kill the most leveraged.
Fraggle, Blue Eyes: Have responded in a new post. Unlike MW I need constant stimulus from you guys to think of something to post!
@RS not quite. House prices have generally increased over time, but not by that much in excess of inflation - it's only in the last 10 years or so that they've shot ahead of inflation. http://www.jparsons.net/housingbubble/ for example shows a trend in real prices of about 0.6% above inflation. I know, that's US rather than UK, but I doubt we're far off - in fact, let's look at http://www.nationwide.co.uk/hpi/historical.htm and call up UK house prices since 1952. Average house price in Q1 2011 is 162379, which is 85.88 times what it was in Q1 1953. That's a real annual return of 8%, without taking inflation into account. If we take RPI inflation into account (comparing Jan 1953 with Jan 2011 for clarity), we get a rate of 2.2% over inflation, which is actually better than I thought, but still not all that much.
The thing is that a reasonable investment can be a better way to spend your money. When performing financial planning, IFAs generally quote on 5%, 7% and 9% returns, and assume something like 3% inflation. If you had £200,000 to invest and could either get 7% annual returns on the stock market or get 5% capital gains by investing in property, plus about 5% in rental income, less 3% or so in maintenance and upkeep I don't think you can say that housing is "always" better.
It's very similar to getting a good investment manager to look after your money, and is probably a good buy, but is not "always" the better bet.
BE: "Might it be possible that huge corporate landlords might be able to provide accommodation more efficiently than cottage-industry landlords or even home-owners themselves?"
For a block of flats, it is certainly the case that things work out best if one company owns and manages the whole thing on a commercial basis and rents out the flats. If tenants want to buy shares in the company, then they are free to do so.
I'm not sure this would be true for normal housing estates as far as maintenance costs go, but it certainly would be true as far as efficient use of housing goes - being a tenant is like having to pay LVT.
Thank you admin, very good post.
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