Thursday, 9 February 2017

The Disappearing Homes Conundrum.

From the BBC:

Tax changes will mean landlords may reduce the properties they have on their books, leading to sharp rent rises, surveyors suggest.

Rental prices could rise faster than house prices over the next five years, according to the Royal Institution of Chartered Surveyors (Rics).

This would be the result of more tenants chasing fewer rental properties, it said. Stamp duty and other tax changes have affected the buy-to-let sector.


I read this so often, I wonder whether perhaps they actually believe their own propaganda.

The whole thing largely cancels out. The way I see it, this will lead to a modest downward pressure on rents and selling prices...

1. Landlord decides to sell. This must mean to an owner-occupier, if landlord A can't make a profit, then he can't sell it to landlord B, because landlord B won't be able to make a profit either, especially as the extra 3% SDLT is an absolute cost and wipes out the first year's net profit.

2. Therefore those most likely to buy will be higher-earning tenants.

3. With fewer potential purchasers, the selling price will fall slightly. BTLs are no longer outbidding higher-earning tenants.

4. Fewer higher earning tenants means that the average income of remaining tenants is lower.

5. A smaller number of lower-earning tenants divided by a smaller number of remaining rentals = lower rents overall.

6. The other factor is that landlords most likely to sell up are recent purchasers with relatively large mortgages who will have first rented out these homes recently for full market rents. Landlords who have had the same tenants in for a longer time are more likely to be charging slightly below market rents, which means that average rents actually being paid goes down.

7. Landlords work on the basis of % yield, if they are happy with a 4% yield and rents and prices both fall by the same fraction, the yield stays the same and the number of landlords stabilises, albeit at a lower level.

Is that so difficult? According to various sources, rents seem to have plateaued over the last year or so. Whether this is the result of the factors listed above or "because of Brexit fears" we do not know, but there's certainly no hard evidence to support their nonsensical predictions.

9 comments:

Lola said...

No. It's not difficult. Also it's logical, but, as we both agree, the application of logic seems to desert everyone where land and housing is concerned.

Ben Jamin' said...

@ L

Because people haven't really thought about it :)

Problem being, people only think about things when they are told to by those in authority. Seeing as there is only one professor of economics in the UK who is actively pro-LVT, this situation will not be changing any time soon.

Looking at the Housing Crisis meme, that took dozens of economists/think tanks, getting publicity day in and day out for years to achieve their aims. Now 100% of the public is convinced that planning regulations are the source of all evil.

We've got tens of thousands of economists who should all know better. Blame them.

mombers said...

These tax changes have been known for almost two years now, and the SDLT has been in place already for ages. So why hasn't the soul crushing march of rents taken a step change? It's not like there are huge numbers of L/Ls out there who don't know that this is coming, judging by the whining by their various cheerleaders

Mark Wadsworth said...

L ta for support.

BJ, I do blame them.

M "why hasn't the soul crushing march of rents taken a step change?" Excellent question, I have added an extra paragraph at the end.

Bayard said...

Point 7: how can any true-born Englishman (or woman) be happy when the value of their property is going down?

Mark Wadsworth said...

B 'property'?

Bayard said...

Yes "property". You know what it means in DM-speak.

Mark Wadsworth said...

B, ta for clarification. I am perfectly aware that a lot of people think that rising house prices make them richer. Gordon Brown appeared to believe this.

After that it is a numbers game.

In terms of all adults, who really stands to gain from rising prices?

1. The small minority who live in a house in the south east or London that is too large for them who are expecting to sell up and move up North (my sister did this recently).

Who stands to lose from rising house prices?

2. The 40% - 50% of adults who do not own their own home.

3. Those who own a home which is too small for them and want to trade up i.e. young couples in a flat who'd like to have kids.

4. Those rational adults who want their kids to be able to become owner-occupiers in the next few years.

5. People who worry about land based financial crises.

mombers said...

I do bore a lot of people by trying to explain to them that their paper gains are more than wiped out by the increase in liabilities in moving up the ladder, having to fund children's sacrifices to the land gods, demand sucked out of their business' customers, etc.