HPC thread of the week

mwpt

caronoel wrote: »

Fully agree.


Discouraging BTL investment will just reduce rental supply, pushing rental inflation up as landlords recoup a market wide increase in cost.

Net result is that the taxman and landlords profit, while Generation Rent is squeezed even harder.

Nobody move or the puppy gets it.

I meant that in general lack of supply, rents would continue to increase, regardless of this policy. If your view was correct, with the massive shift from OO to BTL over the last 15 years (increasing the rental supply), we would have seen rents reduce or stagnate. Then add the lower interest payments for landlords when BOE reduced rates, this too had no affect, rents didn't drop, they just kept going up. So your view is that increase the costs to landlords = rents going up, so why didn't rents go down when costs reduced?

Besides, the houses are not being destroyed, so someone will live in them. Either a current renter (rental supply stays the same) or perhaps a family that buys the place who previously rented (rental supply remains the same as the previous house comes back on the rental market).

HAMISH_MCTAVISH

mwpt wrote: »

the houses are not being destroyed, so someone will live in them. Either a current renter (rental supply stays the same) or perhaps a family that buys the place who previously rented (rental supply remains the same as the previous house comes back on the rental market).

You have inadvertently realised the problem without fully seeing the consequences.

'Supply stays the same'.... Which is true enough.

But housing need continues to increase and the imbalance between supply and demand continues to widen.

All these moves do is artificially tinker with transferring supply and effective demand around between rented and O/O. But the overall elephant in the room of a massive great housing shortage remains.

Nobody knows for sure what effect this will have on either prices or rents, but the one thing I think anyone who has been watching the UK housing market for the last decade instinctively understands by now, is that all such moves inevitably have unintended consequences.

Nobody move or the puppy gets it.

A puppy 'gets it' no matter what... all these continued changes do is introduce an element of Russian Roulette as to which puppy.

Until we build millions more houses the problem will remain.

The only thing that changes in the meantime is the varying levels of annoyance with the current government amongst different sections of society.

mwpt

HAMISH_MCTAVISH wrote: »

You have inadvertently realised the problem without fully seeing the consequences.

'Supply stays the same'.... Which is true enough.

But housing need continues to increase and the imbalance between supply and demand continues to widen.

All these moves do is artificially tinker with transferring supply and effective demand around between rented and O/O. But the overall elephant in the room of a massive great housing shortage remains.

Agreed, and I do get it, we need more supply. I was addressing the view that increased tax on landlords automatically means increased rents. Rents will increase regardless until we address the supply issue. But, we have enough supply in certain locations and not enough in other locations. The market would eventually determine that people are just not willing to live in those under supply locations, if only government would stop paying for their housing in an inefficient way.

MobileSaver

Crashy_Time wrote: »

So much denial, so little time :rotfl:

Who is in denial? :rotfl:

Land Registry confirms annual HPI of 5.6%, doesn't look much like a crash to me...

The October data shows an annual price increase of 5.6% which takes the average property value in England and Wales to £186,350. Monthly house prices up 0.4% since September 2015.

For more info:

Land Registry Market Trend October 2015

HAMISH_MCTAVISH

mwpt wrote: »

I was addressing the view that increased tax on landlords automatically means increased rents. Rents will increase regardless until we address the supply issue.

I actually think Osborne has potentially been very, very clever with this one.

1) He increases tax take from landlords.

2) He decreases the amount of future stock going to BTL landlords which potentially allows a few more FTB-s to buy given mortgage lending is also increasing.

3) By decreasing the future allocation of the limited supply of housing to BTL properties rents increase more than they otherwise would have done to compensate landlords for the tax rises.

4) By increasing the future allocation of the limited supply of housing into O/O, he creates more of his natural voting base, the 'property owning democracy' via house prices rising slightly less than they otherwise would have done.

He has then in practical terms imposed a tax rise on young tenants who are least likely to vote.

As by reducing landlords (who are very likely to vote) competition from new entrants, he enables them to pass on the tax grab to tenants via higher future rents.

we have enough supply in certain locations and not enough in other locations. The market would eventually determine that people are just not willing to live in those under supply locations, if only government would stop paying for their housing in an inefficient way.

Completely agree.

The best way to allocate a resource in short supply is via price.

mwpt

HAMISH_MCTAVISH wrote: »

3) By decreasing the future allocation of the limited supply of housing to BTL properties rents increase more than they otherwise would have done to compensate landlords for the tax rises.

I thought I addressed this above. Why would a change in ratio of OO / BTL mean rents increase? Assume a stable population (so we can examine the effect in isolation) and a stable house supply.

1) Family who was renting property A, buys a property B off a BTL landlord. Family in property B move into rental pool, family in property A move out of rental pool. Supply of rental property remains the same as property A becomes available for rent, property B removed. No change in supply/demand ratio.

2) Someone in a shared house, buys own place off a BTL landlord.
2a) Most likely scenario is this person buys a small place, displacing one other person. Or buys with a partner displacing two other people. Room in shared house becomes available in rental room, the bought house is removed from rental pool.
2b) Single person buys a place which displaces a renting family. Less likely scenario. The family now needs a new house but only the room in the shared house is available.

I can see how (2b) would increase rental pressure but I don't think it's very likely that we'll see a large increase in the number of single people owning family size homes.

So, I can't see how shifting from BTL to more OO increases rents. Feel free to correct me, but not just by re-stating "reduced rental supply = upward pressure on rents".

chucknorris

mwpt wrote: »

I thought I addressed this above. Why would a change in ratio of OO / BTL mean rents increase? Assume a stable population (so we can examine the effect in isolation) and a stable house supply.

1) Family who was renting property A, buys a property B off a BTL landlord. Family in property B move into rental pool, family in property A move out of rental pool. Supply of rental property remains the same as property A becomes available for rent, property B removed. No change in supply/demand ratio.

2) Someone in a shared house, buys own place off a BTL landlord.
2a) Most likely scenario is this person buys a small place, displacing one other person. Or buys with a partner displacing two other people. Room in shared house becomes available in rental room, the bought house is removed from rental pool.
2b) Single person buys a place which displaces a renting family. Less likely scenario. The family now needs a new house but only the room in the shared house is available.

I can see how (2b) would increase rental pressure but I don't think it's very likely that we'll see a large increase in the number of single people owning family size homes.

So, I can't see how shifting from BTL to more OO increases rents. Feel free to correct me, but not just by re-stating "reduced rental supply = upward pressure on rents".

2b or not 2b, that is the question!

HAMISH_MCTAVISH

mwpt wrote: »

I thought I addressed this above. Why would a change in ratio of OO / BTL mean rents increase? Assume a stable population (so we can examine the effect in isolation) and a stable house supply.

If we had a stable population and a stable house supply it wouldn't.

Price/rents are driven by the imbalance between demand and supply.

By changing the allocation of housing stock in the future you can vary the degree of that imbalance.

So if you imagine a hypothetical situation today where we have both house prices and rents climbing by 5% a year based on current allocation of housing each year to rented or O/O.

If you then restrict the future allocation of housing to rented, while increasing the future allocation of housing to O/O, rents may increase by 7% a year while house prices only increase by 3% a year.

The two points I suspect you're missing are...

1) A high proportion of renters are not in a position to become buyers

2) The number of homes in O/O is vastly higher than the number of homes in rented

So moving say, 100,000 houses from rented to owned has a huge impact on rental stock levels but only a tiny impact on O/O stock levels.

Feel free to correct me, but not just by re-stating "reduced rental supply = upward pressure on rents".

In practical terms this means that any change to allocation has a bigger effect on rents than prices.

Simple Example:

Imagine a small island, we'll call it Osbornia, with 1000 houses. 800 of them are owner occupied, and 200 of them are rented.

There are currently 20 houses available for rent, and 80 houses available for sale.

120 additional people move to the island of Osbornia..... But only 90 of them can get mortgages and the other 30 have to rent.

90 new Osbornian citizens are competing for the 80 available houses.

So Osbornian house prices then rise until the 10 lowest earners of the 90 that can get a mortgage are forced not to buy.

Prices don't rise all that much though, because the ratio between demand and supply is only 9/8.

This leaves 40 people competing for the 20 rented houses.

Rents rise a lot more than house prices in percentage terms because now 20 of the 40 need to be priced out.

The ratio between demand and supply is 4/2.

So rents soar until the 40 people are forced to share the 20 houses.

You now also have 40 incomes servicing 20 rents so it remains affordable...

The King of Osbornia, lets call him King George, decides he wants to change all this and restricts the number of houses available for rent. He also marginally increases mortgage availability.

Next year there will be 10 houses available for rent, and 90 houses available for sale.

Now imagine another 120 people move to Osbornia.

But this time 95 of them can get a mortgage and 25 cannot.

So 95 people compete for 90 houses and 5 are priced out.

We now have prices rising by less than they did the previous year as the ratio between demand and supply has changed.... From 9/8 last year it is 9.5/9 this year.

The gap has narrowed.

But in rented the gap has widened...

As we now have the 5 priced out buyers, plus the 25 renters, chasing just 10 houses.

The ratio is 3/1, whereas last year it was only 4/2, so rental growth becomes explosive until enough people are priced out and forced to share that supply and demand return to equilibrium.

And as you now have three incomes servicing every one rent, it remains affordable.

This is, in a nutshell, what Osborne is doing.

He's faffing about with allocation and hoping to gain some tax revenue from it. It would be politically impossible to tax tenants directly so he taxes landlords instead.

He knows full well that if he limits the stock coming on to the market for rented accommodation, the imbalance will worsen in rented by more than the imbalance is eased in O/O, and this will enable landlords to increase rents enough to recoup the tax loss.

At the same time it won't stop house prices rising, but it may enable a few more people to buy as the pace of increases slows.

It's actually quite an elegant way of passing tax burdens through to the very segment of society least likely to vote at all, and least likely to vote Tory if they do, whilst superficially being seen not to target them but to target his natural allies in the middle class landlord community.

Smoke and mirrors of course, but many will not see through it, so I'd expect to see a number of prematurely triumphal threads on HPC as they unwittingly celebrate their own demise...;)

mwpt

Initial parse of that and seems to make sense. I have a slight feeling you're missing something around the area of shared housing by OOs (lodgers) as prices go up, but can't formulate it right now. I'll digest further and reply later.

HAMISH_MCTAVISH

mwpt wrote: »

I have a slight feeling you're missing something around the area of shared housing by OOs (lodgers) as prices go up, but can't formulate it right now. I'll digest further and reply later.

I'd agree it's a factor but tried to keep things simple for the purposes of illustration.

The key thing to remember is that it's not a zero sum game to move people from owned to rented or vice versa.

From memory there are something like 17,000,000 houses in owner occupation and only 3,000,000 in private rented.

If 300,000 houses move from rented to owned that's a 10% decrease in the rented stock but only a 1.7% increase in the owned stock.

And conversely if you move 300,000 from owned to rented it makes a huge difference to the rented stock in percentage terms but only a tiny difference to the owned stock in percentage terms.

But if you then add however many hundreds of thousands of people each year to the population and let them compete for housing of whatever tenure, without building enough new houses to accommodate their needs, then there's been very little difference proportionately in the owned stock, but a really big difference in the rental stock. And we all know what happens next...

That's why the explosion of BTL made very little difference to house prices, I think the last major study on the topic put the cumulative impact over the 10 years before 2007 at around 7%, but it had a huge impact on suppressing rents over that same time period.

Remember in 2007 rental yields were relatively low... it's only since mortgage rationing post 2009 excluded a generation of buyers that rents have really started to take off, reaching record highs the last few years in a row.