Rents soar to (another) record high

westernpromise

dharm999 wrote: »

http://www.theguardian.com/money/2016/may/05/rents-continue-rise-uk-london

No slowdown in rent rises. It will be interesting to see, what the reaction is to the tax changes for BTL landlords.

Rents are going up because house prices are levelling off. Renting looks safer so people are prepared to pay up. If house prices actually start to dip it's going to be a spectacularly good time to be an unleveraged landlord.

Party like it's 1996, etc.

wotsthat

mwpt wrote: »

So why did rents go up when the opposite of these actions happened? Lower costs to landlords and more landlords entering the market?

Because something else must have been happening which meant reductions in the cost of providing rented accommodation didn't need to be passed on. Maybe an increase in demand at the same time as costs fell. If your position is that the market decides then what else is there? You tell me.

Of course, the rental sector isn't an example of a perfectly efficient or transparent market and prices are sticky but all other things being equal if mortgage costs dropped for those landlords with a mortgage then that would lead to reduced rental costs.

At it's most simplest lower input costs will increase the likelihood of lower consumer product costs and vice versa. Don't forget it's only about what is most likely because all things are rarely ever equal.

westernpromise

wotsthat wrote: »

Because something else must have been happening which meant reductions in the cost of providing rented accommodation didn't need to be passed on.

Landlords' costs fell because interest rates did, and house prices fell because of the same economic uncertainty that sent rates down. In a market in which buying a house looks like a good way to lose money, people rent instead to avoid wearing those losses. So rents rose to reflect demand to rent just as landlords' costs fell.

Almost the same thing happened in 1990: renting got expensive exactly because house prices had cratered, so landlords charged you a premium for not being exposed to more of it.

The opposite happens when house prices are rising. If it costs £5k a year to rent a £100k house or £8k to buy it on a mortgage - but its price is inflating at 8% a year - the guy who buys it lives in it for free, whereas the guy who rents it wastes £5k. In a rising market, rents stagnate or fall in yield terms.

Landlords' costs don't IMV really flow into what they can charge. If they did I could let a lot cheaper than someone with a huge mortgage, but I just charge the clearing price, same as everyone. If rising costs push a landlord into selling his 100 square metres property that had four renters in it, it may sell to three owner occupiers who will take up the usual 33m per O/O. Three renters change place with three O/Os and the fourth renter adds to the demand for whatever rental property is left, which is less than there was.

Of course it is possible, as renting gets ever costlier due to this, that the economics of buying start to stack up for more of those renters, so that eventually the sector stabilises at a smaller size. But it also seems possible that rents stabilise at a new, higher price that covers leveraged landlords' new, higher tax bill.

wotsthat

mwpt wrote: »

So why did rents go up when the opposite of these actions happened? Lower costs to landlords and more landlords entering the market?

Another thought. Maybe renters aren't that savvy and expect the only direction for rents to be up and landlords simply oblige.

Slightly tongue in cheek but look at Crashy as evidence. He spent £31k in seven years on rent for his last place but has no idea what his landlord bought for, what he sold for (or if he sold) and never gave a thought to the fact that his landlord might have received the perpetual gift of low interest rates from the BoE. This is someone who you might think has a passing interest but knows only one number - his monthly rent.

You mention you think this board is populated by people who say all roads lead to rent increases but maybe tenants are a bit that way of thinking and they're getting poor value as a result.

If I was a renter I'd certainly be able to tell you my landlord's yield and would also know what he'd purchased the place for.

mwpt

wotsthat wrote: »

Another thought. Maybe renters aren't that savvy and expect the only direction for rents to be up and landlords simply oblige.

My simplest explanation in a chaotic system is that tenants bid up rents to reach a market price.

All the other vagaries of the system influence it but trying to predict that some highly leveraged landlords with a choice of selling up or trying to move the market price will manage the latter is speculation and I don't buy it as fact. The landlords love the idea though, it gives them human shields (their tenants) while trying to protect their rent seeking interests.

cells

Rents are set by tenants. For all intents and purposes renting is like an auction with renters bidding against each other until a clearing price is reached.

That much is certain. It gets a bit more complicated when you try to figure out how the quantity of renters and supply changes to various factors. But it's certain that rents are set by renters not landlords.

cells

mwpt wrote: »

My simplest explanation in a chaotic system is that tenants bid up rents to reach a market price.

All the other vagaries of the system influence it but trying to predict that some highly leveraged landlords with a choice of selling up or trying to move the market price will manage the latter is speculation and I don't buy it as fact. The landlords love the idea though, it gives them human shields (their tenants) while trying to protect their rent seeking interests.

The act of selling up by some will move the market rent price for the rest. It's not about willing a higher rent.

mwpt

cells wrote: »

The act of selling up by some will move the market rent price for the rest. It's not about willing a higher rent.

It may or may not. A landlord could sell with sitting tenants to another non highly leveraged landlord at a price where the current rent makes a viable return. Perhaps current tenants must move and their rent was at market price, so they find a similar property for the same price. Or perhaps their rent was a bit below market price, so they must either relocate or pay a bit more. Perhaps the landlord sells to OOs who were previously renting. If they can afford to buy they may be at the high end of tenant quality, frees up one tenanted house, removes another. Perhaps your density stats are true and maybe OOs benefit for once by some slightly stifled or negative HPI and tenants must pay a little more.

It is way too complicated to predict in my opinion.

My best guess: rents carry on rising, at about around the same rate as they have been doing with landlords claiming this as a victory against their #TenantTax and others saying, well rents were rising anyway.

*shrug*

wotsthat

mwpt wrote: »

My simplest explanation in a chaotic system is that tenants bid up rents to reach a market price.

All the other vagaries of the system influence it but trying to predict that some highly leveraged landlords with a choice of selling up or trying to move the market price will manage the latter is speculation and I don't buy it as fact. The landlords love the idea though, it gives them human shields (their tenants) while trying to protect their rent seeking interests.

You keep going on about highly leveraged landlords but this affects any landlord with a mortgage and a combined rental and other income which puts them in the 40% tax bracket. In London these landlords aren't at the margin - just about every landlord with a job, a mortgage and a BTL will be affected. In Stoke less so.

If a single penny in extra tax is raised as a result of these changes then it's fact that it has been paid by someone. It's wild speculation to assert that penny will be paid 100% by the landlord rather than shared between the market participants. It wouldn't happen in any other business - it won't happen here.

The market conditions are changing - the fact that each landlord is affected differently based on their personal circumstances doesn't alter this - it just makes it more interesting to watch.

mwpt

wotsthat wrote: »

You keep going on about highly leveraged landlords but this affects any landlord with a mortgage and a combined rental and other income which puts them in the 40% tax bracket. In London these landlords aren't at the margin - just about every landlord with a job, a mortgage and a BTL will be affected. In Stoke less so.

If a single penny in extra tax is raised as a result of these changes then it's fact that it has been paid by someone. It's wild speculation to assert that penny will be paid 100% by the landlord rather than shared between the market participants. It wouldn't happen in any other business - it won't happen here.

If you say so. You could also say that in any other business massive reduction of primary cost (mortgage rate) would have led to cost reductions passed on the 'customer'. Didn't happen. So I think your predictions make sense in some theoretical way but don't explain the actual observed behaviour of a chaotic system. So either, it is behaving as you'd expect a chaotic system to behave, unpredictably, or we are able to make predictions. Scientific method mandates that we make testable predictions. How will we know who was correct?

On a note I touched on earlier, if tenants do in fact suffer because of this, then some would be buyers should gain.