Ignore the landlord martyrs: time for the BOE to intervene

Generali

wymondham wrote: »

I have an issue with people going on about BTL greed. How many BTLers are elderly people merely looking for a smart home for their money? Their pensions have been hit, interest has been hit and now this....
whats the next big thing they can move their money to and get penalised?

Political risk was always so very likely in BTL. Investors should think themselves lucky: I thought the most likely outcome was that rent controls and security of tenure would be brought in. As soon as the kids of the middle class started renting en masse after uni this was on the cards.

If it's the plebs renting, nobody cares. If it's the nobs then it becomes a serious matter.

antrobus

Graham_Devon wrote: »

I wish - you'd look like you were chewing a hornet for days if you realised their stuff was getting published in the 4th largest national paper.

No, it isn't.


It's a business leader from the Observer, which is the 10th largest national Sunday paper, as compared to the Guardian, which is the 11th largest national daily paper.


http://www.pressgazette.co.uk/national-newspaper-abcs-november-2015-stars-rise-after-price-cuts-times-titles-benefit-bulks

chucknorris

Generali wrote: »

I've been reading the Property 118 thread about the proposed tax changes and they are not a bunch of happy campers. Not At All.

http://www.property118.com/budget-2015-landlords-reactions/76164/

It's quite funny really. They have worked out that they face a tax bill of well over 100% and that it will rise with interest rates. Interesting to note that they have a, IMHO, deeply unlikely view on interest rates, one that is completely at odds with the people that actually set interest rates.

Generali wrote: »

Political risk was always so very likely in BTL. Investors should think themselves lucky: I thought the most likely outcome was that rent controls and security of tenure would be brought in. As soon as the kids of the middle class started renting en masse after uni this was on the cards.

If it's the plebs renting, nobody cares. If it's the nobs then it becomes a serious matter.

I can understand their shock at the surprise tax smash and grab by the chancellor, I don't like it either, but it was one of the risks that I took on when I invested. I have thought about investing in freehold ground rents for years, I keep going back to look at them, but I am very wary of the risk that legislation changes to leasehold agreements would devalue those investments. I've got no reason to suspect that legislation would actually be changed, I just don't want to take that risk on, otherwise I would invest instantly.

The labour party's proposed rent controls are/were a very watered down version of rent controls, that I actually think might be a step in the right direction. They wouldn't hurt me at all, because they offer longer rental agreements and limit the rent increases during the tenancy, that has actually been what I have been doing/trying to do for years.

Graham_Devon

Generali wrote: »

I've been reading the Property 118 thread about the proposed tax changes and they are not a bunch of happy campers. Not At All.

http://www.property118.com/budget-2015-landlords-reactions/76164/

It's quite funny really. They have worked out that they face a tax bill of well over 100% and that it will rise with interest rates. Interesting to note that they have a, IMHO, deeply unlikely view on interest rates, one that is completely at odds with the people that actually set interest rates.

Property118 is basically the complete flip side of HPC.

Personally, I simply love the campaign some landlords appear to be running. The aim is to threaten their tenants with rent rises in order to get their tenants on their side and lobby the chancellor.

Some will even reduce the pace of the increase should their tenant co-operate (even though apparently, they have to increase the rent this much to break even).

Generali

Graham_Devon wrote: »

Property118 is basically the complete flip side of HPC.

Personally, I simply love the campaign some landlords appear to be running. The aim is to threaten their tenants with rent rises in order to get their tenants on their side and lobby the chancellor.

Some will even reduce the pace of the increase should their tenant co-operate (even though apparently, they have to increase the rent this much to break even).

The premises are beyond laughable, chiefly being that LLs can simply increase rents to cover costs. Half their argument is correct: in a normal business all the money comes from clients thus a tax increase will end up being met by clients. However they simply don't get the extension of the argument which is that if your clients can't pay more you end up going bust.

A renter can live in a smaller house or share or buy or go somewhere else. A LL has a house, often with a mortgage attached, that generally needs to be rented to someone.

HAMISH_MCTAVISH

Generali wrote: »

The premises are beyond laughable, chiefly being that LLs can simply increase rents to cover costs. Half their argument is correct: in a normal business all the money comes from clients thus a tax increase will end up being met by clients. However they simply don't get the extension of the argument which is that if your clients can't pay more you end up going bust.

A renter can live in a smaller house or share or buy or go somewhere else. A LL has a house, often with a mortgage attached, that generally needs to be rented to someone.

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.

There are a couple of key things worth noting...

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.

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.

michaels

Generali wrote: »

The premises are beyond laughable, chiefly being that LLs can simply increase rents to cover costs. Half their argument is correct: in a normal business all the money comes from clients thus a tax increase will end up being met by clients. However they simply don't get the extension of the argument which is that if your clients can't pay more you end up going bust.

A renter can live in a smaller house or share or buy or go somewhere else. A LL has a house, often with a mortgage attached, that generally needs to be rented to someone.

Except that as per Hamish and classical economics, if the tax applies to all suppliers then the result is a shift in the supply curve, the market clearing price goes up, volumes fall and the govt takes a slice in the middle between what the renter pays and what the landlord receives.

Thrugelmir

mayonnaise wrote: »

Good point.
We could have a sticky for landlord bashing?

Just read Property118. Appears the whole world is ganging up on them......... Makes one nauseous. :eek:

Generali

michaels wrote: »

Except that as per Hamish and classical economics, if the tax applies to all suppliers then the result is a shift in the supply curve, the market clearing price goes up, volumes fall and the govt takes a slice in the middle between what the renter pays and what the landlord receives.

Remind me, what did Marshall say happens to prices when the supply curve shifts? I don't think that the whole of the tax rise gets passed on.

wotsthat

Thrugelmir wrote: »

Just read Property118. Appears the whole world is ganging up on them......... Makes one nauseous. :eek:

I've only looked once. I truly hope that site is representative of landlords in the same way as HPC is to house hunters.

Bizarrely the hideous on Property118 and the nasty crew on HPC are agreed landlords aren't making money. The reasons for making this assertion are very different though - Property118 would have us believe landlords are in the game for almost entirely altruistic reasons and the HPC crew need to believe their landlords are effectively subsiding their lifestyles.

It's amazing how excited people get about a lettings business.