The Bank of England has sounded the alarm over a worsening crisis in the rental market as high taxes and red tape forces landlords to sell up.
In its Monetary Policy Report published on Thursday, the Bank said demand for rental properties has continued to outstrip supply as “the number of landlords choosing to exit the market increased”.
Therefore rents are going up – reductions in supply tend to do that.
My word, wouldn’t we be lucky if there were a science that could teach us about these things?
High taxes and red tape are only a part of it. You would think that the BoE would recognise that highly geared landlords are going to be vulnerable to interest rate rises. Perhaps less obvious to the luminaries of Threadneedle Street is the fact that the terms of a tenancy agreement entered into freely by landlord and tenant are effectively overridden by laws protecting the tenant.
All political parties think there is political gain to be had from depicting landlords as evil exploitative capitalists.
Q, the total amount of housing stock, hasn’t changed. Although yes, renters will have to rent crappier housing in shittier areas.
My word, wouldn’t we be lucky if there were a science that could teach us about these things?
Yes, we would be lucky if economics were a rigorous science. :-p
I’m always amazed, but not surprised, that so many laws are passed to benefit a ministers mates.
George wanted to clear the decks to get rid of all those common little people borrowing money to buy a property to let. Simples! Change tax law to eliminate a fundamental principle. Disallow the cost of being able to earn a profit, before taxing said profit.
So all his rich mates who just bought cash paid less tax than saps who paid interest. Not too much of a liability when interest rates are peanuts, but now becoming more of a millstone.
And I’d better not mention the Kahn(t) and his rent controls…
I blame Homes Under the Hammer.
Encouraging the oiks to buy property indeed !
Grist – 100% agreed.
In the long list of politicians who deserve a good beating, Gideon Osborne is at the top of my list and the one whose bloodied, broken face would give me the most pleasure.
“So all his rich mates who just bought cash paid less tax than saps who paid interest.”
The real benefit was to those who purchased through limited companies (where the rules didn’t change) rather than personally. Ie, an attack on private landlords over corporate. Same dishonest lobbying principle at work that you imply!
The annoying thing is that a lot of new regulations& taxes came in, but future historians (or Ritchie in a couple of years time) will confidently assert that rents rose because interest rates rose, nothing to do with all those regulations.
I wonder if hundreds of thousands washed up on our shores has done anything to intensify demand too? Councils with insufficient council stock, rent private properties for the new-found destitute.
In Cornwall the private rental market is in freefall
Landlords are fed up with the compliancy regime, taxation changes and tenant obstructionism
The EPC nonsense is the final straw
They are selling up (largely to second homes market) or doing holiday letting/AirBnB
Leftie campaigning against moustache-twirling top-hatted eeeevil torreeee exploiters of the poor has achieved the destruction of the private rental market
Lucky we have all that social housing to replace it……
I’ve always not understood that diagram. Is it labelled wrong? It tells me that as supply (the blue line) increases, price increases. Which doesn’t match reality.
@jgh
You’ve got it backwards. As price increases it encourages more supply. P not Q is the motive force.
@ Grist
Do you believe in perpetual motion machines too?
The most that Gideon’s changes could do was make middling-rich landlords with mortgages pay as much as the rich ones who paid cash. Also Gideon went to St. Paul’s School for the bright (but not quite as bright as Winchester) boys not Eton for therich boys.
I never did like Gideon, but I don’t need to make things up about him
Is it because the demand for housing must slope up?
Is this one of those inconvenient truths that just get you banned from econ blogs, because religious fervor?
“The real benefit was to those who purchased through limited companies (where the rules didn’t change) rather than personally. Ie, an attack on private landlords over corporate. ”
So what’s stopping Joe Public from registering a limited company and buying his BTL through that? Genuine question – is there some reason the average person can’t do that? Starting a company is simple, so it can’t be that. Something to do with it being harder to get a mortgage possibly?
@ Jim
The risk that the bank takes is much greater when lending to a small limited liability company than when it lends to an individual who is on the hook for the full amount of the loan (and usually has a valuable asset in the form of his/her owner-occupied house to meet any shortfall between the value of the BTL property and the mortgage). So BTL mortgages for limited companies are more expensive and there is a cost to set up a company or buy an off-the-peg company – you need to make a significant amount of profit before interest and interest deduction for it to be worthwhile. That is apart from the hassle of registering and producing annual accounts for a company.
One reason why there is a shortage of landlords is the continual persecution of landlords by left-wing politicians and a lot of civil servants (including therein local government “workers”). When I was a young investment analyst our property specialists told me that it was standard to get a 2% higher yield on property than equities to compensate for the hassle – and that was on commercial property: they wouldn’t touch residential!
Single family homes for rent have become big business for private equity in the US and the same firms (Blackstone is the major player) want to replicate this business in the UK. The ‘multifamily residential’ market (ie apartment blocks built for rental) is also big business in the US but planning and land costs make it tougher here. The government gets frequently lobbied about both these business lines.
The Tories also find that measures which hurt small landlords not only favour corporate landlords but also please the halfwitted mob who think BTL is some sort of oppression which stops them buying a 2 bed flat in zone 1 for tuppence.
It is easy to set up a limited company to buy housing for rental, but a PITA to transfer existing holdings into said company, which is why the many many small landlords with one BTL property (ie most of them) don’t do it. And yes, then they are looking at commercial mortgages.
Philip: In that case, Price should go across, as the active component, Supply should go upwards, as the function of the active component. I’m reading the diagram in English. In English time’s arrow goes from left to right, not from bottom to top.
@? Why does bitcoin keep going down despite restricted supply?
Because you neglected the concept of substitutability. If tomorrow everyone decided that Doge coin was the place to be, Bitcoin would drop to zero as there would be a huge surplus of it available. This is the stupidity that would get you banned from econ blogs.
I guess you really are that stupid.
John,
You’re absolutely right, but also – to answer Jim – for that type of small limited co, banks can often ask for/demand personal guarantees (depending on the limited set-up). That can get the interest rate down nearer to a personal purchase, but retain the tax position of a limited. But, as MC said, complicated by the planning/history if the assets were already owned personally… Re new purchases, fresh possibilities obviously.
Yes!
jgh @6:08
There is no time component there. It is Price v Quantity. There is a space of potential prices and potential quantities. The lines cross at a price where demand (buyers) matches supply (sellers).
YES THERE IS! The passage of time as the reader reads something. In English that goes from left to right, so as an English reader you read from left to right, so you read a graph as progressing from left to right and effecting up & down. As I Go Across This It Does This. Here is something, it results in effect. Move along to the next something, it results in effect. Move along to the next something…etc.
@jgh. I have always thought that diagram was the wrong way round, and I have to either read it bottom to top (instead of left to right) or flip the axes in my mind. The blue line says that supply price is a function of quantity. My heart says that supply quantity is a function of price. I hate the idea that economists don’t know how to use graphs so to give them the benefit of the doubt I do this:
Of all the possible worlds, in the one where there are only six bicycles for sale, what must the price be like? In the world where everybody is trying to sell every bicycle they own, what must the price be like? In the world where only six people want to buy a bicycle, what must the price be like? In the world where everyone wants to buy a bicycle, what must the price be like?