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I would be the first to concede that not all predictions are correct. The great economist JK Galbraith once said that economic forecasting was invented to make astrology look good. History is littered with examples of forecasting bloopers, and not just among economists and business analysts, especially in the rental market.

More than 30 years on from the Great Storm of 1987, weather forecasters pray that they will not fall into the Michael Fish trap of offering false reassurance when a big weather event is approaching.

Despite these dangers, one forecast that could be made with confidence in recent years is now coming to pass. This was that if you undermine and reduce the supply of rental properties, as sure as night follows day, unless demand also falls, prices – and especially rents – will go up.

National Landlord Investment Show – MPU

This was not, it should be said, a forecast which hid its light under a bushel. Everybody involved in the rental markets, most notably buy-to-let (BTL) landlords and their representative bodies, warned that the tax assault on landlords, initiated by George Osborne, would have precisely this effect.

Osborne’s assault

Osborne’s assault, the Stamp Duty premium, the change in the tax treatment of mortgage interest, together with other measures people will be only too well aware of, was always going to reduce the supply of rental properties.

More than three years ago, writing in The Guardian of all places, the columnist Simon Jenkins wrote: “Is George Osborne really a Tory?…Today, in a sudden revulsion against market economics, he is penalising buy-to-let investors – and their tenants. Osborne’s assault on BTL is mystifying. With the withering away of public housing, private renting is how ever more people live, especially in cities.”

The latest monthly residential market survey from RICS (Royal Institution of Chartered Surveyors) shows this effect clearly at work. The good news is that a tight lettings market is resulting in higher rents, with a balance of 25 per cent of surveyors expecting rental growth to strengthen in the coming months, the highest figure for three years. The bad news is that much of this is due to reduced supply, not rising demand. Landlord instructions have now fallen for 13 successive quarters.

A selection of responses in the RICS survey tells the story. As one Yorkshire agent put it: “Lettings are still very busy, stock is low as landlords are selling up due to the tenant fee ban. New investors are currently thin on the ground.” Or, from the West Midlands: “We remain concerned as more landlords are considering selling rather than renewing leases with tenants.”

An agent on the South coast put it like this: “Rental markets will be squeezed. Private Landlords will be more scarce and rents will rise, putting pressure on renters.”  In London, in the south of the capital, one agent was clear: “Limited supply of property due to government measures is discouraging investors from BTL properties.” In North London, meanwhile, it was a similar story: “The loss of some ‘amateur’ landlords, due to increased tax and regulation has resulted in upward pressure on rents.”

The elephant in the rental room

You get the picture. It is all happening exactly as expected. The forecasts were right, and it wasn’t exactly rocket science to figure that out. So, what should be done about it?

Simon Rubinsohn, chief economist at RICS, says: “The lettings market data continues to send a very strong message that institutions need to upscale their build-to-rent pipeline, to address the shortfall resulting from the decline in appetite from BTL investors. It is significant that the near-term rental expectations indicator has climbed to a three-year high.”

It is a point of view, and certainly more institutional involvement in the rental market, so far mainly confined to a few pioneers, would be a good thing. But we should not ignore the elephant in the room. The current situation has arisen because of a former Tory chancellor’s decision to attack the BTL sector with a series of damaging tax and regulatory changes.

Reversing some of those would be a pretty good way of preventing landlords from exiting the rental market and even encouraging others to move back in. It does not seem to be on the government’s agenda. But maybe it should be.

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David Smith
David Smith has been Economics Editor of The Sunday Times since 1989. He is also chief leader-writer, assistant editor and policy adviser. David is the author of several books, including Free Lunch: Easily Digestible Economics; and Something Will Turn Up: Britain’s Economy Past, Present and Future. He is a visiting professor at Cardiff and Nottingham Universities and has won a number of awards including the Harold Wincott Senior Financial Journalist of the Year Award, the 2013 Economics Commentator of the Year Award and the 2014 Business Journalist of the Year Award in the London Press Awards.

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25 Comments

  1. Government interference in the property markets has never played well. Osborne’s obsession with encouraging institutional investors while whipping up hatred against innocent professional landlords made me wonder if he was planning a future in construction for social housing owners. I actually wrote to him, telling him to resign because he was incompetent and a disgrace to the Tory Party!
    We need not merely to reverse Osborne’s measures, but unwind Brown’s changes to CGT too. By flat-rating this as opposed to tapering it, he encouraged a speculator-led bubble that is now largely to blame for the unaffordability of properties.

    A good boost to the PRS would be to encourage investment to remain in the sector, by allowing landlords to offset sales against replacement purchases made within 2 years. By stopping the government stealing 28% of PRS capital gains every time somebody wants to sell, more money and investors would remain in the PRS.

    For me, though, it’s too late. I had 18 properties for rent; now I have 8 and they will also be sold. Only 1 of the 10 so far sold went to a replacement BTL investor; the others all went to 1st time buyers. Heaven help anyone who wants to rent in future.

    1. Great post.

      I’m delighted to hear you have sold ten properties and they have become 9 homes for owner occupiers putting nine families putting on the property ladder and improving society as a whole.

      It seems former chancellors have achieved exactly what they hoped for, homes should be for people not properties for speculators.

      1. Not everyone wants to buy or can afford to buy. Where does your attitude leave people who have no choice but to rent? Many people want or need the flexibility.
        Why don’t you complain about the banks and the difficulties everyone faces when trying to obtain a mortgage, or complain about the massive pay inequalities!
        There are always properties to buy.

      2. What about the homeless tenants who can’t afford to or don’t want to buy!?
        Where are they supposed to live.
        Also do you really believe that FTB are waiting to buy ex-rental properties!!!???
        There are plenty of properties to buy without any LL selling up!
        Afraid you have bought into ridiculous Govt propaganda that LL have stock which FTB want to buy.
        Absolute rubbish!!
        It is the rich that are becoming homeowners while the poor tenants are left struggling for somewhere to live.
        This ultimately costs the taxpayer billions in welfare payments especially TA costs which are horrendous.
        Govt should be doing exactly the opposite of what it is doing.
        This won’t happen though.
        So the UK rental market will become like the Irish one where there is a tenant homeless crisis and many of the LL have left the market dye to bonkers Irish Govt policies.
        This will be a situation faced by this Govt.
        The only hope they gave of avoiding thus is if immigration stops and many migrants leave the UK.
        No idea whether this will occur.
        I doubt it!

        1. The only hope is to build more homes and assist people getting onto the property ladder.

          Of course we need places to rent too, but there are people being left behind by the current system that need help.

          1. You must remember that the situation you correctly mention is only occurring in the SE.
            Everywhere else in the UK property is affordable.
            Unfortunately with open borders it is simply impossible to build to meet demand.
            The borders would need to be closed for about 10 years for supply to catch up with demand.
            This will simply NEVER happen.
            But just because it won’t is no reason NOT to attempt to build as you suggest all types of property.
            I agree that due to unaffordability if SE properties that assistance needs to be given in such high demand areas.
            This will be a very political decision and I can’t see any Govt offering buyers extra facilities over other areas of the country.
            But clearly affordability in the SE is a big issue.
            There must be many suggestions as to how these issues could be addressed .
            It really is a matter for general debate and I DON’T believe any opinions should be disregarded in addressing these problems.

  2. The article omits the glaringly obvious fact that as BTL landlords exit the market their former investment properties become owner occupiers homes, which was the purpose of removing the tax break on residential property mortgages.

    If we are to address the inequalities in our society; helping people buy homes to live in by reducing the competition from “investors” seems very logical. Of course we need more properties, but it is madness that a property can be filled with humans who can afford to pay rent profitably for a landlord, but those same humans can’t get a mortgage costing less per month than the rent, we have a catastrophically perverted view of social justice and BTL landlords moaning is a perfect example of the blinkered one sided views of this broken market.

    1. Who forced prices up in the first place; the banks, by allowing interest only mortgages. If no one could have got
      such huge mortgages, they couldn’t have risen so high. The banks get their cake and eat it and the government cashed in on equity that only exists if you sell up and lose your btl income.

      Also, being a landlord is quite hard work and a worry.

    2. You might need to go to spec savers as often let properties are shared and when removed from the rented market some will go back to single occupation and this may reduce the actual amount of accommodation and potentially increase problems for those poorer people who cannot afford to buy. Too many simplistic political views for and against the PRS.

      1. Your point is most valid, although not about spec savers. Many BTLs are HMOs.

        Of course some properties as they return to owner occupier status will revert to single occupation. Although that is more likely to me single household occupation, rather than single person occupancy. Even then, as I did when I started, spare bedrooms can be let out. However, I concede an owner occupier is less likely to cram the property for high density living like a low grade HMO landlord, so that would put additional pressure on the housing market, much like clearing Victorian slums did.

        There is of course a difference between private landlords providing social housing which is then sub let to local councils and those who are providing commercially viable residential property to retail tenants. By definition the latter can afford the monthly cost of owning a house, but may not be able to obtain the finance, to own their own place. A calamitous fault of the system, which landlords thrive upon.

        You are further right that we should not simplify a broad and complex market with unnecessary generalisation, so my apologies for debating this issue, from a balanced perspective.

        I suspect we might mostly agree that a legislation light, level playing field would be the most desirable market, and I’d be the first to support that. The average Uk salary is currently just shy of £30,000; the average home costs £230,000. The average lender might give you four times your salary. So we have a problem.

        So that person goes into a house of multiple occupancy, which might be amazing or akin to a slum and pay the landlord rent, rather than a bank mortgage and perhaps will never get on the property ladder, and many landlords just don’t care.

        1. Again I question your opinion when relating property prices to average salaries. Firstly most buyers are pairs or couples so £60k income. You quote average sales values but you get on the market st the bottom and climb the housing ladder as I had to. So you are putting your playing field on an incline and not level. Slums are also another debate. People cause slums not buildings. Demonstrated in parts of London where problem council blocks have been turned into luxury blocks. Years ago Islington and hackney were considered slum areas but same buildings just different socioeconomic occupiers. So people & their circumstances cause slums. It is politicians that influence living standards. Landlords provide a valuable resource hated by left wing lunatics and demonising those who have invested. The markets set rents not landlords. My spec savers comment was not intended to be offensive just highlighting the polarised stances taken by many.

          1. I agree strongly with this
            People cause slums
            The pride and respect is sadly lacking.
            Some people are happy to live in their own filth and show no respect for others property.
            We have a country which encourages this behaviour they get rewarded for it instead of punished.
            I hope Boris looks at the damage costs in the PRS and brings in laws that discourages such behaviour

        2. In my area there are many FTB properties which are not selling. It appears the new builds with government 5% loan is where the FTB are heading. So second hand market dead. No FTB and no investors.

          A massive homeless situation created by G Osborne and will get considerable worse if S21 is removed.

          So a housing crisis created by the Tories, you can’t keep putting plasters on it.
          Undo the rediculous policies by G Osborne immediately.

  3. I sold our 19 year occupied home and moved into one ex rental we added 2.5 to rent in April and had 2 notices. So we go 2 back Since then we’ve sold one. And they ex tenants have asked to move back . Too late

    3 houses in this street sod out of b2l in 8 months in one street .. 5 left be selling 2 more in next 2 years.

    Who’d be a landlord… it’s mugs game .. who’d be a tenant

  4. Ed is missing the point. Of course in an ideal world we should be a nation of owner occupiers.
    However, it is blatantly obvious that we do not live in an ideal world especially as it relates to housing.
    There is no such thing as affordable housing for many, at that is very well known. Housing is an expensive commodity and will remain so for the foreseeable future. There is no appreciable evidence that the tax assault on private housing providers has yielded more homes for FTB’s ( English National Housing Survey). There is no consistent data showing that rents are higher than mortgages and in real terms to include maintenance costs rents can be considerably cheaper. Rents are not rising to unaffordable levels, in fact, rises have and remain well below CPI ( ONS & English Housing Survey) It is a nonsense to suggest that homes sold by a Private Housing Providers will be sold to FTB’s, many are sold to older people downsizing , divorcing couples and or those who are not FTB’s.
    The fact remains that we are about to enter a housing crisis like no other and there is no form of market manipulation that will provide a housing solution within a workable time scale.

    Condemning the private rented sector for providing 4.5 million homes when successive governments have failed to do so is unconvincing and plain wrong. The U.K. desperately needs BOTH housing to buy and to rent. To discourage either tenure at this time is sheer folly.

    1. You are absolutely correct – poor Ed has polarised glasses seeing only from one perspective.

      1. I hope I’m balanced, after all I am a professional BTL landlord and property developer. I look around and, to use your word, see the polarising effect of the BTL market on our society and am genuinely saddened at the low quality of many let properties. Just trying to offer a fresh perspective

    2. I get it. We need a massive construction boom. I don’t mean building Lego homes out of town on greenfield sites but high density sky scrapers on brownfield sites with good public transport links to city centres, surrounded by green spaces. We are woefully let down by restrictive planning laws and local authorities cowtowing to middle class NIMBYism. It’s notable that people with homes are those who complain about new homes being built for these without homes. I’ve never been to a planning meeting where the homeless or renters shout at planning officers demanding new homes shouldn’t be built, but it happens all the time from those with homes.

      I’m in no position to question your statistics AJR, I simply know I’ve never let a property out unprofitably, that profit margin is achieved at the expense of the lodger, if the lodgers could get a mortgage they could live in the same house for less because there would be no profit margin to me, that’s a fault of our financial system.

      My axe grinding grievance with so many BTL landlords is the claim to be offering a service, sometimes even a charitable service. Unless a landlord is physically creating new homes, or more marginally improving existing homes and therefore people’s standard of living, the truth is the classic BTL landlord is contributing nothing to the country’s housing stock they are simply denying home ownership to others.

      So bravo for the extra 3% stamp duty, less generous capital gains breaks, the restriction to offset mortgage payments and more stringent laws on property standards. Let’s build a better society with more higher quality homes for owners to live in, let’s destroy the existing restrictive planning laws, liberalise financial borrowing for those who need it and increase standards across the housing stock of this country. The era of the small BTL amateur landlord sweating assets with low quality HMOs has passed its zenith, hurrah for that, let the building start.

      1. I would respectfully point out that the rental market has upgraded much of the poorer housing stock as the market has also meant bad properties do not let at good rents. The sale of social housing and asset stripping buy councils and other social housing providers are a significant contributor to the problems and the poor property is an income problem due to economics. As a BTL landlord I would guess you provide good properties and a rent that relates to what you provide? The broader problem is big companies employing people at low salaries. There should not be a need for minimum salaries if the world was fair. It is all a problem of economics but landlords have been demonised by government and the use of the world Rogue is now associated with the word landlord. Subtle but unfair in most instances. Provision of social housing is a significant part of the remedy BUT that costs public expenditure.

  5. Ed,
    Agreed, we certainly do need a building boom and less Nimbyism etc.

    However, the forward timescale to deliver all the housing required both for owner occupation and to rent is so far short of spiralling demand it will take perhaps decades to equalise.
    To compound the problem this Gov is determined to undermine the PRS at a time when, like it or not, it is most needed. The concept of affordable home ownership for all is a time proven delusion. A more practical approach is to provide both forms of tenure and to do so cost effectively.
    Contrary to your negativism concerning small so called amateur landlords, it is these Private Housing Providers that have housed 4.5 million people that successive governments have failed to provide for. It is also these PHP’s that have achieved year on year the highest tenant satisfaction rates of all forms of rental tenure (English National Housing Survey). The PRS is part of the solution not the problem.

  6. Still struggling with the concept of:

    “Private Housing Providers that have housed 4.5 million people”

    The infrastructure for 99% of this housing existed before Private landlords bought these dwellings. Simply buying an existing property and then renting it out, ultimately to 4.5m people isn’t created homes, it’s creating a modern feudal class of serfs.

    All that is being discussed is where should ownership lie.

    There will, I accept (after all I’m part of the system), always be a need for a rental sector, but the investment element of the sector has encroached in the market with all the consequences.

    We are building a binary society where it is increasingly difficult for people to get on to the property ladder, whilst paying rent that is higher than ownership costs.

    Any landlord who posts that this is not the case, is either running a lousy business or is being genuinely charitable.

    A landlord that builds homes is an asset to society. A landlord that buys existing housing stock, does the minimum necessary to it, rents it out profitably and then after riding the property boom, moans when they’re having to sell their portfolio to owner occupiers is exactly why our society is in dire straights and the Chancellor was right to intervene.

    1. The unsubstantiated statement that 99% of housing stock existed before private housing providers purchased homes to rent is plainly misleading.

      Ed is far from alone in establishing new homes either to rent or buy. There are many private housing providers that have added to housing availability a/ by bringing back into service homes that required extensive repair and refurbishment. b/by converting larger buildings to provide additional occupancy c/ by the emergence of build to rent. The private rented sector is indeed providing newly available housing.

      When has it not been difficult to buy housing? It’s little use carping about how difficult it is to buy an inherently expensive asset and it’s not a choice that everyone can or has to accept.

      The assertion that to buy a property must always be a cheaper option than renting is also misleading. The research on this shows that this is closely related to cycles in the property market and tends to vary over time. It is also highly dependant on individual circumstances and indeed preferences

      Solving the housing crisis is not simply about owner occupation vs renting it is about the adequate provision of both.

  7. Homes being sold ( Pushed ) by the Government are 50 % or whatever ownership because they realise that because of years of Austerity, young house-seekers can’t afford the market cost of house ( as business doesn’t obey Govt Austerity restrictions ( neither is it the fault of Landlords )
    When more landlords sell, and struggle to find first-time house buyers ( or any house buyers, ) and the Price of EVERYBODY’s property decreases ( but not to the extent First-time buyers can afford ) – that’s when spectators to the Govt’s ruin of renting for Tenants will become apparent. Until then, nobody is realising the harm that being done, austensibly in the name of tenants !
    Everything legislation the Govt have passed on PRS has increased costs – rent for Tenants ( including Tenants Fee Ban.
    When will Tenants and those that claim to support them, wake up and smell the coffee ?

  8. A point often overlooked is that tenants can often afford to live in a better area or rent a better home than they can afford to buy and then complain they can’t buy what they want and prefer to have what they want rather than buy something lesser that what they want with a view to climbing the ladder from the bottom.

  9. It has been Govt which has reduced the capability of homebuyers to buy.
    MMR and the effective banning of IO mortgages without a repayment vehicle being required.
    Plus people are reluctant to cut back on lifestyle and bother saving for a deposit.
    Saving is very boring and most people are not prepared to live boring lifestyles to save for a property purchase.
    None of these circumstances are a small LL fault.
    They just save up for a 25% deposit and use a BTL mortgage to buy the property.
    They gamble that the property will be worth at least the same as when first purchased so that the BTL mortgage will be paid off.
    Unfortunately this gamble doesn’t always work.
    Just look at the Northern homeowners and LL where property values are still less than purchase price from 10 years ago!!
    Investing in property doesn’t always work out!
    However assisting potential homebuyers is something that the State should be involved in.
    Providing the State can obtain some of the hoped for capital uplift then investing with a homebuyer to assist the homebuyers to buy is sensible use of State funds.
    Wages are so low that assistance needs to be given to aspirant homeowners.
    I consider it only fair.
    After all millions of people receive free rental services as the State pays their rent.
    I have no political issue with the State assisting those who wish to buy but can’t currently afford to.

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