Will the BTL investor still be around 2034?
As anyone in any way concerned with the PRS or housing is aware, the most recent English Housing Survey Report showed that 18% of English homes are rented from private landlords which is unprecedented within the last 50 years. However, at the same time, there are many challenges facing private landlords, not least of all unpopularity, with a public perception that we are wealthy, profiteering and exploitative, as well as many local authorities, social landlords and housing charities lacking confidence in private landlords”.
Ed Miliband has been quick to exploit this perception, with his proposals to cap rents and extend rental agreements to three years, despite the glaringly obvious flaws in his plan, which would only lead to a worse housing shortage and push up rents as landlords, lenders and other stakeholders withdraw from the industry. Coupled with this and other threats to private landlords, such as licensing, in say, 20 years time will the PRS in its present form still be a major housing provider?
So let’s list all the factors that might operate against the PRS continuing to be made up of BTL landlords:
– Ed Miliband’s proposed renting reforms which would scare off landlords, and most likely lead to a shortage of BTL mortgages and other specialist finance products for landlords – Labour is currently in the lead in the opinion polls and it’s very likely they’ll form the next government
– There’s some anecdotal evidence that MMR practices are being carried over into the BTL market – but is this likely to continue?
– Help to Buy (HTB) – while this has led to a surge in property values, rents are coming down. As the economy recovers, with more people in stable employment, more people will choose to buy rather than rent.
– The image of the PRS is not helped by rogue landlords and “reluctant” landlords who aren’t always informed and/or not fully committed to be being a landlord, resulting in tenants being mistreated and the introduction of practices (e.g. selective licensing) at local and national level that are extremely detrimental to landlords and the PRS.
– Selective licensing – more and more local authorities are introducing this – the expenses involved can be prohibitive and in addition, lenders can be reluctant to grant mortgages against properties affected
– Even when in desperate need of more housing, some local authorities are mistrustful of private landlords and are reluctant to work with them – I encountered this attitude when I sent out requests to local authorities to link to my website (which was admittedly new at the time) – one emailed me back and told me that they don’t link to sites run by private individuals as they would not trust the accuracy of the information and the commitment to maintain the site.
– In 2011, the Where Next? (PDF) report made a recommendation that housing associations could let property to private tenants, offering them a much more secure tenure than with an AST. If such an initiative were followed on a large scale, and the rental properties were attractive enough to private tenants, this would clearly be a threat to private landlords
– There is a rise in house sharing (which is good news for HMO landlords) but as well as the usual reasons for house sharing, some people are now doing this to save for a deposit to buy a property.
– The government policy of paying local housing allowance directly to the tenant and uncertainty around universal credit continue to be threats to landlords who have no option but to accept tenants on benefits
– While rising property values will benefit larger landlords, smaller landlords may struggle to expand their portfolio while new BTL investors could become priced out of the market altogether.
– Mixed tenure housing developments are being built by local authorities with funding from large private investors – this is very similar to the housing model seen in countries such as Germany, where most property is rented but private investors are large corporations, not private individuals.
So what factors might actually help BTL to continue, at least in the mid term?
– Government and local authorities are hoping to attract more large private investors to fund large scale housing developments (of all tenures) but this can be off putting for such investors, as income yields are often too low, or at least perceived to be (as Central London property prices have been used as a yardstick for the whole country). See Review of the barriers to institutional investment in private rented homes (PDF)”
– While 250,000 new homes need to be built per year (as estimated by Kate Barker in 2004) over a 25 year period, only around 110,000 were built in the last year. There are barriers to building new housing in the UK, which have nothing to with the physical availability of land or funding; namely: – NIMBYism, planning constraints, and a serious shortage of skilled labour – however, given the seriousness of the housing crisis, which is only likely to get worse, coupled with a recovering economy attracting funding, I can see these barriers being removed.
– Many young professionals now prefer to rent as they want their own home but aren’t ready for the responsibility of being a home owner and/or need the flexibility to relocate, coupled with changing working patterns
– More people are viewing property as an investment, not just somewhere to live.
– There are likely to be more new BTL investors following the pension rule change announced in the last budget
So if we could travel forward in time to 2034, what would the housing landscape look like? It has already changed considerably since the 1970s – and surely must change again if we are to solve the housing crisis. But will there be some part in this brave new housing world for small private investors – e.g. could we be share holders in large joint venture housing projects or will BTL continue?
Many thanks to Mandy Thomson (lodgersite.com) for her guest blog.