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Rent control and buy to let.

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Frazers
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Rent control and buy to let.

Postby Frazers » Sun Jan 04, 2015 5:22 am

http://www.telegraph.co.uk/finance/pers ... stors.html

The rapid growth of buy-to-let is hugely controversial, with private landlords now numbering over 1.2m. Buy-to-let investors are blamed for forcing up prices and preventing younger generations from being able to buy. There is also growing resentment toward the £9bn tax relief landlords claim on their mortgage interest - a form of tax relief not available to homeowners. Yet despite all these benefits enjoyed by private landlords, many are not generating cashflow significantly above their costs. They may be flush on paper, thanks to recently rising property values, and they may be managing month-to-month thanks to very low mortgage rates. But any significant increase in rates would push many into the red, as Telegraph Money argued first in this report last year.


If you now couple this with rent controls - as suggested by a growing number of commentators, politicians and, most recently, think tank Civitas - many in the private rented sector would find themselves losing money each month, and looking into a future where that situation would be unlikely to improve.

Civitas suggests that "once freely agreed between the tenant and the landlord, rents should not normally be allowed to rise above inflation." This cap would be coupled with tenants having the right to remain in the property as long as they wish.
Good idea or not, this could trigger cashflow nightmares for many private landlords. That is because landlords are currently borrowing at exceptionally low rates of interest.

Not only are all mortgage rates at rock bottom, but many landlords are still benefiting from "tracker rates" issued before the financial crisis. Tracker rates offered by now-defunct banks like Bradford & Bingley rise and fall in line with Bank Rate. Many landlord borrowers benefit from these still. They played a big part in helping landlords scrape through the difficult years of 2009 and 2010, and partly explain why buy-to-let repossessions are so low.

When we looked previously at landlord's ability to afford interest rate increases we took as a reasonable mortgage rate Bank Rate (currently 0.5pc) plus 3.4 percentage points. That gives a pay rate today of 3.9pc. What would happen if - and when - rates rose, but rents remained the same?

Our calculations assumed Bank Rate climbed to 3pc (unlikely in the very short term, but still a historically low level).
In London, for example, the average buy-to-let property has a value of £291,500 and attracts a monthly rent of £1,121. An interest-only mortgage on 70pc of the property value (£204,050) at a rate of 3.9pc costs £633 per month, leaving an income for the owner of £458. But a mortgage rate of 6.4pc would cost £1,088 to service per month, dragging the post-mortgage return to the landlord to just £33 per month.

Rent controls would be fatal in such a scenario. It would not be a case of the landlord "limping through": the tentants' rights to remain in the property for as long as they wished would mean the financial straitjacket would be unlikely to ease. The landlord would probably consider cutting his losses and selling up.

Clearly, the buy-to-let borrowers most at risk are those recent buyers who accepted very low rental yields in the hope of making more return via a rise in prices or capital gain.

You could argue they would have been hurt anyway by the gradual return to a "normal" interest rate environment. But anything which prevents them passing on increased mortgage costs in the form of higher rents could be the last straw.


Rent control as a way to reduce costs for tenants is quite frankly a terrible idea. The evidence from last time round (Rent Act 1977) is that rent controls coupled with high security of tenture tend not to work. They reduce supply. The way to solve the problem of skyrocketing rents is to build more - which means planning relaxation and potentially some form of restrictions on foreign ownership. Increase supply of all types of tenures.

Any thoughts NSG?

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:29 am

Frazers wrote:Rent control as a way to reduce costs for tenants is quite frankly a terrible idea. The evidence from last time round (Rent Act 1977) is that rent controls coupled with high security of tenture tend not to work. They reduce supply. The way to solve the problem of skyrocketing rents is to build more - which means planning relaxation and potentially some form of restrictions on foreign ownership. Increase supply of all types of tenures.

Any thoughts NSG?

The solution you present is going to be unfeasible in a number of places, particularly those with high population densities or protected areas. A different solution would be for the municipalities being the largest provider of rentable apartments.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:33 am

Laerod wrote:
Frazers wrote:Rent control as a way to reduce costs for tenants is quite frankly a terrible idea. The evidence from last time round (Rent Act 1977) is that rent controls coupled with high security of tenture tend not to work. They reduce supply. The way to solve the problem of skyrocketing rents is to build more - which means planning relaxation and potentially some form of restrictions on foreign ownership. Increase supply of all types of tenures.

Any thoughts NSG?

The solution you present is going to be unfeasible in a number of places, particularly those with high population densities or protected areas. A different solution would be for the municipalities being the largest provider of rentable apartments.


There are very few, if any, protected areas in the UK which are so large that commuting from nearby isn't feasible or that are so important that relaxed planning restrictions aren't an option. As for high population density areas that's more an argument to promote more dissemination of industry across the nation rather than continuing to pour funding and support into the South-East of England. Improved public transport links are an additional boost for such purposes.
Last edited by Frazers on Sun Jan 04, 2015 5:34 am, edited 1 time in total.

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Fartsniffage
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Postby Fartsniffage » Sun Jan 04, 2015 5:34 am

Laerod wrote:
Frazers wrote:Rent control as a way to reduce costs for tenants is quite frankly a terrible idea. The evidence from last time round (Rent Act 1977) is that rent controls coupled with high security of tenture tend not to work. They reduce supply. The way to solve the problem of skyrocketing rents is to build more - which means planning relaxation and potentially some form of restrictions on foreign ownership. Increase supply of all types of tenures.

Any thoughts NSG?

The solution you present is going to be unfeasible in a number of places, particularly those with high population densities or protected areas. A different solution would be for the municipalities being the largest provider of rentable apartments.


They were, in the UK, but then Thatcher happened.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:35 am

Frazers wrote:
Laerod wrote:The solution you present is going to be unfeasible in a number of places, particularly those with high population densities or protected areas. A different solution would be for the municipalities being the largest provider of rentable apartments.


There are very few, if any, protected areas in the UK which are so large that commuting from nearby isn't feasible. As for high population density areas that's more an argument to promote more dissemination of industry across the nation rather than continuing to pour funding and support into the South-East of England. Improved public transport links are an additional boost for such purposes.

That changes nothing about continued building neither being sustainable in the long term nor its negative impact on quality of life.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:35 am

Fartsniffage wrote:
Laerod wrote:The solution you present is going to be unfeasible in a number of places, particularly those with high population densities or protected areas. A different solution would be for the municipalities being the largest provider of rentable apartments.


They were, in the UK, but then Thatcher happened.


Because everyone felt that home ownership was incredibly important to them rather than simply access to homes.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:36 am

Frazers wrote:
Fartsniffage wrote:
They were, in the UK, but then Thatcher happened.


Because everyone felt that home ownership was incredibly important to them rather than simply access to homes.

Kinda goes to show that it was a terrible idea to pursue that then, doesn't it?

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:36 am

Laerod wrote:
Frazers wrote:
There are very few, if any, protected areas in the UK which are so large that commuting from nearby isn't feasible. As for high population density areas that's more an argument to promote more dissemination of industry across the nation rather than continuing to pour funding and support into the South-East of England. Improved public transport links are an additional boost for such purposes.

That changes nothing about continued building neither being sustainable in the long term nor its negative impact on quality of life.


Why exactly is it not sustainable and why does it have a negative impact on quality of life?

So that we might better understand your position.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:37 am

Laerod wrote:
Frazers wrote:
Because everyone felt that home ownership was incredibly important to them rather than simply access to homes.

Kinda goes to show that it was a terrible idea to pursue that then, doesn't it?


And as buy to let investors improve access to homes for those without the capital to buy you'll presumably be against driving them all out of business.

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Fartsniffage
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Postby Fartsniffage » Sun Jan 04, 2015 5:39 am

Frazers wrote:
Fartsniffage wrote:
They were, in the UK, but then Thatcher happened.


Because everyone felt that home ownership was incredibly important to them rather than simply access to homes.


I know Heseltine said that at the time, but I think it's a bit telling that they had to sell off the properties at massive discounts.

I'm of the opinion that it was more to do with small government and the Tory desire to sell off as much government property as possible rather then a huge desire for everybody to own their own homes.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:41 am

Fartsniffage wrote:
Frazers wrote:
Because everyone felt that home ownership was incredibly important to them rather than simply access to homes.


I know Heseltine said that at the time, but I think it's a bit telling that they had to sell off the properties at massive discounts.


It tells us that the capital wasn't there amongst the target market. It's often the case that we, as human beings, want a lot more than we can afford.

I'm of the opinion that it was more to do with small government and the Tory desire to sell off as much government property as possible rather then a huge desire for everybody to own their own homes.


Personally I believe it was both.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:41 am

Frazers wrote:
Laerod wrote:That changes nothing about continued building neither being sustainable in the long term nor its negative impact on quality of life.


Why exactly is it not sustainable and why does it have a negative impact on quality of life?

So that we might better understand your position.

You'll run out of building space eventually. It's really not a question of whether you're going to stop building, it's a question of when. Negative impact on quality of life comes with the destruction of parks and recreational areas for the sake of building homes.
Frazers wrote:
Laerod wrote:Kinda goes to show that it was a terrible idea to pursue that then, doesn't it?


And as buy to let investors improve access to homes for those without the capital to buy you'll presumably be against driving them all out of business.

It is my understanding that buy-to-let investors have been driving the rents up, thus making it harder for those without the capital to have a place to live.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:48 am

Laerod wrote:
Frazers wrote:
Why exactly is it not sustainable and why does it have a negative impact on quality of life?

So that we might better understand your position.

You'll run out of building space eventually. It's really not a question of whether you're going to stop building, it's a question of when. Negative impact on quality of life comes with the destruction of parks and recreational areas for the sake of building homes.
Frazers wrote:
And as buy to let investors improve access to homes for those without the capital to buy you'll presumably be against driving them all out of business.

It is my understanding that buy-to-let investors have been driving the rents up, thus making it harder for those without the capital to have a place to live.


Reduce the number of B2L landlords and all you do is severely constrain supply in the rental market, causing rents to rise. If they can't, due to rent controls, then people simply won't build rental properties.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:50 am

Frazers wrote:
Laerod wrote:You'll run out of building space eventually. It's really not a question of whether you're going to stop building, it's a question of when. Negative impact on quality of life comes with the destruction of parks and recreational areas for the sake of building homes.

It is my understanding that buy-to-let investors have been driving the rents up, thus making it harder for those without the capital to have a place to live.


Reduce the number of B2L landlords and all you do is severely constrain supply in the rental market, causing rents to rise. If they can't, due to rent controls, then people simply won't build rental properties.

Not if you replace them with the municipality as the landlord.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:52 am

Laerod wrote:
Frazers wrote:
Reduce the number of B2L landlords and all you do is severely constrain supply in the rental market, causing rents to rise. If they can't, due to rent controls, then people simply won't build rental properties.

Not if you replace them with the municipality as the landlord.


Something the taxpayers are unwilling to tolerate. The government can more easily constrain the activity of buy to let investors than they can raise the massive sums needed to re-enter the rental system in any real way to mitigate the removal of buy to let properties.

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Postby Keyboard Warriors » Sun Jan 04, 2015 5:54 am

Laerod wrote:
Frazers wrote:
Why exactly is it not sustainable and why does it have a negative impact on quality of life?

So that we might better understand your position.

You'll run out of building space eventually. It's really not a question of whether you're going to stop building, it's a question of when. Negative impact on quality of life comes with the destruction of parks and recreational areas for the sake of building homes.
Frazers wrote:
And as buy to let investors improve access to homes for those without the capital to buy you'll presumably be against driving them all out of business.

It is my understanding that buy-to-let investors have been driving the rents up, thus making it harder for those without the capital to have a place to live.

B2L investors drive rents down and house prices up.
Yes.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:55 am

Frazers wrote:
Laerod wrote:Not if you replace them with the municipality as the landlord.


Something the taxpayers are unwilling to tolerate. The government can more easily constrain the activity of buy to let investors than they can raise the massive sums needed to re-enter the rental system in any real way to mitigate the removal of buy to let properties.

Then get better taxpayers, because clearly they're not particularly smart. The situation I've described works; Vienna is a testament to that.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:58 am

Laerod wrote:
Frazers wrote:
Something the taxpayers are unwilling to tolerate. The government can more easily constrain the activity of buy to let investors than they can raise the massive sums needed to re-enter the rental system in any real way to mitigate the removal of buy to let properties.

Then get better taxpayers, because clearly they're not particularly smart. The situation I've described works; Vienna is a testament to that.


So your solution to a problem is to replace an entire population. That'll work just grand then :roll:

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Laerod
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Postby Laerod » Sun Jan 04, 2015 5:58 am

Keyboard Warriors wrote:
Laerod wrote:You'll run out of building space eventually. It's really not a question of whether you're going to stop building, it's a question of when. Negative impact on quality of life comes with the destruction of parks and recreational areas for the sake of building homes.

It is my understanding that buy-to-let investors have been driving the rents up, thus making it harder for those without the capital to have a place to live.

B2L investors drive rents down and house prices up.

If they really were driving rents down, I doubt there'd be talk of price controls.

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Purpelia
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Postby Purpelia » Sun Jan 04, 2015 5:58 am

Or we could ban renting altogether. One person, one home.
Purpelia does not reflect my actual world views. In fact, the vast majority of Purpelian cannon is meant to shock and thus deliberately insane. I just like playing with the idea of a country of madmen utterly convinced that everyone else are the barbarians. So play along or not but don't ever think it's for real.



The above post contains hyperbole, metaphoric language, embellishment and exaggeration. It may also include badly translated figures of speech and misused idioms. Analyze accordingly.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 5:59 am

Laerod wrote:
Keyboard Warriors wrote:B2L investors drive rents down and house prices up.

If they really were driving rents down, I doubt there'd be talk of price controls.


They drive prices down but not to the degree that counteracts building scarcity.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 6:00 am

Frazers wrote:
Laerod wrote:Then get better taxpayers, because clearly they're not particularly smart. The situation I've described works; Vienna is a testament to that.


So your solution to a problem is to replace an entire population. That'll work just grand then :roll:

Reeducation might work as well. Look, if people aren't willing to accept a solution then there is no solution, simple as that.

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Laerod
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Postby Laerod » Sun Jan 04, 2015 6:02 am

Frazers wrote:
Laerod wrote:If they really were driving rents down, I doubt there'd be talk of price controls.


They drive prices down but not to the degree that counteracts building scarcity.

Then they're clearly not a sustainable solution to the problem.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 6:05 am

Laerod wrote:
Frazers wrote:
They drive prices down but not to the degree that counteracts building scarcity.

Then they're clearly not a sustainable solution to the problem.


This is why more building work is required as I said in my first post.

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Frazers
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Postby Frazers » Sun Jan 04, 2015 6:06 am

Laerod wrote:
Frazers wrote:
So your solution to a problem is to replace an entire population. That'll work just grand then :roll:

Reeducation might work as well. Look, if people aren't willing to accept a solution then there is no solution, simple as that.


Or more accurate interpretation of your posts would be :

"Look, if people aren't willing to accept my solution then there are no solutions at all, simple as that"

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