An interesting study reckons the way to sort out the rental market in London would be to encourage bigger brands and longer lets with branded build to let schemes. Now I can definitely see the attraction in this, because if I’m going to rent a property I’d rather it was modern, and well built, with someone caring for the whole block. Obviously if there’s a single owner this would be a good idea, and when you look at the proportion of new build flats that are bought solely to let as an investment there must be mileage in building such properties to be let.
Also, if I’m paying a more sensible rent for a higher quality property then I’ll either not want to buy a place or when I do I’ll actually have more of a deposit together thus negating the need to look for one of the now disappeared 125% mortgages.
There’s definitely the germ of a good idea in this, and it could be approached as a green policy if it helped foster a form of letting that encouraged owners to invest in energy efficiency and the like. Certainly as tenants move house more often than owners they are far more likely to make some form of choice based on a Home Information Pack like energy rating. And this is exactly the kind of scheme I had in my head when I objected to the new office block at the bottom of my road and instead suggested the council build something I could afford to rent/buy and live in.
And if you want to read the actual report it’s over here.
Anything that drives down the price and up the quality of rented accommodation is a good thing – unless it also drives up the price of buying a house. If the BPF plan works by buying up land that does or could have houses for sale built on it, it’s going to do exactly that.
I say this because ultimately, renting is a mug’s game. You pay money, you get somewhere to live, but you don’t accumulate any capital. The landlord gets enough rent from you to cover his mortgage and upkeep, and at the end, effectively has a free house. This is a massive redistribution of wealth from the poor (ie young) to the rich (ie old). The goal should be to enable people to buy their own houses as early as possible.
What can we do about this? Well, not encouraging more buy- or built-to-let, for starters. In fact, putting the screws on landlords to make it a less attractive business – taxing their profits more heavily, having stronger requirements about keeping properties up to date in terms of energy efficiency etc – would be a positive move.
But also, new forms of ownership. Part of the reason rental exists is because renters typically can’t raise the deposit needed to buy a house, nor get a big enough mortgage, since they’re not already on the property ladder. Also, given the rapid turnover of tenants, they won’t want to do it, and pay the various huge fees, every year or three. Also, short-term ownership is risky, because there’s a chance some once-a-decade repair job will crop up during the two years you’re living in a house. So how about setting up a specialised limited company to actually own the house? The company takes out a mortgage, then lets the house to tenants, charging a bit over the cost of the mortgage to build up a fund for maintenance, thus spreading the cost over many years of tenants and reducing the risk to each of them. So far, so like a normal landlord – but the crucial difference is that the tenants would also accrue ownership of the corporation. Instead of paying rent, they’re really buying shares in the company. When the mortgage is finally paid off, the house can be sold, and the money shared amongst the shareholders. Since the shares promise a slice of the value of the property, they themselves have value, and can be traded; once you’ve moved out of a place, you could sell your share to raise money for a deposit on a conventionally-bought house. Effectively, you break the huge lumbering unit of a house into smaller units, more suited to flexible living. This arrangement adds a degree of security to things that should enable banks to lend to it on terms more similar to commercial than residential property, thus bringing down costs for tenants. Banks, in return, get a more reliable investment. Everyone’s happy except the various evil parasites (landlords, letting agents and estate agents) infesting the current system.
There’s a wider point about the economics of housing, though. Housing is a fundamental necessity for everyone, and as such, really not something that can be left to unregulated private enterprise. I say this not because i don’t trust free markets, but because *there cannot be a free market in housing*, for a very simple reason: the supply of goods is fixed. Yes, more houses can be and are being built, but the number is vanishingly small compared to the number of houses already existing, for the simple reason that London is already pretty much completely covered in them. New ones only get built when another bit of industry escapes the city and releases some land. Now, if the supply is fixed, then a fundamental assumption of the free market is undermined: that new suppliers can enter the market and undercut existing suppliers, thus driving down prices. The only way a new supplier could get houses to supply would be by buying them from existing suppliers. So, if a free market can’t operate, the whole idea of letting housing be a private matter starts to look dodgy.
In conclusion, bollocks to it all.
comment > post = lol
I don’t think that housing has been left to unregulated private enterprise, indeed I see the thrust of the report as arguing that there is money that is being invested in property that is going into commercial build-to-let which would be better spent in residential build-to-let. Also, I’m not convinced that state led housing is necessarily better than private company led housing.
I definitely think there is room for built-to-let property. I think that too much regulation and incorrect subsidy and tax laws lead the money to be invested in commercial property instead. All markets are not entirely free, but also houses are not forever and it makes no sense to have London dependent on a large proportion of it’s residents renting properties nearing the end of their lives and necessitating renovation when they could instead live in modern blocks which are both more space and energy efficient.
What happens at the moment, which I think also fuels the market is that people buy in one area then when they move let the existing property rather than sell it as they are unable to afford one where they now need to live but can afford to rent. This is a situation that could be avoided where those who bought initially could be persuaded to rent instead.
I’m not wedded to the idea that people should own their house, rather that they should have a security of tenure.