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  • Property-a-holics

    Massive silver lining to give landlords hope?



    I have posted about this elsewhere on Property Tribes but believe the information so important that it deserves its own thread.

    I have often said in property that, for every dark cloud, there is always a silver lining, and a new article by the BBC seems to have supplied one with respect to small landlords being forced out of the PRS.

    Buried in an article by the BBC titled "Big landlords are trying to solve Britain’s renting mess" there is some very telling information to give us hope:

    Excerpt:

    But if you look back far enough, it turns out that institutions used to invest a lot in rental property. Not far from the Wembley Park development in North London is a BTR development from an earlier era.

    Developed in the 1960s by the Norwich Union Life Insurance Society, the Queensmead estate in Maida Vale comprised six blocks of flats. "Nothing has been spared in making these homes epitomise the high standards of contemporary comfort," the promotional literature of the time gushed.

    The society had investments around the country. It rebuilt the centre of Solihull in the West Midlands, with shops, offices and flats. But by the 1970s, all the homes had been sold off. Only the offices and shops remained.

    "Very reluctantly, we came to the conclusion that there was little future for the private landlord in this country," Norwich Union's chief estates manager, John Darby, told the society's newspaper in 1976. "The institutions have been practically forced out of residential ownership by the policies of successive governments since the war. I think this is a great shame."

    Part of the problem was limits to the pace at which they could put up rents. Landlords and investors argue that if they can't put rents up as fast as their costs increase, the investments become unviable.

    The new generation of build to rent investors fear that history may repeat itself. The 2017 Labour manifesto promised to limit rent rises to inflation - which would limit the investment returns, and the viability of new projects.

    Michael Allen, director of build to rent at Quintain, the Wembley Park developers says: "There is clear evidence that where rent control has been imposed, this has led to a decline in institutional investment in the private rented sector."

    Full/source article

    So now it seems that Build to Rent institutions might be reticent to invest in the PRS due to uncertainty over Government policies that could make it unviable, just as they found back in the 60's and 70's.

    I have always maintained that it will take 15 to 20 years for Build to Rent to provide enough stock to take up the slack left by the departure of small landlords - and that was if they were building at full speed.

    Now it seems they might be having second thoughts?!

    You really could not make up the car crash of the PRS that the Government is causing, not to mention the mess the housing market is in due to successive Governments' failure to address the core issues.  The above demonstrates that history is repeating itself because of this.

    For Build to Rent to be the answer to the problem, investors need to have confidence that they can operate to the margins needed to satisfy their shareholders.  If they lack confidence in this, then building levels will be muted.  If institutional investors do not fill the gap and create the housing that the nation desperately needs, small landlords will have to once again be the saviour and provide the solution.

    This article has given me even more hope that Section 24 will have to be repealed.

    Do you agree?

    SEE ALSO  -           Housing crisis? You ain't seen nothing yet! A "perfect storm" is brewing.

    UP NEXT -               Institutional investors set to revolutionise private rental sector
     
    DON'T MISS -          1 in 4 landlords to exit due to Section 24

    NOW WATCH: 

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    If small LLs were to leave the market the houses would remain and would still be used..

    BTR investors are looking for investments providing good returns. They are not looking for capital growth. They look for efficiencies from large volumes. SO they only target part of the market - like student lets and luxury apartments.  They won't challenge small LLs owning older houses and especially those barely making an operating profit and relying on capital gains.


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    I doubt that S24 will get repealed - at least not in the immediate future - there is no incentive for it.

    B2R, even if they crack on, only solves part of the rental market - i.e flats, as they are the most scalable asset. But that does not take into consideration houses, of which I doubt we'll see B2R getting involved with (as Peter has stated)

    Will S24 et al affect the small LL, yes. Might be that the small LL will sell to stay afloat and/or just get the arse with all this none sense.

    We could argue that it will end up with a decreasing PRS and we might say that the Tenant will suffer - I doubt it. Firstly Government will not allow the Tenant to suffer (given the pendulum swing against LL and towards Tenants) but more than that institutional investors will buy up 'blocks' of properties and/or portfolios as they come on board.

    We've already seen platforms being built to do this - the ability to pick and mix the collective of what the average LL sells into a grand portfolio.

    The PRS will shrink, B2R will grow - at some point we may even see social housing grow - but more importantly we will see large investment funds buying up what the PRS and the small LL sells over the next few years.

    Things are the same but different. The entire PRS as an industry will have to follow suit or fade away.

    N

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    [Image: 4995468760_6be86655d4_t.jpg]
    general operations director, site owner and moderator - propertytribes.com


    The porest tenants are already suffering.Landlords are replacing poor tenants for richer tenants. S.24 will destroy the housing benefit market.

    I was very lenient with defaulting tenants and rent arrears in the past.Now I am clearing them all out. This responsibilty is going straight back to the Government. Yes the Homelessness Minister will soon realise why the poor have no where to live.They can only brush s.24 under the carpet for so long.

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    For corporates to take a stronger foothold I believe there will need to be a major change to the eviction process, the process will need to become more efficient, basically easier to evict.

    I think plenty of landlords will leave the market in the next couple of years, but for those who remain I think there is light at the end of the tunnel with increased rents and a more streamlined eviction process

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    The eviction process only needs to change in cases of rent default.

    Quite simply if you have 1 month of any amount  of rent arrears  the LL may with police assistance  if necessary  boot out the tenant one day after the full month  has elapsed even if rent is paid in advance.

    No court action would be required.

    Few LL would do this.

    But it would certainly  concentrate the minds of tenants and councils alike!!!

    Institutions  won't invest if there is a threat of rent controls.

    The shareholder proposition just wouldn't be there.

    Rent is the main income driver.

    Without steady increases there is little point in shareholders etc investing.

    But I suppose a lot depends on the nature of rent capping.

    S24 won't be repealed in my investment time line which is about 10 years.

    But the Govt could solve things if it cancelled S24 and the SDLT surcharge and introduced a cap of 50% LTV on new BTL mortgages for new BTL property purchases.

    It should regulate BTL mortgages to prevent LL evading regulated mortgages.

    That should solve things.

    It would just mean new LL would need a lot more 'skin in the game' for new BTL purchases.

    Makes sense to me

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    It may solve things, but the Government want the extra money too (the retrospective element of S24 ensures they get the extra tax too in most cases). I cant see them reversing it until they have no option.

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    Who would check that you are evicting for non-patment of rent, and not for some other reason? What if the tenant claims it was paid? A court case wuld be needed.

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    We had a very good property update from the NLA last week at a property conference in the NE

    I took this view from the information

    The govt at present are more than happy with the currant situation they are making a lot of money in the coming years from the PRS ie S24 Stamp Duty CGT ect

    So HMRC are quite happy

    The effect in terms of loss of stock has not yet hit home because this has not happened yet ??

    It will take one or two years of the S24 Policy to hit home

    But once the effect is in the market Landlords will start and sell

    At Present the Govt is more interested in consumer rights ie longer tenancies and fees ban and they have the EU on there plate so S24 is in th distance and not

    yet in focus from the Govt

    In the latter part of the full effect of S24 The Govt will see its error

    what happens after that is anyone's guess

    This is a time to watch and wait in my opinion and pay more Tax.

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    That sums up my view on the question of s.24 too.

    HMRC and the Chancellor are more than happy with all of the extra income from s.24. They think PRS landlords are middle class fat cats who have had it too good, too long and they love the fact that beating up an easy target beefs up their socialist / 'caring for the poor' credentials. They can also easily deflect the argument that PRS landlords are selling up by stating (quite rightly) that it brings more houses on the market for fist time buyers. In fact any slow down in sales / lower house prices also backs up their argument that this is making it easier for first time buyers. The government will also point out the worst deficiencies of small PRS landlords. The rogue landlords that ignore the health and safety rules can be used to tar the whole sector. Meanwhile the government will bend over backwards for the big institutions who will smoothly wax lyrical about the more professional standards and higher quality housing they will provide.

    It is all about government short termism. It all conveniently ignores the gradually dwindling rental stock for people who cannot / do not want to buy. These people have no lobby group except charities so they can be ignored for now. It also ignores the fact that deflated housing prices will mean the big building companies will undoubtedly delay investing huge sums on building new homes, whilst glibly assuring politicians that they are doing it. But that is all in the future. As many other have pointed out it will take at least 5 years for the mess to become apparent. Lots of PRS landlords have yet to really be hit hard by s24. tax. In 6-12 months even more will be selling. Whilst some are already quietly trying to sell although the flat housing market is slowing that down. The fact that Builders are / will not build anything like the number of new homes that they are meant to, can be fudged away in the Builders figures. Official government statistics take ages to be produced so the full downside has yet to be seen. We can all see that it is a mess waiting to happen but it has all yet to really get bad. Meanwhile the Chancellor is rubbing his hands at all the extra s24 and SDLT income he is seeing. Even that will slow down after the initial leap he is currently benefitting from.

    Worse still. As rental stock diminishes and tenants voices are heard. The government will wish to be seen to be doing something. They will obviously want to maintain the income stream. So they will start looking at rent caps etc. Whilst PRS landlords will suffer, they will be ignored. It will only be the big financial institutions moaning that the asset class is not viable which will stop crippling rent caps etc.

    Of course if Uncle Jeremy gets elected, the rosy picture above might get bleaker. That said, the best investment returns are often made by going against the herd. So maybe mow is the time to invest. If done carefully within the correct structure.

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    Unfortunately I cannot disagree with any of your bleak views on the Govt. 

    It does make you wonder if any of them are capable of thinking past their term in office as they do a damn good job of shafting the UK for the future?

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