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Forumites, just curious to hear your opinions on the matter.


Is the high price of London rentals damaging the ecomony?

http://www.andyworthington.co.uk/2012/05/17/rents-out-of-control-how-londoner-are-being-fleeced-by-greedy-landlords/

A shortage of housing, an excess of demand, the eradication of empathy, and the casual greed that underpins the buy-to-let mentality has meant that families and individuals unable to get on a housing ladder that is out of reach for many people ? as prices in London and the south east remain outrageously high ? are being thoroughly fleeced by landlords who are not bound by any rules and regulations, and who can ? and often do ? treat them with disdain while milking them of half their wages or more.


Sadly, however, the greed is so rampant that the thought that landlords ? and rents ? should be subject to any kind of control is apparently heretical, as is the notion that London?s housing bubble is so hideously overblown that, as well as making hard-working would-be first-time buyers suffer as never before, it is also diverting huge amounts of money from the economy as a whole.



But what, if anything, is the answer? As, the case for more formal rent controls seems to be perishingly small in the current climate.

http://www.guardian.co.uk/politics/davehillblog/2012/jun/12/what-is-case-for-london-rent-controls

Mayor Johnson's preferred remedies to the problems of the private rented sector are to improve supply and quality by "encouraging investment and extending landlord accreditation." Formal rent controls may have fallen from favour, but it remains to be seen if the Johnson approach produces better results.


Or is this just an ever-present problem of London life that we have to get over???

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https://www.eastdulwichforum.co.uk/topic/28929-high-price-of-london-rentals/
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If you look at average rental yields it just doesn't support a polemical attack on supposedly greedy landlords. When houses are expensive to buy, they will be expensive to rent. Prices are demand driven, and demand for London housing is driven by the wealth and income of people who want to live here, so in a sense this is a symptom of the success of the city. The housing benefit system is ridiculous, and sustains high rents without any benefit to the public. To an extent this is already being addressed, but there is simultaneously a need for a proper strategy for the role of social housing in ensuring that, for example, key workers (widely defined) who keep the essential functions of the city going are supported.


I note that the Guardian article cited recognises that no-one appears to think that rent controls are the answer, but if you look at the Shelter proposals (there's a link in the article), many of them are pretty sensible.

DaveR gas it right.


Let's say you buy a house to rent for ?500k. For that you'll probably get 5% annually on rent, so 25000 a year or ?2082 a month. The letting agent will take about 12% plus VAT on that, you you get a net rent of ?21400 annually


For BTLs you need to lay down a 25% deposit, so you'll have a mortgage of ?375000. Interest rates are about 5% on BTL, so interest of ?18750 a year - that is interest only, none of the capital is being paid off. That leaves you with ?2650 a year or ?221 a month in 'profit'. From that has to come annual gas checks, annual insurance, any repairs, etc, etc.


In other words, there is little money in renting. The plus has always been in house price appreciation, which has been rather stagnant since 2008.


If you want rent control, then the BTL market dies. If the BTL market dies then a) there will be no rental properties available in London and b) house prices will crash, leaving the current battling mortgage-holding home owners with a massive negative equity issue.


Personally, I think London is unfixable in the short term without causing a lot of collateral damage.

I think Loz has the sum of it in terms of maths.


I don't agree with his conclusion that if BTL dies there is no property to rent in London - that's not logical. All the property still sits there, and if the landlord can't pay the mortgage it goes back to the bank and out on the auction market etc.


The property doesn't disappear.


I totally agree with his view that most approaches to resolving it result in a property crash.


More importantly a property crash isn't an isolated problem for 'rich home owners'. It would be the end of the economy as we know it.


However, I also feel that as an increasingly scarce resource, housing will need to look different in a hundred years time than it does now: mainly down to controlled distribution.


In that sense the idea of individuals being able to own multiple residential properties and charge 'market rates' is not sustainable. Demand will far outstrip supply.


So the only question is how fast can we get there?


I think the first thing we need to see is an end to tax breaks on mortgage interest, followed by increasing restrictions on ownership of multiple residential properties (starting at no more than 10 and ending at no more than 1).


I'd like to see multiple properties transferred into taxable property holding companies, and have those companies subject to tight regulation on rents chargeable.


The goal within 20 years would be to see those property owning companies mutate into non-profit making trusts, and in 50 years into social ownership.


The market argument is always that this is either 'unworkable' or results in property decay because of lack of owner investment.


However, in Singapore 85% of property is owned by government through the Housing Development Board. They are rent controlled and subject to tight ownership restrictions. It has to be, it's a tiny nation with loads of people.


They are also pristine and well maintained.


Housing needs to change, it will change. The only question is how fast we can make it happen. The world is just like Singapore - limited space and loads of people. The solution will be the same.

I agree with most everything that's been said. If you are a landlord and own a property and all of a sudden you can no longer charge a rent that makes it worth your while to continue renting property you will sell your property (one way or another). This will increase the supply of housing for sale temporarily and bring down or restrain growth in property prices until a balance is struck and rental yields make sense again and the system rebalances.


However, this will also create a shortage in rental properties- more people will be attracted by the new affordable rents to London who previously were priced out. A lot depends on where they would cap "fair rents" but, given rents would be set below market-clearing rates, one thing would be sure: outrageously long waiting lists to get a rent controlled property would be the norm. In NY this led to a lot of black market practices. In other places it just leads to massive frustration for young people who want to rent a place and stop living with their parents.


Moreover, I don't think this would lead to a permanent reduction in house prices in London. Ultimately, more people would be trying to move to and live in London creating even greater shortages across the board. However, the temporary crash would pose serious issues for the banking sector and therefore the real economy for an extended period of time.


Key workers and social housing have to be part of housing policy but there are no easy answers to London's high house prices and rents. The underlying issue is supply and demand and can only be addressed by balancing out growth in the UK (so every intelligent Brit doesn't feel the need to move to London to get ahead) as well as developing more property.

Huguenot Wrote:

-------------------------------------------------------


> I think the first thing we need to see is an end

> to tax breaks on mortgage interest...


That single act would bring about an immediate house price crash, as it would no longer be economical to rent out a house. Besides, BTL is a business, so why shouldn't legitimate business costs be deductible?

uncleglen Wrote:

-------------------------------------------------------

> People who are fit and not willing to work but languish on benefits should be moved out of London

> forthwith and put in homes where there is no work out of the capital and other large cities


That would be such a small number that it would have almost zero effect on the housing issue.

uncleglen Wrote:

-------------------------------------------------------

> People who are fit and not willing to work but

> languish on benefits should be moved out of London

> forthwith and put in homes where there is no work

> out of the capital and other large cities


Ill-informed twaddle. Especially given the thoughtful and interesting comments that preceded it.

Saffron Wrote:

-------------------------------------------------------

> But what about people who do work, but cannot

> manage to save any money because their rental fees

> take a disproportional amount of their earnings?


Just to clarify in relation to other comments... that's people who do work, and are not on benefits.


For example, I'm thinking about the current and upcoming waves of graduates and postgraduates, who may be coming out of university with high student debts, but not immediately earning the type of income that could repay student debts while simultaneous affording London rent and/trying to save for a mortgage deposit.


Will London see an exodus of these types of workers, and will that have undesirable effects? Or will it simply open the natural way for competition in these markets?


Another point to ponder... is it beneficial for everyone (or most everyone) to aim for home ownership? (The counterpoint to this being, Is renting detrimental for many people?)


For example, my friend lives in Swizerland with his wife and daughter, and he has a stable, well-paid job. Yet he doesn't see the need for homeownership. Instead of investing money in bricks and morter, he invests in high-return savings accounts, bonds etc. However, in proportion to London rents, his rent seems to be less, and this scenario is far more common in Switzerland than here (as far as I could tell... although comparing Basel to London may be a bit apples/oranges... it's just to make a hypothetical point).

If you don't own your own home, the savings you will need in retirement will be higher. If rent is cheaper than owning (including repairs / insurance etc!) then you can achieve that additional savings. However, if that's not the case, then financially you'll be worse off.


Psychologically, people seem to like a kind of security (no one can move me on) that comes with home ownership. Alternatives exist (tenure rights) but in London where rents can rise so quickly, not owning your place when you have kids can feel disruptive / insecure.


From a societal perspective, apparently home-owners are more involved and invested in their communities (there have been studies I think) but I'm not sure that bit is really the cause. It might just reflect that people who like to put down roots (and can afford to) tend to be community minded rather than having a house making you community minded as such.

LondonMix Wrote:

-------------------------------------------------------

> If you don't own your own home, the saving you

> will need in retirement will be higher.


Is that because people are able to borrow against the equity on their homes during retirement? Or because they tend to sell/downsize to release the equity in larger homes?



>

> From a societal perspective, apparently homeowners

> are more involved and invested in their

> communities (there have been studies I think) but

> I'm not sure that bit is really the cause. It

> might just reflect that people who like toput down

> roots (and can afford to) tend to be community

> minded rather than having a house making you

> community minded as such.


Yes, I think that very well could be the case, although I don't have the data either. There'e a psychological paradigm which basically demonstrates that the more someone invests in something (eg owning a home), the more they feel their investment is worthwhile (eg they attribute value to their community). (Urgh, I can't remember what this psych principle is called!) ...which is not to say that renters don't value their communities, but perhaps the perceived security of homeownership also leaves people with more psychological energy to invest in their communities.


So is this a valid argument for shifting people from renting to ownership? Or is that never going to be possible in a city like London where rents are so high?

Somewhere between 25% and 40% of people's post tax income goes on housing (rent or mortgage) in this country. If you pay off your mortgage by retirement, the amount of pension / savings you need is much lower than if that is an ongoing expense. Also, like you mention, you can downsize and release some of the equity. However, even without that, home ownership makes sense.


Yes, I am remembering the same psych principle you are but can't think of it right now!

Uncleglen you are talking nonsense. I live on an estate and some are on benefits and many work, some in low paid jobs, others earning average salaries. Some people own their homes, others don't.


People on benefits are as different amongst themselves as those who work. Some are lazy, and not interested in work while others try as hard as they can to find work. JSA affords no luxury to anyone claiming it. Some people become ill trying to live on ?71 a week. Others will find ways to make additional income, with severe penalities if caught (and many do get caught). And some people on the ?71 a week do voluntary work, in some cases working the equivalent of a full time job (although the system doesn't allow them to exceed 16 hours per week I think) for no additional income.


And many of the unemployed at any one time have previously been in work, and will be in work at some point in the future. The long term unemployed are such a small percentage of benefit recipients that it's hardly worth worrying about. The biggest recipients of benefits (some 80% plus of the entire welfare bill) are those over 65 and those in full time work. Go and have a look at what state pensions, child tax credits for working families and housing benefit for those in work costs the nation uncleglen. It might open your eyes a bit.


To generalise about the unemployed is dangerous. Personally, if the unemployed kid is happy to wash a car for a tenner pocket money...then let him do it. I for one won't be fretting over the cost of that to the economy....black or otherwise.

uncleglen Wrote:

-------------------------------------------------------

> Do any of you who dismiss my idea ever venture out

> of ED to the poorer areas of london and observe

> the numbers who are languishing on benefits? Or do

> you know many people who claim benefits and work

> the black economy?


Actually, YES. And, YES. But that's totally beside the point, no? I won't dispute that the benefits system is not perfect, although I don't perceive it to be as bad as you do. WHAT, if anything, does this have to do with current issue of high rental prices in London proportional to average incomes?

Because those on benefits who are unwilling to work should not live in London or any other big city- property in London is under pressure should be for those who are willing to work. The unemployment rate in London is 9% against 8% for the rest of the country.

How on earth can you define 'unwilling to work' when a requirement for receipt of JSA is proof that you are looking for work???? You really do not know anything about the benefits system do you?


And edited to add that you don't know anything about the rest of the country if you think the pressures in London on housing are replicated in every big city in the country.


And here's another one for you....


What should be done with those who can't work? Because that one day might well be you!

uncleglen - if there are people out there who just want to freeload while actively avoiding work, then I'd be happy to house them all in the crumbling remains of Dungeness A.


Although I don't know how you can be so sure about the scale of the problem. And more to the point, how can we reliably identify benefit fraud?

uncleglen Wrote:

-------------------------------------------------------

> Because those on benefits who are unwilling to

> work should not live in London or any other big

> city- property in London is under pressure should

> be for those who are willing to work. The

> unemployment rate in London is 9% against 8% for

> the rest of the country.


So the idea is that moving them out of London will free up housing stock? But is there any evidence that freeing up housing stock would make it any easier for new graduates and first-time buyers to buy a house? (If indeed buying a house is an admirable goal for any number of reasons mentioned above...)


There would still be the issues of proprotion of wages against cost of rent making it difficult for these people to save for a deposit, because not only are rents high so are average deposits.


Are we going to have a generation of graduate/postgraduates and young skilled labourers leaving London? Or (possibly worse?) choosing to live in London but never being able to invest in bricks and morter, and therefore needing more state-subsidized assistance in old age?

Other than housing benefit, I can't see that benefits and unemployment are of any real relevance to the particular issue here. Moving unemployed people out of high rent areas and freeing up housing for the private sector is likely to drive overall rents up, not down, because demand is so strong. It seems to me the issue in the short term is not reducing the market cost of London housing - that's not achievable, in my view - but mitigating the effects. In the longer term the answer has to be freeing up as much existing stock as possible and building more houses, although a significant upturn in the economic prospects of UK regions outside London and the South East would help.

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