We know that landlords have taken quite a bashing over the past couple of years. What with a tidal wave of new legislation, tax changes and uncertainty such as the rental reform bill and EPC upgrades, being a landlord is not what it used to be.
Regardless of this, however, I remain convinced that property is one of the best asset classes to invest and see inflation (and pension) busting growth.
I have been fascinated to read the dialogue between the NRLA and the Government around the impact that these changes have had. Today we have a housing crisis – one of above average demand and significant undersupply.
Just take a look at Zoopla’s latest report for the four weeks to 8th May 2023 verses the five-year average. A 51% above average demand, -33% stock of homes for rent and, for Jan 2023, 11% rental growth.
As alluded to in the title, I think the light may finally be dawning that this crisis is largely of the Government’s own doing.
The London Borough of Barnett’s own strategy report cites ongoing contraction of the private rented sector due to challenges of affordability as well as increasing demands on private landlords impacting viability.
A Bank of England report published on 23rd March highlighted how smaller buy-to-let landlords ARE leaving the sector when it said:
“In the rental market, contacts said supply continued to contract, as smaller buy-to-let landlords continued to exit the market, while demand for rental properties continued to rise, leading to double-digit rent inflation.”
There has been a financial impact to the Government as well, with research carried out by the NRLA highlighting how tax changes in the private rented sector have lost the Treasury £1.5 billion in revenue. This was down to slowed growth of the sector and this loss of revenue is sure to be an unwelcome misfire against a backdrop of soaring costs combined with record Government borrowing!
When we look at stock, research carries out by Capital Economics highlighted that between 2010 and 2016, rental stock increased by 3.7% per year while between 2017 and 2021 (when Section 24 changes came in), it grew by just 0.4% per year.
The analysis reveals how, if private rented housing stock had continued to grow at a rate of 3.7%, there would have been 6.8 million properties in 2021 – about 1.2 million more than were actually available to rent.
The question is where do we go from here and is this all a cunning, underhand ploy by the Government to kill off the smaller landlords upon whose backs the sector is made (or eradicate the sector altogether)?
I think this is the biggest one of all. I’ve been reading about Labour’s plans to allow Local Authorities to implement rent caps (which, from this example in Spain, would only exacerbate the problem) along with boosting council housing stocks which certainly helps those on lower incomes, but not the middle earners who would not qualify.
There is, however, perhaps a chink of light coming through in that Housing Secretary, Michael Gove has hinted at fairer tax rules for landlords in return for more regulation. This came out of a Commons Budget debate, where he said there needed to be fairness in the tax treatment of landlords before legislative changes were made, including the abolition of section 21.
We have also seen how there is a proposition for landlords to have until 2028 now to upgrade properties to an EPC C. This bill has been rattling around since 2021 and still has not come to a firm conclusion!
I repeat the question… where do we go from here? I’m afraid I don’t know the answer but whilst the argument and mudslinging grinds on, I don’t think we will see any dramatic changes before the next election so that’s one to watch out for.
My advice, continue to invest wisely. Remember not to over-leverage and be sure to have a good pot of reserves.
What’s your thoughts on the state of the Medway rental market? I’d be keen to hear!