Buy-to-let: the elephant in the room?

By , Tuesday, 12 October 2010, 24 Comments

Channel Four News delivered the goods again last night with a great piece on the impact of buy-to-let investment on the housing market…

As the rest of the property market struggles, buy-to-let mortgage lending is booming as investors snap up cheap homes and take advantage of low mortgage rates.

And in a way you can’t blame them, with interest rates so low, savings aren’t providing the additional income they once did so many people are joining the buy-to-let bandwagon and seeing a healthier return on their cash.

So while first time buyers struggle to get a mortage and raise a deposit, the baby boomers and those with a bit of money tucked away are making a killing.

The impacts of this are huge. Aside from growing resentment this causes between the have (several) homes and the have nots, buy-to-let played a massive part in the last housing market boom, and collapse. Fewer homes available for sale inflates prices, create spiralling demand and, well, the rest is history.

But what can be done about it? Quoted in today’s Daily Mail housing minister Grant Shapps appears to admit he has no idea.

He said: “I really think the big question is if you allow a housing boom as they [Labour] did between 1997 and 2007 to get out of control, this is the kind of mess you end up in.

“What is required is long-term stability in house prices. We can’t afford to have another boom which will lock another generation out of the housing market.”

“It is in everyone’s interest to have stable house prices for a long time, because the only way we can make sure housing is more affordable for future generations is not to have these crazy housing booms.”

Tough talking Grant, so does this mean action to rein in buy-to-let lending? In a word, no.

On buy-to-let he said: “It provides flexibility. There are people who want to buy into properties, but I also recognise that there are people whose aspiration is to own homes.

“It’s not for ministers to give housing investment advice, but I’m not sure people are right that this is a forever upward market.”

And in a speech today to the Housing Market Intelligence conference in London Shapps made only a passing reference to buy-to-let investment saying that “property should not be seen only as an investment, but as a home to live in.”

The basic problem of course is that the aspiration to buy a home is big part of our nation psyche. One person quoted in the Channel Four report said: “My dream is to buy and I don’t think there’s a day goes by that I don’t think about buying.”

It’s an obsession, and one that Shapps seems happy to encourage with comments like “the age of aspiration is back”.  

It may well be back Grant, but unless something is done to either hugely increase the supply of new homes or make existing homes more available to first time buyers, it will remain just that, an aspiration.

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  • Necropolis

    Shame they weren’t able to quote the figures back at hime for how many homes have been cancelled by Pickles removal of housing targets.

  • Tom

    The Mayor of London shares the Government’s love of buy-to-letters because they snap up new flats for the capital gains and so help inflate the house building figures.

    See this answer from the Mayor in July:
    http://mqt.london.gov.uk/mqt/public/question.do?id=31944

    The campaign group Priced Out have a very good demolition of this case for buy-to-let in their response to the last Treasury consultation on the matter:
    http://pricedout.org.uk/Download/Treasury_Consultation_on_the_Private_Rented_Sector.pdf

  • Cynical Scot

    I nearly threw my remote control at the TV when the guy at the end, at the buy-to-let event said (paraphrasing) “I’ve worked hard for this so maybe people [wannabe-first-time-buyers] should work harder” – the point is he HASN’T worked hard at all, he has reaped the benefits of other people’s hard work for very little physical or intellectual effort of his own, and now stands laughing at everyone else. An (even) more cynical, less kind person would wish bankrupcy and homelessness on the likes of this guy. Not me though, of course.

    Ed Miliband said he wanted to speak out for the ‘squeezed middle’ – well a lot of them would have been watching that item and nodding their head vigorously. Of course it is a problem not just for those who can’t afford to buy or don’t want to – it pushes rents up, it’s a problem for being who do buy – it pushes prices up. Nobody wins but the speculators, and now following the bank bailout, this is government backed. I don’t want to buy, I moved to the other end of the country and benefitted from flexibility, but that can’t last forever. Private tenants have very few rights, very little security of tenure and what rights we do have, are often unenforceable or require protracted legal action which renders them effectively useless.

    This is a big issue, on which I’m sure many people would welcome a response from the Opposition. Shapps clearly either doesn’t get it or (likely) doesn’t care.

  • http://www.cerrighedd.com Evan Owen

    Homelessness, inadequate housing, decrepit dwellings, a growing population, a collapsed banking system, a new and naive government, millions of opinions – all different.

    In there we might find some balance but I can’t be bothered to look, why? Too many flaming regulators, from planning departments to the ultimate bogeyman, the FSA, we are being pulled in all directions because we lack leadership with vision, none of them know what to do, that is my biggest disappointment after voting Tory for the fist time in my life.

  • Tom

    How about this, make it illegal to own more than one residential property. There you go. No more buy to let, no more second home problems in holiday locations.

    Or how about fixed property prices, dictated by the state, with maximum levels houses can be sold or rented out at?

    Or massive taxes on second homes or buy-to-let properties, none of this tax break stuff, if you can afford multiple properties then you can afford increased taxes.

    Not serious suggestions (well, not all that serious), but something really needs to be done, and wishful thinking and half-arsed measures just won’t cut it.

    The free for all housing market will always result in massive social inequality and inevitably result in boom and bust economies. It was predictable before the recent economic problems, its predictable now that we are setting ourselves up to do it again.

    • Pickles’ Onion

      You missed the Green Party’s favourite option of nationalising all housing. It would solve the problem absolutely and, at the same time, enable proper action to be taken against household emissions and reducing their condribution to climate change.
      Just a thought.

      • Tom

        Not sure where you got that from, the party has no such policy.

  • Cynical Scot

    Well, no, the lack of regulation of buy to let and deregulation of the Stock Exchange is what landed us in a lot of this mess in the first place…

  • Cynical Scot

    sorry, my second comment was in reply to Evan Owen! (if that wasn’t clear)

  • John

    Actually the real elephant in the room is the 700,000 empty homes in England. Clearly the buy-to-let played a part of the sub prime crisis, but so also did self certification mortgages (liar loans).

    The boom in social housing was taxpayer funded in part and partially by raising the prices of the remaining properties to be sold on the open market. Channel 4 in an earlier program described the scam mortgages issued to cover these inflated prices.

    The shame in all this is that academic reports were commissioned to support social housing targets which ignoring the 700,000 empty homes blighting many neighborhoods.

    Meanwhile the house-builders response to the massive stock of unsold and empty property is to continue building more and more. Like banks there needs to be some further consolidation amongst house builders and less subsidy from the treasury via the HCA.

  • g

    Grant Shapps gave the most uninspiring interview after that piece of C4 news. Tactic seems to be to blame Labour and see what happens without any ideas. Out of his depth

    • Tom

      I’ve never been impressed with blaming the last government. It annoyed me when labour did it for a decade, and it annoys me now. Parties are elected on the promise of the future, so surely they must have had a plan to move forward.

      Or did the election result come as a bit of a shock to them? I mean, we have abolitiion of regional planning, and then Pickles suggesting planning departments merge into regional bodies! Abolition of PCTs, then the realisation that for GPs to get value for money they need to form collaboratives, or in other words PCTs. Child welfare which allows households on 80K to claim but people on nearly half that not to. And as part of the fairness agenda, a rise in VAT, the tax which hits the poorest in society the most.

      But don’t worry, they can keep blaming labour…….

      (Btw, I’m not a labour supporter, far from it. I used to be Libdem, until Clegg came on the scene).

  • UnaPlanner

    Perhaps someone from this ‘jilted generation’ will use the power of social networking to organise a national rent strike and bring the whole house of cards crashing down!

  • BOB

    EXCELLENT AGAIN FROM CH4. THIS ISSUE IS CRUCIAL – RENTING A HOME IS ABSOLUTELY CRAP; I SHOULD KNOW. BUT IM RELUCTANT TO PAY THE PRICES BEING QUOTED FOR HOUSES. IT IS A REAL SHAME THAT THE BUY TO LET BRIGADE ARE KEEPING THE BUBBLE INFLATED. THESE PIGS JUST SOAK UP THE SUPPLY THAT IS PROVIDED. A REAL SHAME AS HOUSING IS STILL WAY OVER INFLATED IN THE UK.

    THE FAULT DOES LIE WITH LABOUR, BUT IT SEEMS THE TORIES HAVE NO IDEAS ABOUT HOW TO SORT IT (YET) AND I AGREE WITH THOSE WHO CRITICISE THE PICKLED ONE FOR CUTTING HOUSING SUPPLY.

    (SORRY, CANT TURN CAPS OFF ON THIS JAPANESE KEYBOARD)

  • Marley

    Aspiration is one of the key words, right at the end there.

    Millions Aspire but if things keep going the way they do, many will die unfulfilled.

    Labour did cause the problem, with over-complicating the planning system and not reviewing Green Belts.

    Then they had just ‘got it’ when they lost power. When the NHPAU, HBF and NHF had just started to be heard about the massive shortfall in housebuilding, the election came around and a new bunch of blinkered idiots took control.

    Perhaps this time the new government will be a little quicker to cotton on, but I doubt it.

    As for buy-to-let, it seems to be a sensible investment option for now, but a lot of them got burnt badly two years ago when their interest-only assets plummeted.

    Re: 700,000 empty homes, second homes really dont count and a lot of that is churn in the market. Citing empty house figures really only adds confusion to the discussion and takes focus away from the real problem and thats the 4.5 million people on the housing waiting lists…

  • John

    Marley,

    Its all very well to dismiss addressing the 700,000 empty homes but this is blighting the lives of many, including those on the waiting list in small picturesque towns and villages where many homes are empty.

    As for the 4.5 million on the waiting list, are we really surprised?. Who wouldn’t want subsidised housing and a lifetime tenancy at the expense of the taxpayers?

    Its all very well for housebuilders to clamor for more social housing when really they pass the cost onto buyers, artificially inflating the prices.

    The game is up and as seen in the Olympic village there are very few developers confident in the future of the 50% social housing model.

    Its interesting to note that the CEO’s of these builders have awarded themselves bigger bonuses than at any other time, do they really think this goes unnoticed when they bid for contracts with the public sector?

    • Marley

      John, I do agree with your points in principle, but mine is that there is little point expending time an energy trying to do anything about second homes, empty boughts-to-lets or those listed in housing need. They are here to stay. Those with the second homes are those that would fight hardest to keep them. And those on the housing waiting list will always need somewhere to live; and not all are bludgers. The people who would buy the open market new homes, subsidising affordable housing, are making a choice to do so they could opt for second hand stock instead, but they aspire to own a new home. And if housebuilders dont make a profit, they dont build; what kind of a mess would we be in then?

      Increasing housebuilding overall, particularly in locations that people aspire to, would free up older cheaper stock that is more affordable (with a small ‘a’) enabling the potential for a whole ladder full of homeowners to move up a rung and thus potentially removing some others from the waiting lists.

      I dont want to come across as argumentative, and I am not trying to convert you to Developmentology. I just had a quiet lunchtime.

      • John

        Marley,

        I agree with your point that those who buy new homes do so freely, but given a choice they would rather not pay to subsidise others with lifetime tenancies. Rather than house-builders asking for more social housing they should revert to their core business, selling homes to those who can afford to buy, its the economic law of supply and demand.

        The reality is that there will be no new spending on the grandiose scale hitherto seen. The successful builders will by now have changed strategy away from high density towards detached housing that people really want to live in.

        The 4.5 million on the waiting list are actually in housing, but like I said they would like to be rehoused in identical housing on developments alongside private buyers. Others would call it unreasonable that the taxpayer should pay for this lifetime perk.

    • Cynical Scot

      Housebuilders spend countless hours and resources in Viability Statemements and Development Plan enquiries arguing AGAINST providing social housing. Social/affordable housing is provided one of two ways – by taxpayer subsidy (NAHP etc) or as a developer contribution (s106 or commuted sum). The former is probably about to all but disappear and in these trying times, developers are (one might argue, understandably) trying everything at their disposal to get out of paying for the latter.

      And the social housing list isn’t just a nice list you can just automatically join – all of those on it, are eligible according to various criteria.

      You are right that a constrained supply of housing does lead to an increase in price (but what is the alternative? The countryside disappearing and the hollowing out of town centres as developers would always build on cheaper greenfield sites) but the point the C4 piece was making is the OTHER reason prices rocketed during the boom years was buy to let landlords distorting the market because they had an inbuilt advantage, and now following the boom, they are one of the only groups who can still access cheap mortage credit.

  • 156

    I know of village where they built some affordable housing as an exceptions site on the basis of a very large list (approx 10x the no of houses eventually built).

    The houses were very nice but when they came to put people in them, less than half ended up going to people from the local list – and the rest were used to house people from outside of the parish. In one case, outside the borough.

    So you have to wonder whether – in this case – the housing lists are actually indicative of actual need? Or aspiration?

  • John

    156 said ; “So you have to wonder whether – in this case – the housing lists are actually indicative of actual need? Or aspiration?”

    The public have little faith in the allocations system operated by the last government. Hardly anyone believes that its fair to give priority on a needs basis at the expense of the local people on the housing list. We now have the situation of mass migration of large families from abroad at the cost of UK residents.

    The previous government made much noise about the 700,000 homes but as these were mainly in constituencies of the other parties they did little.

    The banks are sitting on huge property exposure and are rolling over the loans rather than having to make the write-down,a rolling loan gathers no moss!

  • 156

    But for an exceptions site local would trump need. Obviously local + need trumps local but the point was that out of say X people with a local connection who went out of their way to put themselves on the local list, and who qualified (plenty don’t on both accounts of course, despite not being able to afford to buy), only about 5% of X ended up being housed.

    So you have to wonder what happended to the other 95%:
    Did they get housed elsewhere just fine.
    Are they on more than one list??
    Were they holding out for something better?

  • bob

    I don`t really see the point in discussing “social” housing and “affordable” housing. The problem is that there isn`t anywhere near enough private market housing to meet demand – if that is solved, then all housing will become more affordable and there will be less of a need for “social” housing, etc.

    The main problem in all of this is beyond the planning system – it lies with the monetary policy of the Bank of England.

    We all know that, regardless of how many empty homes there are, there are not enough homes available, at affordable prices, to satisfy people who want to own their own homes. In the Uk, there is a culture of home ownership, but also, for whatever reasons, renting homes in the Uk is very poor value for money and usually involves poor quality housing and lazy landlords. So people want to own their own homes.

    We have easily more than enough land to do it, despite the propaganda that we are a crowded, small island.

    Here is the problem… if the government realeases loads of land for housing that will put downward pressure on housing prices, which would be a good thing (from a rational stand point) as we had price growth of 300% between 2002 and 2008. So assets are massively over inflated still. But the trouble is, thanks to the banking crisis, the Bank of England is hell bent on preventing the market correction that is needed. Hence why rates are at 0.5% – they don`t want people to start defaulting on mortgages and maxed out credit cards, because that will weaken the banks.

    It is the banks that are the elephant in the room.

    So what can the current government do? If they allowed one million new　homes to be built, that would probably help affordability and sort out the supply issues – even with the buy to let brigade soaking up some of the supply. But if the government allow the planning system to deliver klarge numbers of houses, they will undermine the Bank of England`s policy which is to try and maintain the inflated bubble that is the British house market.

    So whilst the current government acknowledge the addordability problem, what can they do? Not a lot without contradicting monetary policy. The problem is that our rulers, especially the Bank, are afraid of allowing a recession to run its course. Although painful, recessions are good for correcting prices. Like with housing. But they aren`t letting it happen.

    I predict that the anticipated spending cuts will reduce housing prices a bit, but not to the extent required whilst interest rates are so low.

    The policy right now is to protect the banks; that means preserving the housing market. Low interest rates mean those who maxed out credit cards and took on massive mortgages are being protected, by diverting money away from those who saved to those who spent. That is the way this country is right now and how it will be for some time.

    Going on about the abolition of RSS, which Planning Magazine`s boring pundits seem to be obsessed with, but there are much bigger forces at work affecting the price of housing.

    The last government has totally screwed the country into a horrible mess. Never forget that. The current government can`t really win; even if they had the right ideas they couldn`t win. Why didn`t Labour allow the release of Phase 2 and 3 housing that was already approved in Local Plans? Why did they sit by at watch borrowing get out of control?

    If you want a decent house for an affordable price and you want a return on your savings; move abroad!

  • Sanjay

    This article as per usual demonises landlords and blames them for high rents and high prices

    As with any free Market prices and determined by demand and supply……currently it’s lack of supply of rental properties and high demand for rental properties arising from a lack of mortgage lending that’s causing the problems NOT greedy landlords

    But if you want to tax these people more carry on and all that will happen is that there will be even less properties to rent and rents will be higher still

    Also if you want to reduce no of red landlords – I assume same will happen for commercial landlords – no business should be able to rent shops, industrials units or offices ? Also hotels should be banned as in effect they are short term landlords and we can apply this to tied pubs

    Sounds great doesn’t it

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