Employed to be given council house "priority"

[ItWillNeverWork]

and bringing in rent controls for private rent would cut the HB bill - and private landlords can 'share the pain'

No, bringing in rent controls would cause a decrease in the amount of properties available to rent - and tenants would shoulder all the pain.

BTW,have you read the paper I linked to?

 

[marty21]

No, bringing in rent controls would cause a decrease in the amount of properties available to rent - and tenants would shoulder all the pain.

BTW, you read the paper I linked to?

they could bring the rent controls in gradually - on new private rents - the turnover would gradually reduce them for the rest over a longer period

and no, I haven't read it yet

 

[ItWillNeverWork]

they could bring the rent controls in gradually - on new private rents - the turnover would gradually reduce them for the rest over a longer period

How would that counter the negative effects?

 

[marty21]

How would that counter the negative effects?

selling off of BTL properties would be over a longer period as tenants moved on and landlords worked out they could not get the same rental income - it wouldn't flood the market

 

[ViolentPanda]

once upon a time your rent was meant to be 1/4 of your income.How things have changed

That's the point I was making on the previous page. It used to be that your rent/mortgage and rates (even if you rented privately) were about 1/3rd of of your net income, max.
Now, you've got people, even out in the sticks, forking out between 40-60%.
It's unaffordable.

 

[ViolentPanda]

Rent controls would just lead to an even greater shortage of available housing...

The same claim was made in the 1960s. The actual result was no net loss of available rental property, mostly because the rent controls were realistic, and they were locally administered. What landlords resented about rent controls was that it meant that minimum standards of maintenance could be enforced on them through manipulating the rent ceiling for their property.

so what would be the actual benefit? It sounds like a great and noble policy proposal but would ultimately be damaging. A preferable solution would be to increase the housing stock and so bring down prices via the market mechanism.

Which has worked so well, over the last 25 years, hasn't it?
I mean, please, if you're going to tell jokes, make sure they're original!

Any increase in housing stock needs to take place in the social housing sector, preferably the local authority social housing sector. I know that people who propose "market" solutions (which don't have a good history of actually solving much) don't like the idea of social housing, but without it, and with housing cost increasing at the rate they are, a continued lack of it will fuck your market up the arse, hard and without lubricant.

 

[ViolentPanda]

how would it?

Because in ItWillNeverWork's world, the landlord whose licence to make money is constrained by rent controls will have a hissy fit and liquidate his property holdings, withdrawing from the rental market.

His position is, of course, crap that isn't borne out by either history, or by rational thought.

 

[ViolentPanda]

By keeping rent artificially low you increase demand for rented properties. Supply cannot keep up with this demand because the incentive to build new housing (i.e. being able to make a profit) has been removed.

Do you actually have any understanding of how rent controls in the UK worked?
They didn't keep rent artificially low (except if you were part of a very small percentage of tenants who had tenancies with secured rights predating the rent control legislation of the 1960s), they stopped it from inflating, and enabled private tenants to have any rent rise examined by the local authority in the context of the condition of the housing the rent was paid on.

 

[scifisam]

Ok, it seems that there are two directly opposing tendencies working here. A high number of BTL landlords puts upwards pressure on house prices and therefore raises the floor below which rents cannot drop. On the other hand, an increase in BTL also increases the number of available rented properties and has a downward pressure on rents.

The question of whether eliminating BTL would lead to a significant drops in house prices is not something that can be shown by theory (only tendencies can be shown this way), empirical evidence is needed. The link I gave provides a convincing argument against rent control. Also, if the aim is to provide social housing, then why not just use government directly to build council houses?

The thing about attempting to manipulate market forces - and prices are a key component in the operation of those forces - is that it leads to a game of whack-a-mole in which the attempt to eliminate one negative factor leads to another problem popping up elsewhere. The studies of the effect of rent controls over the past century show quite convincingly that they lead to shortage of properties amongst other things.

An more subtle distinction should also be made between different types of rent conrol. The so-called 'first generation' systems are well know to be a disaster, and the vast majority of economists accept this. The impact of second generation systems is a little more ambiguous but still negative.

If private rents were lower, then people wouldn't be willing to pay so much on (new) mortgages (since people usually compare what they'd be paying in rent with what they'd be paying on a mortgage). Demand for buying houses would go down, and so would prices. It still wouldn't be a huge slump, because the rate of demand is currently so high to begin with.

Germany (look at that headline ) and many other countries including countries as diverse as Columbia, Switzerland, Dubai and Qatar have rent control. Are the potential renters there sleeping on the streets because landlords refuse to rent at reasonable rates?

 

[ViolentPanda]

Cheers for saying absolutely nothing whilst appearing full of wisdom. Care to offer anything on the subject that isn't a platitude?

One of the fundamental causes of the current housing cluster-fuck, alongside "Right to Buy" was the rescinding of rent controls. It helped kick-start house price inflation, which has suffered major boom and bust at least three times since (and a multitude of minor stutters).

 

[ViolentPanda]

Ok sorry, I wasn't very clear I admit. What I was trying to say is that if you keep rents below market value, no-one will want to rent anything because they cant recoup the costs of buying. The cost of buying is ultimately linked to the number of new houses being built.

Sorry, that's plain nonsense. You're pre-supposing that the rent set by the landlord is tied to servicing debt incurred through buying - while this may be the case with the current wave of b-t-l landlords, do you have any data that shows this to be the case with a majority of landlords? Unless you do, you're talking nonsense.

 

[ViolentPanda]

Yes, rents are high because there is high demand. Another way to put it is that there is low supply. What do you think would happen when the incentive to increase the supply is removed?

It would appear that in your market world, the incentive to increase supply is based purely on short-term gain, whereas in the real world there are several considerations that affect your "model".

 

[innit]

Private rents are WAY higher than the cost of a mortgage on the same property.

Not necessarily - I can't imagine we could cover the mortgage on our flat by renting it out.

 

[marty21]

That's the point I was making on the previous page. It used to be that your rent/mortgage and rates (even if you rented privately) were about 1/3rd of of your net income, max.
Now, you've got people, even out in the sticks, forking out between 40-60%.
It's unaffordable.

and strangely, when mortgage payments go down as the owner pays off the mortgage - rents remain the same and go up - maybe a rent setting scheme based on the mortgage payments could be a control mechanism - you can only charge a certain percentage above the mortgage to cover maintenance costs etc

Someone who has nearly paid off the mortgage makes a huge profit on rent - and yes I object to them making obscene profits

 

[Louis MacNeice]

no, rents are high because there will always be people who need to live somewhere to work or to send their kids to school but don't want to buy (for whatever reason), and because landlords set their rents to the maximum they can get away with to make a profit. Private rents are WAY higher than the cost of a mortgage on the same property.

Not always; first time buyers, even with secure employment and deposits of over 10% can find them selves much better of renting (last's weeks File on Four had a report on this).

Louis MacNeice

 

[ymu]

Not necessarily - I can't imagine we could cover the mortgage on our flat by renting it out.

I bought a flat in 1997 because rent was £550/month and mortgage was £280, both for a one-bed flat. It's unusual for rents to be that much higher than a mortgage - and that was in a part of the SE with a particularly fucked up rental market - but it's not uncommon for them to be higher, or on a par, with mortgage repayments, especially following a house price crash.

 

[weepiper]

maybe it's area dependent then but certainly everyone I know up here who's renting is paying more than everyone I know who's got a mortgage on similar sized properties.

 

[Gromit]

One step closer to the paris ghettos we go.

 

[Louis MacNeice]

The radio programme used the example of a 30 year old doctor in Bristol, looking to buy a £210,000 flat with a £25k deposit; her rent was £300 pm lower than the cheapest mortgage she could get.

Louis MacNeice

 

[ymu]

and strangely, when mortgage payments go down as the owner pays off the mortgage - rents remain the same and go up - maybe a rent setting scheme based on the mortgage payments could be a control mechanism - you can only charge a certain percentage above the mortgage to cover maintenance costs etc

Someone who has nearly paid off the mortgage makes a huge profit on rent - and yes I object to them making obscene profits

The problem with that is that the rent is largely defined by the year the property was bought. If you're going to allow for-profit landlords, then it probably makes more sense to allow them to make a modest return off the investment, but if they had to borrow the money to make the investment, well, tough tits - they have to be able to cover the shortfall themselves. Any property is going to make massive capital gains if it's kept for the long-term - there's just no need for them to be profiting off the rent in the short-term.

 

[ymu]

maybe it's area dependent then but certainly everyone I know up here who's renting is paying more than everyone I know who's got a mortgage on similar sized properties.

Cities with big student populations tend to have very high rents relative to house prices, IME. You're in Edinburgh?

 

[weepiper]

I am, perhaps that's it then.

 

[ViolentPanda]

That is not why rents are high.

I've been doing a little exercise while typing replies to this thread.

I've looked at local rents for a 3-bed house in SW2, and cross referenced them to house prices and to mortgage costs:

Rental pcm: £1800-£2300, so lets split the difference and say £2050

House price: £265,000-£520,000. Split the difference and say £400,000

Mortgage cost pcm 25 years on B-t-l mortgage (the majority of which are interest only) @ 5% (current average is 3%):
£1,667. (£1,000 @ 3%)

So, if we're looking at a landlord who is setting their mostly merely to service their mortgage debt, we're not seeing them in SW2, where landlords appear to be exploitative capitalists of the old school. In this postcode rents are high because of old-fashioned accumulation of capital.

E2A: I used the online btl mortgage calculator at www.mortgageforbusiness.com.

 

[ViolentPanda]

If the demand was half what it is now, would the rents be just as high with the current housing stock? No, so demand must be a component of that high price. That's not to say there are not other components, but demand is a major one.

You're not allowing for how far demand exceeds supply. Demand isn't a static figure in any equation pertaining to price, it's directly related to volume of demand, so half of the current demand would still exceed the ability of the market to service that demand, hence rents would be as high now as they are, even without allowing for greed.

 

[scifisam]

The radio programme used the example of a 30 year old doctor in Bristol, looking to buy a £210,000 flat with a £25k deposit; her rent was £300 pm lower than the cheapest mortgage she could get.

Louis MacNeice

Well, with a close to 90% mortgage, a single income and, for a doctor at 30, probably still quite a few debts to pay off from her student days, I'm not at all surprised. It's basically saying 'someone who can't really afford a £210k house is surprised to find she can't really afford it.' Most doctors I know are a bit older than that when they buy, unless they're on two incomes or in a cheap area.

What's the point in saying that some people's rent is lower than their potential mortgages? That's always going to be the case for a few people. I mean, clearly not everyone's mortgage is higher than their rent, or very few people would be buying, would they?

 

[Louis MacNeice]

Well, with a close to 90% mortgage, a single income and, for a doctor at 30, probably still quite a few debts to pay off from her student days, I'm not at all surprised. It's basically saying 'someone who can't really afford a £210k house is surprised to find she can't really afford it.' Most doctors I know are a bit older than that when they buy, unless they're on two incomes or in a cheap area.

What's the point in saying that some people's rent is lower than their potential mortgages? That's always going to be the case for a few people. I mean, clearly not everyone's mortgage is higher than their rent, or very few people would be buying, would they?

The point was that for someone with a secure job and good career progression prospects, the lenders were seeking to charge way above the Bank of England base rate in an attempt to recover their lost capital as quickly as possible; the programme's still on listen again and has some good detail on the historicaly high spread of interest rates on offer and the level of profit which the lender are currently enjoying. In doing all this, the lenders' short term interest if further skewing the housing market; in particular providing an upward pressure on the private rented sector which is supposed to be coming to the aid of those in housing need.

Louis MacNeice

 

[scifisam]

The point was that for someone with a secure job and good career progression prospects, the lenders were seeking to charge way above the Bank of England base rate in an attempt to recover their lost capital as quickly as possible; the programme's still on listen again and has some good detail on the historicaly high spread of interest rates on offer and the level of profit which the lender are currently enjoying. In doing all this, the lenders' short term interest if further skewing the housing market; in particular providing an upward pressure on the private rented sector which is supposed to be coming to the aid of those in housing need.

Louis MacNeice

But that's not the point you made - you used it to counteract the argument that most people pay more in rent than mortgage.

 

[Louis MacNeice]

But that's not the point you made - you used it to counteract the argument that most people pay more in rent than mortgage.

Sorry if that is how it came across; that certainly wasn't my intention. What I wanted to point out was that rents don't always outstrip mortgages, which seemed to be what Weepiper was contending.

Cheers - Louis MacNeice

 

[scifisam]

Sorry if that is how it came across; that certainly wasn't my intention. What I wanted to point out was that rents don't always outstrip mortgages, which seemed to be what weepier was contending.

Cheers - Louis MacNeice

That's the same thing in different terms. Are you seriously disagreeing that rents are usually higher than mortgages?

Rents don't always outstrip mortgages for young people with pre-existing debts (unless she's a very unusual doctor), a small deposit, a single income and a large potential mortgage, that's true. Especially when doctors can rent ultra-cheaply from the health authority.

 

[Louis MacNeice]

I was responding to a post of Weepiper's; why not go back and look at it. I thought it might be useful to point out that the apparent generalisation they made is not always the case. On the back of this there is also some interesting information regarding how mortgage lenders are currently operating contained in the programme I refered to...that's all.

Cheers - Louis MacNeice