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The Disappearing Homes Conundrum.

Thursday, February 9, 2017 4:47
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From the BBC:

Tax changes will mean landlords may reduce the properties they have on their books, leading to sharp rent rises, surveyors suggest.

Rental prices could rise faster than house prices over the next five years, according to the Royal Institution of Chartered Surveyors (Rics).

This would be the result of more tenants chasing fewer rental properties, it said. Stamp duty and other tax changes have affected the buy-to-let sector.

I read this so often, I wonder whether perhaps they actually believe their own propaganda.

The whole thing largely cancels out. The way I see it, this will lead to a modest downward pressure on rents and selling prices…

1. Landlord decides to sell. This must mean to an owner-occupier, if landlord A can’t make a profit, then he can’t sell it to landlord B, because landlord B won’t be able to make a profit either, especially as the extra 3% SDLT is an absolute cost and wipes out the first year’s net profit.

2. Therefore those most likely to buy will be higher-earning tenants.

3. With fewer potential purchasers, the selling price will fall slightly. BTLs are no longer outbidding higher-earning tenants.

4. Fewer higher earning tenants means that the average income of remaining tenants is lower.

5. A smaller number of lower-earning tenants divided by a smaller number of remaining rentals = lower rents overall.

6. The other factor is that landlords most likely to sell up are recent purchasers with relatively large mortgages who will have first rented out these homes recently for full market rents. Landlords who have had the same tenants in for a longer time are more likely to be charging slightly below market rents, which means that average rents actually being paid goes down.

7. Landlords work on the basis of % yield, if they are happy with a 4% yield and rents and prices both fall by the same fraction, the yield stays the same and the number of landlords stabilises, albeit at a lower level.

Is that so difficult?


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