Buy-to-let landlords are filling their pockets as rents hit record highs. The mortgage famine means rising numbers of people cannot afford to buy and so demand for rental accommodation sharply exceeds supply.
Average monthly rents across 18,000 properties in England and Wales are now £718 per month – or £29 more than a year ago – according to LSL Property Services, Britain’s biggest letting agent and owner of Your Move and Reeds Rains.
Sceptics may suspect landlords of trying to talk up rents but housing charity Shelter provides disinterested support by describing private rents as “unaffordable” for families on average earnings in 55pc of local authority areas. The charity says acute shortages of social housing have forced people who would normally qualify for subsidised housing into the private sector, raising demand and rents.
This increased average yields to 5.3pc but total returns over the last year slipped to 1.8pc after house prices fell outside London, said David Newnes, managing director of LSL: “On a monthly basis, rents rose in all regions of England and Wales for the first time on record. As a result, rents hit record highs in six regions – London, the South East, Yorkshire and the Humber, the East of England, Wales and the East Midlands.
“But no region has been immune to the growing demand for rental homes from frustrated buyers. For the majority, saving a £25,000 deposit is a Herculean task and most would-be buyers are prolonging their stay in increasingly costly rental accommodation. As things stand, we won’t see those trends diminish without a substantial expansion in the supply of rental properties.”
There is no sign of that in the immediate future, according to 6,000 members of the Association of Residential Letting Agents (ARLA). Three quarters of them claim demand outstrips supply and that the average length of tenure has hit a record high of 19 months, as tenants struggle to find better deals elsewhere.
Political initiatives to increase supply should be taken with a pinch of salt as the numbers do not add up, claims Ian Potter, operations manager of ARLA: “Although the Prime Minister has announced plans to re-instate Right to Buy and new funds to finance new build, we would query how many properties within the social sector are blocked.
“This can be either by elderly tenants who do not want to leave the family home or the economically poor who, even with Right to Buy, will struggle to finance a purchase. How many properties will have to be sold to finance each new build?”
At the other end of the political spectrum, the Intergenerational Foundation claims that ‘empty nester’ homeowners aged over 60 should be subject to increased property taxes to encourage them to sell up and trade down to smaller properties.
Like car park theft, this idea is wrong on so many levels it is difficult to know where to start. First, there is the right of these homeowners to enjoy their private property without excessive fiscal interference from the state. For many people home is much more than bricks and mortar; it’s the place you raised your children and the location of a lifetime’s happy memories.
Also, who defines an ‘empty bedroom’? Many are regularly used as offices, store rooms for junk one spouse cannot bear to throw away or accommodation for visiting family members. And, of course, only a catastrophic house price crash would bring three or four bedroom properties within reach of first time buyers.
I could go on but, finally, it is worth pointing out that one reason older homeowners are reluctant to trade down into a smaller property is the high cost of an earlier tax hike. Gordon Brown raised Stamp Duty on property purchase in each of his first four budgets. When the tax bill to change your address can exceed a year’s State pension, it’s no wonder most older homeowners are keen to stay where they are.
The best hope to solve the accommodation crisis afflicting many younger people is that house prices will fall back into line with earnings and that mortgage availability will rise to the point where home ownership becomes affordable for first time buyers once again.
