Amount spent by private renters is approaching parity with mortgage payments
independent.co.uk
independent.co.uk
But what needs to happen urgently (and could happen virtually overnight if politicians wanted it to) is that renting needs to be made slightly less awful.
Renting a home is no longer something that people do for a few years while they're young. Many will be doing it for life, and the rules need to change accordingly.
Some ideas:
- A total ban on any agent's fees being charged to the tenant (already happened in Scotland, and been promised to the rest of the UK for months now).
- A year's notice before you can evict someone from a home. (unless they are not paying rent / trashing the place)
- A year's notice before increasing the rent.
- Some sort of government body that forces landlords to conduct repairs to a high standard, and obliges them to pay for alternative accommodation if the property isn't fixed.
I got around this by negotiating directly with the landlord to renew the tenancy without involving the agent. Just because the agent sends you a letter saying you owe them £90 doesn't make it true, they actually have very little power.
The Scottish tenancy reform already changed the ability to evict to one of a list of specified reasons: https://rentingscotland.org/landlords/eviction-grounds-for-t...
We've tried that in Ireland - I'm the beneficiary of Rent Pressure Zones in Dublin and I think they're incredibly dumb; if you want more housing don't try your hardest to convince all the people thinking "hmm, should we rent Grandma's unit that's been vacant in Rialto since she died 10 years ago" that it's a terrible idea!
It's the inverse of the problem the BTL revolution had - small landlords buying up housing stock and driving prices up.
So, house no longer for rent - it'll go on sale, which means more houses available on the market, which would depress prices. The problem is that's unpalateable to the large Tory donors, so the only way out is to build build build (and maybe see if it's possible to forbid purchase by anyone but owner-occupiers).
Nearly 1/5 of MPs are landlords, that could be part of the problem.
https://www.thebalance.com/real-estate-vs-stocks-which-is-th...
That’s what causes market crashes.
If you had an oracle that could predict with 99% certainty whether a given housebuyer would make a certain size of mortgage payments, you could afford to lend them that amount no matter the size of the down-payment, with a 1% risk premium over your interest rate.
We don't have such an oracle, so we look for other signs. One of the signs of financial stability is the ability to pay a large fraction of the price in advance.
Costs to own roof over your head are in reality: mortgage + running costs + depreciation + cost of capital
This article drops critical context. 10 years ago, one of the earliest and most potent warning signs of the coming collapse was the extreme disparity between rents and mortgages. Home prices skyrocketed while rents remained relatively flat. And just a couple years before that, there were weekly newspaper articles about the unprecedented reversal of the rent-to-mortgage ratio.
Unless you live in a more rural area in Germany that statement doesn't apply.
That's assuming you finance your property with debt and let someone else pay for your debt. If you either happen to own a property you don't use, or own the property you live in, it makes perfect sense.
You're describing everything that's wrong about the property market: owner expecting properties to magically create money out of someone else's labour.
If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs?
Why would anyone else? A rental property is just like any other business.
> Why would anyone else? A rental property is just like any other business.
You're absolutely right if your financial and strategical planning only sees up to the next quarter.
Also its future value may depend on how you're renting it currently. (Or even if your overcharging for rent and the property is empty because you are waiting for "the perfect tenant")
You're also assuming buying and selling property is frictionless.
If your equity is negative it might be better (or even be the only alternative) to rent it at a below mortgage cost to have fewer losses.
Is that what you are saying too? Because then there isn't much of an argument here :) I thought what you meant to say was that there is some factor other than financial that comes into play (or should come into play) when determining a rental price.
In a free market, homes would be very unlikely to appreciate in value. Indeed, they would be much more likely to depreciate as they degrade and fall technologically behind.
Consider a landlord that stupidly overpays for a property. The market isn't going to cry about the landlord not being able to charge rent that covers their expenses.
That's my blue-sky-point-of-view of the property market which doesn't reflect the reality, but I believe with enough people treating property as an investment rather than a personal need you end up in our current situation.
My personal view is that tax systems should compensate by being more expensive to own more properties than you need. (where to put a limit, I'm not sure)
I tried to sell my old house and despite being priced low just to get it sold, it sat on the market after we had already moved. We ended up deciding to see if we could rent it but weren’t sure how the process would go. In our area we didn’t see any home rentals listed except for a couple that were excessive (double what a mortgage would cost).
After months of not selling, we listed it for rent at a price I thought nobody would pay and it rented in 1 day, sight unseen. The renters insisted on paying a deposit as soon as possible because they didn’t want to lose the property.
For a first dip into the home rental market, I was shocked at how high the demand was.
Other people may want to rent their properties for less for multiple reasons, including that the sum of their expenses may be less than yours.
In any other business, it’s not necessarily the case that your revenue covers your costs. Unprofitable businesses exist (and may be even “expected” in cyclical sectors).
A route I (used to) fly frequently has two competing airlines, one of which raises the price towards the flight date even if they have free seats (they bank on you willing to pay a premium for a next-day unplanned flight), the other lowers the price towards the flight date if they still have free seats (they don't want to fly empty). The former does much better financially than the latter, although I cannot tell if that's the only reason.
But a house owner sells/rents out once in 5-10 years, and never to a repeat audience; So money is all that matters, signaling doesn't.
Note however that airline pricing is notoriously difficult. There is no single price at which an airline may be flown profitably. It is an astounding achievement that the industry functions at all.
If you happen to own a property, but not use it, then you can either:
a) rent it out, or
b) sell it, and invest your proceeds according to your preferred risk/reward preferences.
In an efficient free market, for similar risk you get similar reward; So, if the reward for real-estate is 3% with essentially no risk, you're generally able to get the same thing by selling and putting the money in bank / low risk stock portfolio.
Alternatively, if you can't get 3% in other places, everyone will look to buy houses and rent them out (as an investment) in order to get those 3%. That's why the risk/reward profile equalizes across asset classes.
What GP was describing is basic math and economics. The existing state of ownership only matters in the sense that changing it introduces economic friction (ownership deduction, property transfer taxes, title transfer, realtor and lawyer fees, etc). Other than that, it's just math.
Money has a price. If you want to borrow money, you pay interest. If you have uninvested money, you forego interest and suffer inflation. If you have investors’ funds, that has a cost too. The combined costs of your various sources of money are your cost of capital. Investments are only economically profitable if they make more than the cost of capital. It is quite common to earn an accounting profit but suffer an actual economic loss.
If you own property you don’t use, then, assuming you aren’t enjoying some offsetting non-pecuniary benefit, you are suffering an economic loss. You would be better off selling that property so that you can reallocate your capital to a productive purpose.
perhaps this might be true asymptotically in a sufficiently-qualified rational, efficient, spherical, theoretical market. also, a market where tax laws don't give preferential treatment to renting or buying.
i'm currently renting in one of australia's major cities, the gross rental yield of this place would be something like 3% before subtracting costs (council rates, maintenance, interest, property management fees, insurance).
Renting out a property that you own can still be a long-term beneficial investment so long as the rental costs exceed the costs of borrowing on a mortgage – and that's typically much, much lower than the value of the actual mortgage payments being made. Capital growth potential is a valid reason that people may choose to invest in property, and in a market where there are many rental properties to choose from it's quite possible that rents remain below the prevailing capital repayment + interest that a mortgage would require.
But really it's hard to understand exactly what the point being made in this article is – it seems to be primarily that the "total amount" of rent being paid is now approaching parity with the "total amount" of payments being made by homeowners. I can't tell if that includes capital repayments, or if it's even accounting for an increase in renters vs. homeowners. There's basically no useful information there.
...In the long run, and on average.
Economic "laws" aren't ironclad; people are free to make all kinds of poor decisions, and they do. This is the foundation of the parable of the economist walking down the street and refusing to pick up the $20 bill, because if it were real, someone already would have.
We know how things should work, but they often don't. That's what is interesting.
It's saying the total amount being paid in rent is approaching the total amount paid in mortgage payments. I'm not sure what that proves other than far more people are renting than previously.
This needn't even be a problem, inherently. It's just that renting is often a miserable experience in the UK, and people are having to spend far too much of their income on it, which is setting us up for all sorts of societal problems in the future.
I wonder what the long term effects of this will be. When no one has any savings and no house when they retire, and all of a sudden have to live on a very small pension (which if the trends [1] are anything to go by may all collapse) what are people going to do?
[1] https://www.forbes.com/consent/?toURL=https://www.forbes.com...
EDIT: Would be interesting to see how this might affect the economy at large when this gets widespread. There already are quite significant transfers of purchase power across borders within the EU, e.g. (IIRC) the main income source in the Republic of Kosovo is family members working in richer parts of the EU and sending money home. Retirees who receive their pensions from the rich countries, but spend it in the poor countries where they relocate to, would serve as another force in the same direction.
Ignoring the poor treatment received by letting agencies, the landscape of property ownership is grim for newcomers. My salary puts me comfortably in the top 5% of the country earners, yet I spend about one third of it renting a tiny studio in town. We would need my partner to make above average salary to afford a modest 2 bedroom flat in town, or to be on my same payscale to be able to afford one of those terraced houses that we usually associate with middle class.
Don't get me wrong, I know I'm privileged, for me this data is just a symptom of the economic divide that this country is undergoing. If I can hardly afford to get into the property ladder, what should those in lower brackets expect? Will there be an increasing difference between those that own multiple properties and those who will be forced to rent all their lives?
If you properly account for running costs, depreciation and capital cost then renting "should" cost about the same as ownership.
What is also missed completely is the rise of the professional share house. How many professional people on high incomes are now forced into multi-person rental accommodation due to affordability concerns.
What I was attempting to flag was that for many this was no longer about it being a choice. The dramatic rise in house prices has meant that saving a deposit is now a lengthy endeavour in many areas, one that is driving a much larger renter culture. It is to be expected that lifestyle norms will change around this as well.
Basically - people who are renting are, in practice, stuck renting, and I suspect a lot of people can be pushed a lot harder than they are now - we’ve only seen the start of young adults continuing to live with their parents while working due to the cost of renting.
Anecdotal: Visited a friend in London a while ago, she bought her terrace "house" (2 stories, a width of 5 meters) for 500k GBP in Wimbledon. The condition of that thing screamed "landmarked" and "dump" at the same time, while all I heard was "artificial scarcity"...