London rents are finally falling for the first time in two years | Hacker News Reader

London rents are finally falling for the first time in two years

standard.co.uk

14 pointsdukeyukey17 comments

The case of London has been fascinating to follow.

Set up: A lot of buy-to-let landlords are highly leveraged. Interest rates jump up. What do you rationally expect?

I expected that with IR up, monthly payments for the landlords are up. They can't afford the payments, they sell (presumably to live-in buyers). Selling pressure means prices go down in the near term.

Instead what's been happening for at least a year is that the landlords have been putting rents up. This works for as long as renters are willing to pay up. There's less and less reason to, though. Also, it's normally not enough for buy-to-let landlords not to take losses, so basically they're just betting they can take smaller losses fora a while and it'll all go "back to normal".

London is mostly owned by overseas landlords. They regularly snap up 75% of all new homes and own almost all properties valued at over £1m, a total of about £60B

That means that the normal economics of rents and interest don't really work because London properties are "investment assets" not homes. I expect the same is true in many capitals like New York or Paris.

The economics of rent have been weird for 20 years globally. It is because you make a loss on the rent in hope of capital gains and rent increases later. The lemon has been squeezed drier and drier. Every time I think house prices can’t boom any more they do. I now think it has less to do with fundamentals and more just a lack of housing vs. population and the fact that people earn or have amounts of money so it selects for the richer and the perpetual belief in bricks and mortar. Also a debt based money system encourages this.

I'd definitely like a source on this - it's definitely not true looking at my landlords, or those of friends (7 years in London now). I'd also be astounded if overseas investors owned most London properties over £1 million - the majority of Londoners own their own homes, and since the average price of a London home is around half a million, that makes for a huge number of millionaire owner-occupiers.

Aren't.... overseas landlords buy-to-let landlords? What are you trying to say?

Are you implying that overseas landlords behave differently than local landlords?

Yes, overseas owners are escaping capital controls in their own authoritarian countries. Banks and brokerages have to abide by strict KYC, AML, and reporting so theyre fucked if they park wealth there. Real estate is the last Wild West frontier.

Well it's more that they're businesses, property "portfolios" etc. Businesses behave differently than individual owner-landlords. I know folks who had London property, rented it out for some time and when things got tough they liquidated it to get a nice place out in the country. That's kinda the "British dream".

Businesses play a longer game. and hold in there, so London has always been a safe long term investment bet. Maybe those terrifying climate maps showing how much the Thames barrier is going to help in a few years have gotten their attention!

> There's less and less reason to, though.

Could you please explain this part a bit more?

The rental income level is often closely connected to the local jobs market. If an area has lots of high income jobs, you can raise rents and people will take it because it's rational to stay. However, the jobs market has been stagnant for a while and during the same period rents have been going up, something has to give, and it's often in the form of some people leaving and rents coming down.

But in my understanding you are talking about the delta, year over year. Trends. Would it not be a case of 500 applicants for one apartment reduced to 300, giving a landlord no cause to lower rents? At least that is what I am observing in major cities where I am living.

There is no more normal while said landlords are sitting on a 2% mortgage. I assume a good portion of the smaller ones are literally just letting things sit vacant and appreciate rather than dropping rents below what would be worth their time/risk when almost their entire payment is principal.

It would be nice if that's all they did, as new supply could blow them into oblivion. Instead they vote for ever more oppressive zoning and codes to turn their property into something you cant get unless you buy from them.

2%, really? Man, I thought US mortgage rates got pretty low following 2008.

Note that in the UK buy to let loans are typically 5 years fixed, with interest rates going up starting in 2022, so we'll be seeing the effects until 2027

Does govt charge sales tax/vat on rent in UK?

Not on residential rentals.

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