6 ms·

The resurgence of buy-to-let housing is morally wrong (2013)

22 points by mgh2 5y ago

quickthrower2 5y ago
I believe that since this was written the UK has increased taxes and stamp duties for BTL. The taxes are increased by reducing the tax relief on interest while still taxing the income. This means those who can buy houses without debt are OK but buy to let fuelled by newly borrowed money should be harder.
- fy20 5y ago
  All that's gonna mean is that instead of some middle-class IT worker who has saved up a deposit for a second home buying it themselves, they'll put that money into an investment fund and they will buy the home.
  - quickthrower2 5y ago
    Yeah there are always loopholes but HRMC is quite good at cracking down on systematic tax avoidance
setr 5y ago
Never heard of this term, but it sounds.. normal? I’m not really clear on the morality issue here; it seems to be that 1. People should own not rent, and 2. BTL players tend to operate as bad owners. Point 1. is just absurd, because that’s obviously true but it’s also obviously true that renters rent for a reason — they don’t want to, or can’t afford, the cost of total ownership over the property; telling them not to rent is simply telling them not to have shelter (you must be in a good position, or you shouldn’t have a position at all is a ridiculous stance) Point 2 is reasonable, but it’s not clear to me the relationship between BTL and bad ownership — the moral hazard seems to be purely with.. the owners themselves. There’s nothing described in the article that suggests BTL incentivizes or drives bad ownership practice, beyond giving the opportunity to be any kind of owner at all
- thatguy0900 5y ago
  I think the problem is when renters buy up all the property that is designed for owners. They can afford to pay far more than owners who want to live there, look up the stories of investment funds buying up huge swathes of residential land. No one who just wants a house can compete with that. It maybe wouldn't be an issue if widespread nimbyism and red tape in large meant barely any new ousting is coming online in many places,either.
  - setr 5y ago
    The thing I never understood with investment funds doing that is that they should be able to make more money on their investment by renting it out while they’re holding it — the rent high enough to cover near any risk, as rent normally is priced for. It doesn’t make sense to do nothing, unless the act of renting has itself become to expensive to recoup on
- jlokier 5y ago
  Your rebuttal of point 1 is premised on the idea that prices are out of reach for the tenants. I see two problems with that. First problem is that prices are obviously not representative of the "honest" costs of ownership (such as maintenance, repairs, furnishing, the building, etc); it is utterly dominated by market forces that determine sale price. And price is very much a function of who else is in the market. It's almost a simple competition game. As long as there are would-be buy-to-let landlords, who have much easier access to finance than tenants, and whose access to finance goes up in a competitive market for properties (because rent goes up, which raises the finance available), those landlords automatically win the finance and market forces game. This doesn't mean the tenants can't afford ownership when you are comparing, as you should, to a version of the game without would-be buy-to-let landlords, because prices would be lower and purchasing opportunities would be greater. Second problem is, even despite the advantageously-financed competition, it's often not true that tenants cannot afford the cost including the sale price. Many tenants are paying higher in rent for many years, even decades, compared with what the mortgage would be on the same properties. So those tenants could afford it - but financially the landlord is a better bet for the bank, so they win on that front too. One of the problems in the UK is that the tenants' payment history does not contribute towards their credit record, so they are often considered uncreditworthy for a mortgage despite an established and long history of paying more than a mortgage. But even if that were included, a well-backed commercial operation, and their requirement being for interest-only mortgages (because that's all buy-to-let requires), will still win the finance competition. I would say the morality issue is that renting can be precarious and unpleasant compared with owning, and the issues become more serious if it's for many years as it limits people's other life choices. So it's unfair that people are forced to rent when they would like to buy and could afford it if they weren't losing the finance game to well-financed commercial buyers. Difficult issues with renting that add to the moral issue: - Pets are not allowed almost universally. - Regular inspections (check your lifestyle is satisfactory to the landlord, don't be visibly alternative looking, take a day off work to clean before each inspection, hide the pets, hide the boy/girlfriend sometimes, hide the baby (I'm serious, I know someone who was kicked out when a newborn arrived, and there were no directly attached neighbours to be disturbed or zoning reasons)). - Having to keep moving each time you encounter landlords who terminate without giving any reason or don't renew the tenancies (which are virtually always <=12 months in the UK precisely so that tenants can't have full legal rights). Yes landlords do this when there's already a perfactly good tenant in place, sometimes because they think they can drastically raise the rent in a hot market, and sometimes it's not the far away landlord but a property agent who advises termination, seeing an opportunity for a new-tenancy commission. - Requirements for 6 or even 12 months rent up front are increasing (12 months happened to me twice). That's on top of the deposit (1 or 2 months). - No control over the state of your kitchen, laundry, bathroom, carpets, lighting, windows, etc. You get what comes with the property and you're stuck with it. There might not be good choices on the market at a reasonable price or suitable location, and in practice it will never be upgraded while you are there. And you certainly can't fit out a place in your own taste. - In some towns, you can't even choose your own furniture, because unfurnished properties are too scarce, and furnished properties come full already. Often with furniture that doesn't get upgraded until long after a property owner would have replaced it. - Can't learn how to do physical upgrades and repairs (what we call DIY in the UK), because it's generally not allowed when renting. That's quite sad when you grew up watching your parents do that sort of thing and would like to. > Point 2: BTL incentivizes or drives bad ownership practice Well, for example (in the UK). Consider solar panels on roofs. There's a grant partially subsidising their installation. Many people get them installed, net emissions eventually go down. Except, have you ever heard of a solar panel being installed on a buy to let property after it is bought? I haven't. The tenants aren't able to even if they wanted to, and the landlords aren't motivated to. For that matter, have you even heard of a buy to let property having its single-glazed windows upgraded? I have, but only rarely and only when there's no tenant.
DaiPlusPlus 5y ago
This wouldn’t be anywhere near as bad a problem as it is if the UK would just build more housing, lots more housing. Both house-prices and rents are high compared to median income because demand outstrips supply. I understand and sympathise with arguments for rent-control, and some form of quality regulation is definitely needed, but in the long-term rent-control introduces even more perverse incentives and is still ultimately just another work-around for the lack of supply. Build. More. Houses. It’s that simple. Heck, build more super-expensive luxury housing without any provision for a minimum % of affordable homes - because more supply at the high-end means buyers themselves will shift upwards and today’s luxury-homes become tomorrow’s affordable homes. If there needs to be regulation, we need to regulate NIMBYism.
- Biologist123 5y ago
  It’s probably not quite so simple as build, build, build. This article does a good job explaining why. https://archive.is/eV9qy https://archive.is/eV9qy
- bencollier49 5y ago
  It really isn't that simple. Of course, the various construction companies which make large donations to the major parties would have you think it was. In actual fact, a number of studies have shown that the primary factor is cheap credit and foreign money. If we built more houses they'd instantly be bought as an investment. This is the way things are working at the moment. Friends of mine in the property sector describe how Chinese or Russian investors will turn up and buy entire developments before private buyers have a chance. Meanwhile, private buy-to-let landlords are beating regular buyers out by making cash purchases which are more attractive to sellers. Either that or they can afford to offer more for the same properties. And people are getting sick of the constant house-building. The recent shock Conservative defeat in the Chesham and Amersham by-election was not just down to the HS2 train line being built through the countryside, but by the huge amount of destabilising housing development which is taking place in the area and changing its character.
  - kar5pt 5y ago
draw_down 5y ago
Silly.
apatheticonion 5y ago
I have been renting for a long time and I have finally saved enough money to put a deposit for an apartment in Sydney, Australia (houses are out of my price range). I ran through several simulations to try project my financial position in 5 and 10 years if I buy when compared to renting and investing in a fund. I came to the baffling conclusion that ownership is not worth it. That said, one of the permutations I ran was using an interest only loan to essentially rent an apartment but from the bank rather than a landlord. This strategy would actually have been more cost effective than renting if it weren't for the additional fees associated with selling. I am surprised there isn't a bank product designed to disrupt the owner-renter model and offer people to buy a property and pay the lower interest rate rather than the inflated rental price sold by owners.
- jlokier 5y ago
  > I came to the baffling conclusion that ownership is not worth it. I came to that conclusion about 20 years ago. So I decided, rationally, to stick with renting and saving, and I'd wait until prices dropped a bit. Well prices didn't drop in that 20 years, and my savings ended up covering some costs. I didn't end up better off. In retrospect, despite the (small) price differential in favour of renting and saving at that tim, I think not buying when I could have was a strategic mistake. I would say this: If something turns up in your life that needs you to pay unless you can get means-tested support, it's less likely to force you to sell the house than it is to force you to spend your savings, even if they are in a fund. Also, investments can go down as well as up. This is true for investment funds and housing (in theory). But if there's a market crash, you still have a house when that happens. If it's in a fund, you lost it. In other words, there's greater exposure to risk via the fund because long term volatility affects the fund value to you, but you are relatively insulated to changes in the value of housing, especially if everyone else is affected the same way.

22 points by mgh2 5y ago

I believe that since this was written the UK has increased taxes and stamp duties for BTL. The taxes are increased by reducing the tax relief on interest while still taxing the income. This means those who can buy houses without debt are OK but buy to let fuelled by newly borrowed money should be harder.

fy20 5y ago
All that's gonna mean is that instead of some middle-class IT worker who has saved up a deposit for a second home buying it themselves, they'll put that money into an investment fund and they will buy the home.
- quickthrower2 5y ago
  Yeah there are always loopholes but HRMC is quite good at cracking down on systematic tax avoidance

setr 5y ago

Never heard of this term, but it sounds.. normal? I’m not really clear on the morality issue here; it seems to be that 1. People should own not rent, and 2. BTL players tend to operate as bad owners. Point 1. is just absurd, because that’s obviously true but it’s also obviously true that renters rent for a reason — they don’t want to, or can’t afford, the cost of total ownership over the property; telling them not to rent is simply telling them not to have shelter (you must be in a good position, or you shouldn’t have a position at all is a ridiculous stance) Point 2 is reasonable, but it’s not clear to me the relationship between BTL and bad ownership — the moral hazard seems to be purely with.. the owners themselves. There’s nothing described in the article that suggests BTL incentivizes or drives bad ownership practice, beyond giving the opportunity to be any kind of owner at all

thatguy0900 5y ago
I think the problem is when renters buy up all the property that is designed for owners. They can afford to pay far more than owners who want to live there, look up the stories of investment funds buying up huge swathes of residential land. No one who just wants a house can compete with that. It maybe wouldn't be an issue if widespread nimbyism and red tape in large meant barely any new ousting is coming online in many places,either.
- setr 5y ago
  The thing I never understood with investment funds doing that is that they should be able to make more money on their investment by renting it out while they’re holding it — the rent high enough to cover near any risk, as rent normally is priced for. It doesn’t make sense to do nothing, unless the act of renting has itself become to expensive to recoup on
jlokier 5y ago
Your rebuttal of point 1 is premised on the idea that prices are out of reach for the tenants. I see two problems with that. First problem is that prices are obviously not representative of the "honest" costs of ownership (such as maintenance, repairs, furnishing, the building, etc); it is utterly dominated by market forces that determine sale price. And price is very much a function of who else is in the market. It's almost a simple competition game. As long as there are would-be buy-to-let landlords, who have much easier access to finance than tenants, and whose access to finance goes up in a competitive market for properties (because rent goes up, which raises the finance available), those landlords automatically win the finance and market forces game. This doesn't mean the tenants can't afford ownership when you are comparing, as you should, to a version of the game without would-be buy-to-let landlords, because prices would be lower and purchasing opportunities would be greater. Second problem is, even despite the advantageously-financed competition, it's often not true that tenants cannot afford the cost including the sale price. Many tenants are paying higher in rent for many years, even decades, compared with what the mortgage would be on the same properties. So those tenants could afford it - but financially the landlord is a better bet for the bank, so they win on that front too. One of the problems in the UK is that the tenants' payment history does not contribute towards their credit record, so they are often considered uncreditworthy for a mortgage despite an established and long history of paying more than a mortgage. But even if that were included, a well-backed commercial operation, and their requirement being for interest-only mortgages (because that's all buy-to-let requires), will still win the finance competition. I would say the morality issue is that renting can be precarious and unpleasant compared with owning, and the issues become more serious if it's for many years as it limits people's other life choices. So it's unfair that people are forced to rent when they would like to buy and could afford it if they weren't losing the finance game to well-financed commercial buyers. Difficult issues with renting that add to the moral issue: - Pets are not allowed almost universally. - Regular inspections (check your lifestyle is satisfactory to the landlord, don't be visibly alternative looking, take a day off work to clean before each inspection, hide the pets, hide the boy/girlfriend sometimes, hide the baby (I'm serious, I know someone who was kicked out when a newborn arrived, and there were no directly attached neighbours to be disturbed or zoning reasons)). - Having to keep moving each time you encounter landlords who terminate without giving any reason or don't renew the tenancies (which are virtually always <=12 months in the UK precisely so that tenants can't have full legal rights). Yes landlords do this when there's already a perfactly good tenant in place, sometimes because they think they can drastically raise the rent in a hot market, and sometimes it's not the far away landlord but a property agent who advises termination, seeing an opportunity for a new-tenancy commission. - Requirements for 6 or even 12 months rent up front are increasing (12 months happened to me twice). That's on top of the deposit (1 or 2 months). - No control over the state of your kitchen, laundry, bathroom, carpets, lighting, windows, etc. You get what comes with the property and you're stuck with it. There might not be good choices on the market at a reasonable price or suitable location, and in practice it will never be upgraded while you are there. And you certainly can't fit out a place in your own taste. - In some towns, you can't even choose your own furniture, because unfurnished properties are too scarce, and furnished properties come full already. Often with furniture that doesn't get upgraded until long after a property owner would have replaced it. - Can't learn how to do physical upgrades and repairs (what we call DIY in the UK), because it's generally not allowed when renting. That's quite sad when you grew up watching your parents do that sort of thing and would like to. > Point 2: BTL incentivizes or drives bad ownership practice Well, for example (in the UK). Consider solar panels on roofs. There's a grant partially subsidising their installation. Many people get them installed, net emissions eventually go down. Except, have you ever heard of a solar panel being installed on a buy to let property after it is bought? I haven't. The tenants aren't able to even if they wanted to, and the landlords aren't motivated to. For that matter, have you even heard of a buy to let property having its single-glazed windows upgraded? I have, but only rarely and only when there's no tenant.

DaiPlusPlus 5y ago

This wouldn’t be anywhere near as bad a problem as it is if the UK would just build more housing, lots more housing. Both house-prices and rents are high compared to median income because demand outstrips supply. I understand and sympathise with arguments for rent-control, and some form of quality regulation is definitely needed, but in the long-term rent-control introduces even more perverse incentives and is still ultimately just another work-around for the lack of supply. Build. More. Houses. It’s that simple. Heck, build more super-expensive luxury housing without any provision for a minimum % of affordable homes - because more supply at the high-end means buyers themselves will shift upwards and today’s luxury-homes become tomorrow’s affordable homes. If there needs to be regulation, we need to regulate NIMBYism.

Biologist123 5y ago
It’s probably not quite so simple as build, build, build. This article does a good job explaining why. https://archive.is/eV9qy https://archive.is/eV9qy
bencollier49 5y ago
It really isn't that simple. Of course, the various construction companies which make large donations to the major parties would have you think it was. In actual fact, a number of studies have shown that the primary factor is cheap credit and foreign money. If we built more houses they'd instantly be bought as an investment. This is the way things are working at the moment. Friends of mine in the property sector describe how Chinese or Russian investors will turn up and buy entire developments before private buyers have a chance. Meanwhile, private buy-to-let landlords are beating regular buyers out by making cash purchases which are more attractive to sellers. Either that or they can afford to offer more for the same properties. And people are getting sick of the constant house-building. The recent shock Conservative defeat in the Chesham and Amersham by-election was not just down to the HS2 train line being built through the countryside, but by the huge amount of destabilising housing development which is taking place in the area and changing its character.
- kar5pt 5y ago

draw_down 5y ago

Silly.

apatheticonion 5y ago

I have been renting for a long time and I have finally saved enough money to put a deposit for an apartment in Sydney, Australia (houses are out of my price range). I ran through several simulations to try project my financial position in 5 and 10 years if I buy when compared to renting and investing in a fund. I came to the baffling conclusion that ownership is not worth it. That said, one of the permutations I ran was using an interest only loan to essentially rent an apartment but from the bank rather than a landlord. This strategy would actually have been more cost effective than renting if it weren't for the additional fees associated with selling. I am surprised there isn't a bank product designed to disrupt the owner-renter model and offer people to buy a property and pay the lower interest rate rather than the inflated rental price sold by owners.

jlokier 5y ago
> I came to the baffling conclusion that ownership is not worth it. I came to that conclusion about 20 years ago. So I decided, rationally, to stick with renting and saving, and I'd wait until prices dropped a bit. Well prices didn't drop in that 20 years, and my savings ended up covering some costs. I didn't end up better off. In retrospect, despite the (small) price differential in favour of renting and saving at that tim, I think not buying when I could have was a strategic mistake. I would say this: If something turns up in your life that needs you to pay unless you can get means-tested support, it's less likely to force you to sell the house than it is to force you to spend your savings, even if they are in a fund. Also, investments can go down as well as up. This is true for investment funds and housing (in theory). But if there's a market crash, you still have a house when that happens. If it's in a fund, you lost it. In other words, there's greater exposure to risk via the fund because long term volatility affects the fund value to you, but you are relatively insulated to changes in the value of housing, especially if everyone else is affected the same way.