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In the UK housing market, the availability of cheap credit in the buy-to-let market has driven the cost of a home up to levels of unaffordability for the averag

In the UK housing market, the availability of cheap credit in the buy-to-let market has driven the cost of a home up to levels of unaffordability for the average person. It's made worse by the treatment of housing as an asset class, which means that the traditional solution (build more) has been shown to be ineffective. There is a whole class of people who buy house after house, and make a lot of money out of it, and it drives division in society, as buying is cheaper then renting. The government has made some moves towards making BTL less profitable, but realistically this has only had the effect of discouraging new entrants, and driving the sector to a corporate model, which is even worse.

rsj_hn 5y ago
> In the UK housing market, the availability of cheap credit in the buy-to-let market has driven the cost of a home up to levels of unaffordability for the average person. Let's say you borrow at 0% interest and with zero down. And you take out an interest-only loan -- that's the loosest possible lending standard, right? Still you would not pull the trigger and buy to let unless: rent > interest + maintenance + cost of dealing with tenants. That means that lax lending standards can at most drive the price of ownership up to the price of renting (but not really, since there are gaps between renters). At the same time, the more rental stock is added, the more rents fall, making housing cheaper in the area. So I disagree that low mortgate rates can allow rental investment to create a bubble. Rental investment is the one place where you are guaranteed there isn't going to be a bubble, because they are approaching this as a cashflow decision. Where you see bubbles is in people buying homes for themselves to occupy, so there is no sanity check to see if it pencils out our not in terms of rental cash flows. So cheap credit can absolutely cause high prices as a result of owner-occupants, but not as a result of buy to let. When that happens, you see rental stock being taken out of the market and used for owner occupancy. This is why nations with a large share of renters, like Germany, are also nations with the fewest housing bubbles. Housing bubbles are a phenomena for owner-occupants, because the value of living in a place is so subjective and can be devoid of actual incomes. Rent, on the other hand, must be paid with income.

rsj_hn 5y ago

> In the UK housing market, the availability of cheap credit in the buy-to-let market has driven the cost of a home up to levels of unaffordability for the average person. Let's say you borrow at 0% interest and with zero down. And you take out an interest-only loan -- that's the loosest possible lending standard, right? Still you would not pull the trigger and buy to let unless: rent > interest + maintenance + cost of dealing with tenants. That means that lax lending standards can at most drive the price of ownership up to the price of renting (but not really, since there are gaps between renters). At the same time, the more rental stock is added, the more rents fall, making housing cheaper in the area. So I disagree that low mortgate rates can allow rental investment to create a bubble. Rental investment is the one place where you are guaranteed there isn't going to be a bubble, because they are approaching this as a cashflow decision. Where you see bubbles is in people buying homes for themselves to occupy, so there is no sanity check to see if it pencils out our not in terms of rental cash flows. So cheap credit can absolutely cause high prices as a result of owner-occupants, but not as a result of buy to let. When that happens, you see rental stock being taken out of the market and used for owner occupancy. This is why nations with a large share of renters, like Germany, are also nations with the fewest housing bubbles. Housing bubbles are a phenomena for owner-occupants, because the value of living in a place is so subjective and can be devoid of actual incomes. Rent, on the other hand, must be paid with income.