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Posts for property



On The Threshold: Is social housing the biggest threat to landlord earnings?

By Alessandro Pasetti, 16 August 2018 

As the Inveztments team continues to look at ways to help landlords monetise their properties in order to boost rental income streams, there remains plenty of risk for traditional landlords who choose the monthly cash while adding little value to their tenants – and at the same time the number of people who believe the property market is out of control is growing by the day.
So, what has been said in the marketplace, especially given that the BBC writes that giving tenants “greater support so they can hold their landlords to account is being considered as part of government proposals on social housing in England”?

Sanity

“The tide is turning, and voters are ready for sanity to return to the housing market,” The Telegraph reported earlier this month.

Elsewhere, in a story published by The Guardian last week, one author argued that “UK rents do not have to rocket”, noting that every element “of this (housing) system is set up to screw the average renter” – the British housing system “is the product of political choices that have lined the pockets of landlords at the expense of everyone else”.  

The article highlights the growing support for a renters’ union, while adding that “Britain’s landlords already collectivise: they have a body called the National Landlords Association (NLA), which proudly announces on its website that part of its work is lobbying the government”.  

Serious matters

Obviously, the NLA talks of rent control as being the greatest enemy of the private rental sector, although, as The Guardian author reported, “part of the reason your rent is so expensive is because the NLA has been lobbying the government so that it doesn’t adopt policies that might make it cheaper”. 

Poor landlords: what else should they do?

To start with, lobbying need not be a bad word. It is part of any viable business where politics and economics are so intertwined.

Moreover, the opinion piece ran by The Guardian completely overlooks the fact that demand – of which there’s plenty in the UK and London, and where INVEZ has a few irons in the fire – clearly outpaces supply for house purchases and rents. Equally, social housing is a good idea in theory but needs careful consideration (“A history of social housing” is worth a read if you are not familiar with the topic).

John Boughton

In an interview with Forbes earlier this year, social housing expert John Boughton, took a detailed look at the issue and concluded it is one of the biggest threat to landlords’ pricing power, given how seriously it could affect demand/supply dynamics.

The author of Municipal Dreams – defined by The Guardian as “an important and timely book, in the wake of Grenfell Tower, which emphasises how public investment enriches lives” – said that the housing crisis, particularly in the overheated markets of London and the South-East, consists of two elements, which we have extensively covered on this platform: “the lack of new homes being built to house a growing number of UK households”; and “the expense (whether for purchase or rent) of the homes we do have”. 

While there’s no real sign of a housing bubble, let alone a crisis, anywhere in London, the housing trade has become tougher, and about 250,000 new homes nationally need to be built annually to meet demand.

“Historically, that figure has only been met when council housing (as it then was) formed a vital part of the mix – at around 100,000 homes a year,” Mr Boughton noted. 

Rising risks

While the bears suggest all sorts of problems for landlords, recent reports still point to values spiking “across St John’s Wood and Regent’s Park as overseas families increasingly opt for luxury developments over five-star hotels for their summer sojourns.”

But should landlords fear a social housing resurgence?

Forbes has a point when it says that the creation of social or council housing interacted positively with economic growth, but I dispute the idea that its absence could harm the conditions for social and economic dynamism in the UK.

“The National Housing Federation, which represents the country’s social housing providers, estimates that every new social home built generates an additional £108,000 to the economy and creates 2.3 jobs.  In a post-Brexit world, this is money and employment directly benefiting the domestic economy,” Mr Boughton concluded.

Estimates are often misleading and could be debated – and then, how about unintended consequences?

One caveat, I reckon, is how Britain, and London in particular, wants to be perceived by the rest of world in the wake of the Brexit deal. Would the capital benefit from heavy investment in social housing? I simply don’t know, but there are obvious risks for landlords if investment in social housing becomes heavier, and it is hard to quantify the real benefits for the local economies.

Either way, what is apparent is that landlords, particularly in London, remain in the driving seat.

Data

According Knight Frank’s latest data, annual rental value growth was 1.1% in June, and this was the second successive month of growth following a 28-month run of declines.

(Source: Knight Frank)

The numbers I quoted in my latest post, which do not include social housing data, already pictured solid trends and a healthy outlook, so UK rents might actually be set to rocket.

The Guardian wrote in early 2014 that housing had “become the defining economic issue of our times“, and while from a social perspective the British newspaper raises some valid questions, look at the chart below (and enjoy it if you have skin in the housing game):

(Source: Trading Economics)

Then, look at this week’s headlines from the macroeconomic front.

(Source: BBC)

Finally, regardless of what the British press writes daily, there remain relatively cheap places to rent in London…

(Source: Metro.co.uk)

… as well as very expensive opportunities, which are shown in the table below, for wealthy tenants.

(Source: Metro.co.uk)

Bad landlords exist, but even if the bears are right, the bad times could be just a nuisance – that is surely the case if the right remedies are applied with the help of the Inveztments team.

Are you a landlord?

Contact our team here!

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha, The Loadstar, Transport Intelligence and others. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014.)

 

 

On The Threshold: Is a bedroom bonanza beckoning for London landlords?

By Alessandro Pasetti, 31 July 2018.

Most of the typically bearish headlines about the UK property market highlight the role that London has played since Brexit, with pundits often pointing to the difficult times experienced by the capital – “difficult times” which are here to stay, some argue. But recent research and trends suggest that by no means is London terminally ill.

Moving parts, prime London & changing habits

Take its rental market, for example, where Inveztments is looking at alternative ways to help landlords better monetise their assets at a time when for traditional property owners – those did the bare minimum except cashing in the monthly rent – the real estate heydays are a distant memory.

There are many moving parts here, including property prices trends, yet the rental market is often a good gauge of health in the private sector, and deserves attention. Given house prices dynamics in certain areas, London has been a national drag for some quarters now – although some sort of slowdown was surely inevitable after years of stellar growth, and latest signs this week were encouraging, particularly when other factors, apart from house prices, are considered.

(Source: 4-traders.com)

At the end of the first quarter, market specialist Savills noted that price falls across the “prime London rental market have continued to ease as a shortage of stock means supply and demand levels are becoming more aligned”, although the increasingly picky nature of tenants “has prevented any significant upward pressure on rents”. 

“Picky nature” means changing habits even for wealthy tenants who have become more selective than in the recent past.

Prime North West London, in particular, has recorded a strong demand for family houses but lower levels of “appropriate and available” supply, which has contributed to drive up prices. Stock of the best quality commands pricing power, with tenants prepared to pay a significant premium (up to a whopping 30%, according to Savills) for prime properties which are in immaculate condition compared with those considered moderate or poor.

Either way, value hunters are wary of paying up for the properties they are looking to rent because most tenants are looking for bargains: in fact, research shows that most are willing to relocate within prime London, which badly reflects on some areas (Kensington, Chelsea, Westminster) more than others, impacting landlords’ total returns.

Earlier this year, another market specialist, Knight Frank, analysed the performance of single-unit rental properties in the prime central London market (worth between £250 and £5,000-plus per week), and its findings were not surprising. In a nutshell, the annual rental value change was a modest –0.8% in April…

(Source: Knight Frank)

…standing at -0.1% in May, with better numbers for prime outer London, too…

(Source: Knight Frank)

…and look at the latest stats for June, which were even better and showed growth again in annual rental values.

(Source: Knight Frank)

On the one hand, rental growth could continue to outpace expectations. On the other, landlords ought to remember that income growth could be capped by the number of newbuild completions, which are expected to surge next year. 

Trends have not materially changed in recent weeks, so not only is London’s rental market possibly plateauing, but it’s getting stronger by the day, forcing landlords to find creative ways to boost returns – where applicable and feasible – such as adding rooms to their properties that can be rent out, while outsourcing the initial investment in order to extract value from their assets.

Break-down by type of available space on the market

Data on private rental market from the Valuation Office Agency shows that between July 2017 and June 2018 the “count of rents” (the number of rental agreements agreed on a monthly basis) for a single room in London has found a floor since the Brexit referendum at 1,220.

The average rental income for a single room stands at £628 per month, obviously lagging that of studio flats (£988) and all other property types, with anecdotal evidence showing that while count of rents have fallen, landlords have gained in terms of pricing power in this category. The same applies to other categories in the past twelve months.

All the latest stats available can be found in the table below.

One-, two- and three-bedroom flats typically account for 80% of total rents, and have been particularly resilient in terms of growth in the upper quartile, which validates the findings of market research specialists.

These bedroom categories are where the team of Inveztments plans to help landlords explore ways to boost their income streams and make a difference in the months to come, and we look forward to sharing some really exciting news with you later this year.

Are you a landlord and do you want to learn more about how to maximise your property-related returns in London? Do you want to talk to us and find out more about other projects in our pipeline?

Do not waste time and contact the INVEZ team today!

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha, The Loadstar, Transport Intelligence and others. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014.)