Thursday, June 2, 2011
There’s more to life than houses
This generation has to learn that there's no God-given right to a home
Members of "Generation Rent" are correct to think that the easy money to be made from home ownership is a thing of the past, but the fact that so many of them "aspire" to own their own place suggests they have not yet capitulated to this emerging reality. This generation will just have to get used to the idea that there is no God-given right to home ownership or, more pertinently, the large capital gains that accrued from it in the past.
Posted by dill @ 08:46 AM (2010 views)
32 thoughts on “There’s more to life than houses”
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will says:
This generation of home owners must also realise that the renters will never buy their homes from them when they wish to unlock their equity. The pyramid has collapsed.
Crunchy says:
Everything is leading to a world monopoly.
We, in the future, will own your housing, food, water, air, travel, laws, publishing, media, children………………
We have accomplished our long term goal. CONTROL & TYRANNY.
~ Velcome to the Nu Vorld Orda.
uncle tom says:
‘Generation rent’ – ‘nation of renters’
These currently popular phrases in the media miss an important point – that if people can’t afford to buy, why should they be able to afford to rent?
People don’t become landlords out of the kindness of their hearts – they become landlords to make money; so being a landlord has to add up over the longer term.
The most optimistic aspiring landlord today would hope to see the capital value of his investment track wage inflation – only an idiot would expect more – and from that base point, the numbers have to stack up correctly, after all the expenses of letting property are accounted for.
Without doing another of my worked examples (just trust that I have ‘done the math’) – to be economic from that base point, the gross rental yields needed are:
Property value £150k – funded outright – 6.5% – funded with 70% BTL mortgage – 7.5%
Property value £200k – funded outright – 6% – funded with 70% BTL mortgage – 7%
Property value £250k – funded outright – 5.75% – funded with 70% BTL mortgage – 6.75%
These yields are far higher than most tenants are currently paying, but without them, there will not be enough inducement to persuade new investment in property to rent.
The catch, however, is that far too many people cannot afford to pay such levels of rent.
From an economic standpoint, renting is not a cheaper solution relative to ownership, so if property is too expensive to buy, it is also too expensive to rent.
This brings us back to the necessity for property prices to fall. However, from a landlord’s perspective, the anticipation that property prices will not keep pace with wage inflation changes the economic base point, and pushes the rental yields needed for economic viability into the stratosphere.
In practice, I anticipate an exodus of landlords as demand increases, and a consequent sharp increase in rents. Hopefully, this will pressure the govt. into grasping the nettle and divert some of the housing benefit budget into building more homes.
In the meantime, existing tenants would do well to try to fix their rents for an extended period…
Nick says:
‘renting is not a cheaper solution relative to ownership, so if property is too expensive to buy, it is also too expensive to rent’
This simply isn’t true, in Oxford a £250k flat is about £800 a month to rent which includes maintenance fees of £100 so say £700 a month VS mortgage repayments of £1400 on a £250K mortgage at 4.5. From my experience renting costs are half that of buying.
doomwatch says:
Wonder if Sean has a BTL portfolio like most of the other media shills who’ve talked up the “market” in the last 10 years.
mark wadsworth says:
UT: “From an economic standpoint, renting is not a cheaper solution relative to ownership, so if property is too expensive to buy, it is also too expensive to rent.”
In the long run, yes, at current market prices, no (depending on whether you factor in price falls or price rises). So ask yourselves this, would you be able to buy the place you are living in at current market value with an 85% mortgage? Most people would answer “No”. Would you be able to rent it? Most people (excl. pensioners) would probably answer “Yes”. Now ask – if you had to pay no income tax, VAT etc. and received a modest Citizen’s Dividend (or a doubled state pension), would you be able to afford to rent it? I’m sure that ninety per cent would answer “Yes”.
Thecountofnowhere says:
Don’t they mean…the last generation!!!
uncle tom says:
“Now ask – if you had to pay no income tax, VAT etc. and received a modest Citizen’s Dividend (or a doubled state pension), would you be able to afford to rent it? I’m sure that ninety per cent would answer “Yes”.”
– You’re dancing with the fairies again Mark…
Vivaldo says:
OR The last generation will have to learn that what goes up must come down!!!
mark wadsworth says:
UT, it’s a simple enough question, it’s no less realistic than “the govt.. grasping the nettle and divert some of the housing benefit budget into building more homes.”.
If you ask me whether I think that’d be a good idea, I’d say “yes, of course”, the fact it’s not going to happen is an entirely separate issue.
alan_540 says:
Uncle Tom, housing benefit supports higher rents for the poorer end of the market allowing just the sort of figures you state for private landlords to make.
Tim says:
“an exodus of landlords as demand increases, and a consequent sharp increase in rents”- if there is an exodus iof landlords, where will these properties go? Back onto the market, resulting in oversupply and falling house prices surely? Either way, house prices face enormous downward pressure.
timmy t says:
“This generation will just have to get used to the idea that there is no God-given right to home ownership or, more pertinently, the large capital gains that accrued from it in the past.”
They will also have to get used to the idea that there must have been a God-given right (Or should that be Government-given right) in the past, otherwise they wouldn’t have meddled in the market and those gains would have been wiped out to a much greater extent than they have been.
enuii says:
Who pays the rent when masses of elderly renters are too old and too poor to pay the rent?
uncle tom says:
The diversion of HB spending to create new homes is not only do-able, but also quite likely.
The Conservatives have a big issue with the amount spent on HB, which ballooned under the last Govt. However, I don’t think their current attempts to reign it in will deliver much, so a more proactive agenda will probably gain support.
Using some of the budget to fund a private sector loan to build homes on land already owned by the state (mostly MoD) – makes good economic sense, upsets relatively few people and doesn’t throw up any serious ideological conflicts – so there are no serious obstacles to it happening.
The conspiratorial set will argue that the landlords who benefit from HB will conspire to defeat such a move; but there is little evidence that they are either sufficiently organised or sufficiently influential within the administration to prevail.
letthemfall says:
I would have said there is a human (even if not God given) right to a home, just not to a modern fitted kitchen, tastefully decorated lounge and a luxury bathroom (hurry while this opportunity is still avaliable).
sibley's b'stard child says:
Exactly TT, that’s the very refrain I see commonly uttered over at EAT. I don’t know about you but it smacks of sticking-up two fingers as the gravy train pulls away.
mark wadsworth says:
There’s no “God-given righ” to anything, but where on earth do Homeys get the right to merrily help themselves (tax free) and then prevent other people having houses to live in?
dill says:
@11 ltf
Something on the lines of the right to housing perhaps (Source: hrea.org).
letthemfall says:
MW: “There’s no “God-given righ” to anything”
To life? Time for a philosophical discussion.
Crunchy says:
13. mark wadsworth
The ‘God given rights’ should be naturally instilled in ones heart.
If they’re not, one has some serious soul searching to do.
The Baldman says:
If the tax relief on interest expenses was removed from landlords then we might see a level playing field. Also tenants rights need to be extended.
Crunchy says:
Amos 3:15
I will strike the winter house along with the summer house, and the houses of ivory shall perish, and the great houses shall come to an
end,†declares the Lord.
~ I thought most of you HPCers would like that one. A bit!
uncle tom says:
There is an analogy here with a beseiged army that takes refuge in a castle and pulls up the drawbridge..
..for the moment, they are safe and triumphant; but without fresh supplies they will slowly starve, and those camped outside will eventually prevail.
The beseiged army are the baby-boomers and others who find themselves living in homes they could never have afforded at current valuations..
..those camped outside are the under 40’s, who either cannot afford to buy, or upsize to a home that meets their needs..
There is no need for siege engines, no need to hack down a tree and ram the gate – with a little more patience there will come a day when the gate swings feebly open, and with a bedraggled white flag, the starving beg forgiveness..
(Forgiveness of the debts they cannot pay – one of the next big problems..)
mark wadsworth says:
LTF, I’m an atheist. However, there are much ‘higher laws’ than man made laws, such as maths or economics or logic or biology, or to use Uncle Tom’s analogy, there’s a natural law that says “When a besieged army’s food runs out, all the fortifications in the world will do them no good”.
sibley's b'stard child says:
Nice analogy UT, you mean to say I can scrap my blueprints for the trebauchet. Shame.
uncle tom says:
sbc,
Yes, dust down the blueprints for B’stard Towers instead..
timmy t says:
Yes – like your analogy UT…
Except I see medieval knights waiting patiently on horseback for the starving soldiers inside to wave the white flag, when along comes a nuclear bomb which kills them all and flattens the castle.
Those inside are the baby boomers
Those outside are the under 40’s
The nuke is inflation.
uncle tom says:
tt,
Your inflation nuke looks very real to me – but the timing of it is a terribly hard call.
The runaway budget deficits of the developed nations have no historical parallel to refer to, and when countries as large as Japan have a national debt that is six times their annual tax take, without the get-out of a rising population or rapid economic advancement; you know that sooner or later it’s all going to go horribly wrong.
But when? One can see that the slightest loss of confidence in Japanese bonds will push them into a default tailspin, and that the fear of contagion would push up bond yields globally, thereby making contagion a reality.
And of course it may not start in Japan – but Japan would be critically sensitive to contagion from elsewhere..
Ultimately, many developed nations would then have little option but to print their currencies into oblivion, with attendant hyper-inflation..
But the timing? the timing? – it’s doin’ me ‘ead in.. 🙂
letthemfall says:
Actually MW, those laws are man-made too.
timmy t says:
UT – I’m not really sure it will end like that. Maybe it shouldn’t have been a nuke, perhaps something like the plague or smallpox which gets everyone in the end with a slow and painful death.
uncle tom says:
tt,
The human race is quite good at dealing with diseases that have been around for generations – it’s the new ones we have to fear – see the emerging story about this new and nasty variant of e.coli…