Renting Kills The Economy

[OnlyMe]

How do rents stay high if there is a surplus of properties for rent?

Cartels, this happens in commerical on local and wthe wider scale, leave the properties unlet to reduce supply. The housing market in general is too fractured for that to work, too many people breaking ranks. Having said that the banks themselves could run one with their books of returned properties if the situation ever got bad enough and it is just the sort of thing they would do to sweeten the books and pretned that all was ok.

[Bear Goggles]

Sorry to wake you up. Meanwhile you might have noticed that the government have been circulating a discussion document on measures to increase the private rented sector (PRS) and Labour's housing minister has been suggesting that we should move over to more private renting and that people should give up on home ownership. So it's about what sort of a country/society economy we want in the future. And what policies the Conservatives are going to pursue, of course. The wider consequences of a mass increase in the PRS matters.

Hi Munro - Can you point us to a reference to this document?

It will be interesting if this is the case, as it will suggest the first *official* policy shift away from the neo-liberal promotion of the "property owning democracy" as a way to keep us all to conform.

[tomandlu]

Cartels

Well, yes, but, as you point out, hard to pull off in the rental sector - particularly if we're talking about BTL with 2 or 3 properties... and the banks? A dangerous (illegal) game for them to become involved in...

[Pick It Down]

So there we have it - a modern consumer economy can't keep going without more and more demand, ie, more and more people buying more and more stuff.

It can, it just needs to be given the chance.

[TwoWolves]

I'm not sure I really understand this - I mean I quite understand that both the government, property-owners and the banks would like to keep the price of houses high, if only to protect their assets, but the 'physics' don't really add up.

How do rents stay high if there is a surplus of properties for rent?

How do asset-prices stay high if there is a dearth of credit?

We've just gone through a property-bubble, and the unwind is, due to short-sighted policies, sticky, but the bubble was driven by rising asset-prices, not rising demand for property.

Aside from that, it's not renting that kills the economy, it's the high-cost of housing. Irrespective of whether you lose the bulk of your wages to rent or to a mortgage, that's money that you can't spend elsewhere in the economy.

I take on board the point that renters don't buy as much household 'stuff' as owners, but in theory this just gives them more discretionary spending elsewhere in the economy.

I think this comment just about nails it.

Mostly rents are affected by supply and job availability in the area. I'm looking for a rental now and unfortunately a lot of agents are convinced the boom is back on and have hiked rates up. Its somewhat comical as I notice one of the largest employers in the area has just gone into receivership but they refuse to acknowledge that this might have an affect on the market. I keep seeing overpriced rentals disappearing and reappearing on the listings, I wonder why?

[munro]

Hi Munro - Can you point us to a reference to this document?

It will be interesting if this is the case, as it will suggest the first *official* policy shift away from the neo-liberal promotion of the "property owning democracy" as a way to keep us all to conform.

Try these -

http://www.communities.gov.uk/publications/housing/responseruggreview

http://www.communities.gov.uk/publications/housing/prsconsultresponse

Download the pdf files and read, and you will see what I mean. Deliberate government promotion of the PRS as a way of evading pricing out the next generation. It is just like the government's policy on companies - it doesn't matter who owns them. Similarly with housing - as long as you have a roof over your head the government doesn't care who owns it.

[munro]

I think this comment just about nails it.

Mostly rents are affected by supply and job availability in the area. I'm looking for a rental now and unfortunately a lot of agents are convinced the boom is back on and have hiked rates up. Its somewhat comical as I notice one of the largest employers in the area has just gone into receivership but they refuse to acknowledge that this might have an affect on the market. I keep seeing overpriced rentals disappearing and reappearing on the listings, I wonder why?

Your two paragraphs seem at odds with one another. You suggest rents should respond to wages, yet you say agents are still ramping the prices. Your choice is either pay the rate they want or become homeless. If they go under then their property is sold to someone else who will very probably do the same.

[munro]

nonsense

rents are strongly related to wages (amongst other things). if you don;t believe me compare the coast of renting in Arbroath with London

returns are dictated by rents

house/asset prices are dictated to returns

no possibility of decoupling over >medium term. deeply foolish argument.

(you're describing a carry trade - a classic way of forming bubbles)

Of course. But the point is that given house/asset prices are dictated by returns, as we have seen you can alter either end of that; the cost of capital can go down as well as rental income. If the former falls further than the latter the price can still go up.

And yes, of course this is a version of the carry trade. That's how investment/speculation works. We've been in a bubble for property for years and every time it has looked like bursting the game has been rigged to make sure it continues. I'm suggesting a further way in which it might be rigged.

The point, again, is that mortgages for ordinary people are limited by income as a multiple. Rents aren't. They can increase until people can barely subsist. In this scenario big investors can consistently price out ordinary people and house prices may not revert to an income multiple. Ignoring riots and insurrection, which is always a possibility.

[Si1]

And yes, of course this is a version of the carry trade. That's how investment/speculation works. We've been in a bubble for property for years and every time it has looked like bursting the game has been rigged to make sure it continues. I'm suggesting a further way in which it might be rigged.

indeed - it is a bubble. plausible. but it will end.

The point, again, is that mortgages for ordinary people are limited by income as a multiple. Rents aren't. They can increase until people can barely subsist.

absolute utter b*llsh*t spoken by one who has not the slightest comprehension of markets

In this scenario big investors can consistently price out ordinary people and house prices may not revert to an income multiple. Ignoring riots and insurrection, which is always a possibility.

ditto

Edited March 1, 2010 by Si1

[domo]

nope but I think people will counter by building shanty towns, sure government thugs might come and tear them down now and again, but there is a growing trend I;ve noticed of people living off grid, in large army tents and landrovers, in tents and motorbikes and in cars.

Living in a motorbike, that pretty hardcore!

Of course. But the point is that given house/asset prices are dictated by returns, as we have seen you can alter either end of that; the cost of capital can go down as well as rental income. If the former falls further than the latter the price can still go up.

And yes, of course this is a version of the carry trade. That's how investment/speculation works. We've been in a bubble for property for years and every time it has looked like bursting the game has been rigged to make sure it continues. I'm suggesting a further way in which it might be rigged.

The point, again, is that mortgages for ordinary people are limited by income as a multiple. Rents aren't. They can increase until people can barely subsist. In this scenario big investors can consistently price out ordinary people and house prices may not revert to an income multiple. Ignoring riots and insurrection, which is always a possibility.

But we've seen mortgages are not limited to income as a multiple, its limited buy the desire to lend. Which can get profligate. At least with rent there is that reality check that there is no capital gains to save you when you get stuck.

[munro]

indeed - ity is a bubble. plausible. abut it will end.

absolute utter b*llsh*t spoken by one who has not the slightest comprehension of markets

ditto

You can always rely on HPC for a good bit of ad hominem masquerading as argument.

[Dorkins]

I have been living in shared rentals since I graduated 6 years ago. In that time I have spent £80 on a secondhand sofa, £5 on a lamp for my bedside table, £300 on a new laptop, and £0 on paint, carpets, new bathrooms/kitchens, white goods, gardening equipment, plasma screen TVs, iPods, beds, tables, a car (where would I park it?), blenders, juicers, microwaves, breadmakers, rice cookers, and all that other stuff. I was thinking about this a couple of weeks ago, I reckon the market value of all my physical possessions must be well under £1k. I hate to sign financial agreements, have no mobile phone contract and only one direct debit coming out of my bank account (yes, I got chugged). My money goes on cooking from scratch (which I am learning from my southern European girlfriend), trips to the pub, train tickets to visit friends and relatives, paperbacks, cinema/theatre/concert tickets, and independent travelling around the UK and overseas (often camping).

The weird thing is, had HPI not trapped me in this situation for longer than I might have expected aged 18 (and will almost surely remain in past 30), I probably would be much more of a consumer. I grew up in suburban America for much of my childhood and my parents, having lived through half a century of pretty continuous economic growth in the UK and USA, are not shy of going to the shops for things when they want them. Don't get me wrong, they are lovely generous people, it's just a question of mindset. In my experience renting does mean moving every couple of years, and it's a major reason not to buy things you can probably do without. Once you've lived without these things for a while, you realise you just don't need them, and actually they can get in the way of having a peaceful and simple life.

I don't know how typical I am, I know lots of similar people but then everybody can always say that. However I'd like to venture a guess that our economic and political leaders may not realise it, but their pro-HPI anti-deflation policies are slowly creating a generation of people like this:

LIKES: saving/clearing debt ASAP, financial freedom, shopping around for everything (esp. internet), buying only what you need, making the most of life in ways that are free or don't involve much money.

DISLIKES: sticking it on the card, contracts, loyalty, impulse shopping 'because I'm worth it'.

The generation that came of age during the Great Depression was known for being frugal and careful for the rest of their lives, even during economic booms. I think there is a good chance that the new generation which is cutting its teeth on hard times of a decade of 20%+ youth unemployment, low wages and a high cost of living will be a lot more sensible than today's MEWing 40somethings, not just now, but perhaps for their entire lives.

[TwoWolves]

Your two paragraphs seem at odds with one another. You suggest rents should respond to wages, yet you say agents are still ramping the prices. Your choice is either pay the rate they want or become homeless. If they go under then their property is sold to someone else who will very probably do the same.

Yes they are at odds because the agents are at odds with reality and as I explain people can't afford the ramped rate levels.

[munro]

Living in a motorbike, that pretty hardcore!

But we've seen mortgages are not limited to income as a multiple, its limited buy the desire to lend. Which can get profligate. At least with rent there is that reality check that there is no capital gains to save you when you get stuck.

Sure - there's the lie-to-buy ninja mortgages. But that's people trying to compete with others who have access to more money at probably lower rates. Institutions won't need to do ninja stuff if they can lend to substantial investors. For people buying in normal circumstances the amount they can borrow is limited by their income.

I don't follow the point about rents and capital gains. If you can't afford your rental you get chucked out and have to move down the scale until you end up living in an HMO - which is affordable housing as there is nowhere lower to go. HMOs tend to have higher yields than other forms of renting but represent a lot more hassle to LLs.

[munro]

Yes they are at odds because the agents are at odds with reality and as I explain people can't afford the ramped rate levels.

If people really can't afford the ramped rent levels then they will end up on the streets. So one way or another they do afford the ramped rent levels. It's just like the market staying irrational for longer than you can stay solvent. I know there's a rational counterargument to this but we are seeing a wholesale breakdown of rationality, coming right from the top. You'd think that once we'd run out of money we'd retrench but no, in this Alice-in-Wonderland world the response to running out of money is to print some more. Letting agents holding out for more are simply following suit, and can possibly do so for longer than their would-be customers.

[Once in a lifetime]

Anyway you want to look at it, I think rents are too high compared to yesteryear.

Social or private landlord lettings in those days had greater rights for tenants,

fully assured tenancy agreements.

I know you guys love to big up the advantages of renting, but you should have been around in the 70’s

Your rights have all but gone, business is taking over and is here to stay. I don’t see that trend ending.

[Dorkins]

If people really can't afford the ramped rent levels then they will end up on the streets. So one way or another they do afford the ramped rent levels. It's just like the market staying irrational for longer than you can stay solvent. I know there's a rational counterargument to this but we are seeing a wholesale breakdown of rationality, coming right from the top. You'd think that once we'd run out of money we'd retrench but no, in this Alice-in-Wonderland world the response to running out of money is to print some more. Letting agents holding out for more are simply following suit, and can possibly do so for longer than their would-be customers.

Maybe, but how many BTLers can survive a significant void? A lot of those guys must be all in, 'my pwoperdee is my pension' is not just a cliche when you have no cash savings. There must be lots of property geniuses out there who haven't slept well for quite some time.

[TwoWolves]

Maybe, but how many BTLers can survive a significant void? A lot of those guys must be all in, 'my pwoperdee is my pension' is not just a cliche when you have no cash savings. There must be lots of property geniuses out there who haven't slept well for quite some time.

The tragedy of that is that it’s the agents who are bringing the day or reckoning forward instead of helping to find market equilibrium.

Most have only ever known boom and easy credit and cannot fathom any other paradigm.

[Si1]

Anyway you want to look at it, I think rents are too high compared to yesteryear.

Social or private landlord lettings in those days had greater rights for tenants,

fully assured tenancy agreements.

I know you guys love to big up the advantages of renting, but you should have been around in the 70's

Your rights have all but gone, business is taking over and is here to stay. I don't see that trend ending.

good grief.

so increased and more professional competition means less competitive market? you will get such a shock.

Edited March 1, 2010 by Si1

[Once in a lifetime]

good grief.

so increased and more professional competition means less competitive market? you will get such a shock.

You do not enjoy the same rights a renter did years ago. your rights are diminishing/crashing/having the piss taken out of.

and you've got to live with it because now renting is big business.

[porca misèria]

Anyway you want to look at it, I think rents are too high compared to yesteryear.

I take it you're too young to have been exposed to rentals from more than, say, a decade ago?

Todays rentals are incomparably better than when I was young. And much cheaper compared to either wages or houseprices.

[OnlyMe]

I take it you're too young to have been exposed to rentals from more than, say, a decade ago?

Todays rentals are incomparably better than when I was young. And much cheaper compared to either wages or houseprices.

Dare say many are better, but suspect you are wrong on comparison to wages.

We will find out, there will be more people back home or with other relatives or living some sort of alternative existence out of the loop somewhat.

[munro]

You do not enjoy the same rights a renter did years ago. your rights are diminishing/crashing/having the piss taken out of.

and you've got to live with it because now renting is big business.

That's part of the point. If we are seeing a takeover by big business, it's the end of housing as we know it. Housing will be traded between institutional investors, insofar as it is traded at all. Mass home ownership may turn out to be a blip in the second half of the 20th century and we're heading towards neo-feudalism. I'd agree that renting is not nearly as much "fun" as people seem to suggest, and it is all very well renting being cheaper than buying in the short term. This is arguably as short-sighted as looking purely at affordability in the here and now.

Bizarrely I can afford to buy the sort of hosue I'd like to live in, but I can't afford to live in it. I can only buy it if I rent it out. So I am considering buying and renting cheaper elsewhere until with the seemingly inevitable erosion of the value of money I can afford to live in it.

Frankly the antics of the present government scare the cr@p out of me and I have doubts that either the Conservatives or the markets are going to save us.

[Dorkins]

I take it you're too young to have been exposed to rentals from more than, say, a decade ago?

Todays rentals are incomparably better than when I was young. And much cheaper compared to either wages or houseprices.

Rents seem pretty high in London/SE, at least £400pcm for one room in an HMO, £500 for a studio flat, £600 for a 1 bed flat, £700 2 bed, £800 3 bed. That is not loose change for most people. If you bought something for £100k in 1996 on a 5% repayment mortgage you would now be paying less than £600pcm. £100k would have got you something pretty decent at that time, maybe a 3 bed detached in a good town. Maybe renters are on a great deal in some parts of the country or in really huge low yield houses, but cheaper rentals in London/SE don't seem like a good deal to me at all.

[19 year mortgage 8itch]

munro,

don't forget housing benefit which seems to prop up rental market pricing than reflect it, despite "policy". Surprise, surprise, its costing far more than they thought it would.