Why Aren't Rents Dropping?

[Boom Boom]

Clearly, buying a house in the current market is not a particularly sound financial decision, but it is understandably preferable to paying someone else's mortgage via rent. I cannot fathom why rents remain so high, despite a massive glut of rental properties, and a dearth of people able to pay the rates being asked.

[Si1]

Clearly, buying a house in the current market is not a particularly sound financial decision, but it is understandably preferable to paying someone else's mortgage via rent. I cannot fathom why rents remain so high, despite a massive glut of rental properties, and a dearth of people able to pay the rates being asked.

where in the country do you mean? really cheap here where I am and in many of the regions

see this topic, which seemed to concluse that rents were at a discount compared to house prices EVERYWHERE and high rents reflected a general desirablity of an area with even higher purchase prices:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=139247&st=0&p=2440138entry2440138

[Boom Boom]

where in the country do you mean? really cheap here where I am and in many of the regions

see this topic, which seemed to concluse that rents were at a discount compared to house prices EVERYWHERE and high rents reflected a general desirablity of an area with even higher purchase prices:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=139247&st=0&p=2440138entry2440138

Just a general observation based on friends that are paying some pretty eye-popping amounts for pretty diminutive houses. Of course one can always rent much more cheaply in 'less desirable' areas, but then getting knifed on your way home from work could become tiresome.

[Si1]

Just a general observation based on friends that are paying some pretty eye-popping amounts for pretty diminutive houses. Of course one can always rent much more cheaply in 'less desirable' areas, but then getting knifed on your way home from work could become tiresome.

which areas are you citing? where in the country?

[Boom Boom]

which areas are you citing? where in the country?

Various parts of London, Oxford, Nottingham, Manchester and Leeds

[Si1]

Various parts of London, Oxford, Nottingham, Manchester and Leeds

I can speak with consioderable experience of Leeds, and some of Manchester, that it is not hard to get affordable rents, un/semi-furnished, in reasonable houses in reasonable areas, of £500 pcm, say, for a decent 2 bed terrace, say

this is very cheap compared to the implied yield against current market-achievable-selling prices

however, the economy is screwed and the basic cost of living is high, blame this on the labour government

but renting is, in every case I have examined, more cost effective than buying at these prices over the medium term

[Dr Doom]

Well as someone else said, they have dropped a bit,

but it always depends on the individual and how hard they are willing to haggle,

and how many places they were willing to look at to get the best deal.

Haggling isn't something British are renowned for, too polite.

Taking a more macro view, rents tend to correlate with typical/average income levels.

i.e. if you work in an area/country where income levels are high, the rents will be high

(and vice versa).

Unfortunately in this country we have something called a benefit system which ensure income

stays high for everybody, which skews the rental market upwards, as well as other things.

[Boom Boom]

I can speak with consioderable experience of Leeds, and some of Manchester, that it is not hard to get affordable rents, un/semi-furnished, in reasonable houses in reasonable areas, of £500 pcm, say, for a decent 2 bed terrace, say

this is very cheap compared to the implied yield against current market-achievable-selling prices

however, the economy is screwed and the basic cost of living is high, blame this on the labour government

but renting is, in every case I have examined, more cost effective than buying at these prices over the medium term

Or you could get a repayment mortgage on a reasonable 2 bed terrace for less than £500pcm. Like I said, buying is not a good move, but seems preferable to renting.

[libspero]

Or you could get a repayment mortgage on a reasonable 2 bed terrace for less than £500pcm. Like I said, buying is not a good move, but seems preferable to renting.

I work out £500pm on a long term fixed repayment mortgage would get you an £85k house.

If you can find a reasonable house for that in the area you want to live in, then I agree that purchasing is possibly not such a bad option.

That said, in an area where houses are £85k I expect you could get a lower rent than £500pm.

[_w_]

Clearly, buying a house in the current market is not a particularly sound financial decision, but it is understandably preferable to paying someone else's mortgage via rent. I cannot fathom why rents remain so high, despite a massive glut of rental properties, and a dearth of people able to pay the rates being asked.

Here's my analysis for what it's worth and it's pretty late so the presentation may be full of holes but the principle should hold:

In the more expensive areas that masters of the universe consider as civislised and therefore buy their properties rental returns seem to be in the order of 3%. So here's your situation:

- Return: 3%

- Take away costs related to rental (rent collections, empties, legal, management, accounting, etc.): -1%

- You are left with 2%

- Take away 50% tax on income from rental: -1%

- You are left with 1%

1% is just not worth it to masters of the universe, it's petty cash that is not worth the hassle. And here is the problem, because they still want to invest in property as an inflation hedge (daddy always says it's the best way to protect yourself against inflation and he's got a nice 'portfolio' to prove it).

And so they buy many houses but leave them empty (I see that a lot), or use the nearby Chelsea 4 bedroom house to house the nanny (I have also seen that a few times).

So they just leave the properties empty or at the very least will not bother to rent them for less than 5% or more which is way over what most people can afford. Instead, they count on HPI to generate a return on their investment, taxed at 20 odd percent, and forecast to be an average of 5 percent in most investment plans (it seems to have been a generally accepted consensus since the late 90s, I see it all the time, touted by estate agents and investment advisers, even in the middle of a deflationary bust).

Since these masters of the universe own a very large stock of properties in relation to the normal 'working capital' of empty properties available for rent, you end up with relative shortages. As the trend towards greater income and wealth inequalities increases, the stock of properties available for rent shrinks because they are bought in ever greater numbers by the wealthiest segment of the population (and left empty) and the resulting artificial shortages cause rents to increase and stay high.

That's my analysis of this conundrum, it's been bugging me for a while and haven't found a better explanation yet.

[200p]

Super money supply.

If we had no money printing, bank bailouts, and thus real bank collapses like in 30s on a gold standard - homes would be £50K, and rents would be £100 per month for a 2 bedroom house nationwide.

[ong]

I've been renting in S Yorkshire for coming up to three years. I have been keeping an eye on rental prices here and they have not moved discernably either up or down in that time.

[spyguy]

Broadly, rents are falling.

I work on Price/Bedroom.

16 years ago, rents in a couple of towns I monitored were around £200/bedroom.

They rose as more and more people were doing the BTL thang. Nuts - more supply = higher prices!

Then 2007 happened.

Anyone with a bit of knowledge of renting history knows that as soon as unemployment rises, which always hits the younger people, which are the majority of the privat rental market, the rental sector gets hammered. I saw this in the early 90s in the Thames valley - I went from paying the same for a bedroom in a hsred houseto getting a whole house for the same money - the owner lost his job, could not sell his house, needed to work in the states.

Falling rental values are not the main sympton of the rental market in trouble - empty houses - voids - are.

I've seen OK, known rental properties i.e. not some good awful 'luxury apartment', sit unlet for 2+ months. after less than 6 months rental.

I would guess most of the 'investments' property bought since 2002 will be sold over the falling 2 years. Either by the LL trhowing in the towel, or the bank throwing in the towel plus the LL's PPR.

Now consider that sales of 'investment' property made the bulk of housing transactions in 2002-2007 - FTB's were pretty much extinct in that period.

Now consider that only about 1 year worth of property has been sold in since 2007, we are in a situation where about 6 years worth of property will be put on the market when IRs start go up ... a lot.

Combine that with the Baby boomers selling and not many baby busters being around to buy.

[dothemaths]

I've been renting in S Yorkshire for coming up to three years. I have been keeping an eye on rental prices here and they have not moved discernably either up or down in that time.

I've been renting in the south west for about 3 years and rents have been in decline for that period. However the rate of decline seems to have stabilized somewhat the last few months from what I hear.

Buying is significantly more expensive - typically mortgage payments even with a 25% deposit are 50% higher than

rents.

[bomberbrown]

Broadly, rents are falling.

I agree, particularly in real terms. My example. When I moved to London in 1998, the weekly rent in my one bedroomed flat in Lower Clapton, Hackney was £105 a week. When this was revised to £135 a week after the landlord sold the flat to a property company (Londinium) I moved out in early 1999.

You can still rent the same flat for about £150 a week now!!! 11 years later.

In contrast, the flat in question was sold for £48k. A similar flat on the same street is currently up for £180k!!!

It's a no brainer.

[jonb]

Clearly, buying a house in the current market is not a particularly sound financial decision, but it is understandably preferable to paying someone else's mortgage via rent. I cannot fathom why rents remain so high, despite a massive glut of rental properties, and a dearth of people able to pay the rates being asked.

Rents didn't go up when house prices went up as landlords were prepared to rent out at a loss in the hope of making a capital gain.

[jonb]

Or you could get a repayment mortgage on a reasonable 2 bed terrace for less than £500pcm. Like I said, buying is not a good move, but seems preferable to renting.

That would be a tracker mortgage which will shoot up considerably some time in the medium term future when interest rates go up.

[repetitive bleats]

the flat i am living in cost my landlord £290k. my rent is £1000 per month. a lot of money to rent, an admittedly nice, 2 bedroom flat but i'm sure its cheaper than buying it. its a listed building and so quite old - it has needed something repairing or replacing every month so far as well.

i see a lot of places to rent on rightmove that are also for sale - and none of them are achieving anything like the rent you'd need to make BTL a viable proposition.

this was one of my favourites until they took it off the market.

http://www.rightmove.co.uk/property-for-sale/property-22427128.html for sale £497,500

http://www.rightmove.co.uk/property-to-rent/property-22064674.html or rent for £1600 pm

[InternationalRockSuperstar]

Why Aren't Rents Dropping?

because of socialist numpties:

http://www.telegraph.co.uk/finance/financetopics/recession/6924122/Housing-benefit-bill-rises-to-nearly-20-billion.html

Housing benefit bill rises to nearly £20 billion

Housing benefit payments will rise to more than £20 billion this year as the country's welfare bill spirals during the recession.

Saturday, 2 January 2010

The Government estimates it will pay out £19.6 billion in housing benefit during the 2009/10 financial year...

The year-on-year rise, of almost 15 per cent, is the steepest for more than 15 years. In 2010/11 the bill is expected to rise still further, to £20.8 billion.

...

Earlier this year The Sunday Telegraph revealed that housing benefits were paying for an unnamed family to live in a seven-bedroom home at a cost to taxpayers of £147,000 a year, while 550 families were receiving more than £30,000 annually in housing handouts.

...it emerged that Toorpakai Saiedi, a single mother of seven from Afghanistan, was living with her children in a privately-rented, seven-bedroom, £1.2 million house in west London with her rent of £12,458 a month paid by taxpayers.

In another case a Somalia-born couple and their eight children were paid £1,600 a week in housing benefit to live in £1.8 million London mansion.

And last month it emerged that single mother-of-eight Francesca Walker is living in a five-bedroom, £2.6 million home, again in London, where she receives more than £90,000 a year in housing allowance.

...

Nationwide 17 per cent of households receive some form of housing benefit, but in areas of London the figure reaches more than 40 per cent.

...

[fadeaway]

Rents are falling here on the east, and all the Uni students know it.

Rows and rows of empty houses sit with 'TO LET' signs outside every morning on my walk to work. There are some streets where almost half are empty.

As the weeks go by, more and more of them turn from TO LET to FOR SALE...

The student's aren't stupid, they're haggling down their rents. Supply/demand has shifted.

[bb7t6]

I have a 2 bed in a small (4 flat) conversion. My flat (according to Zoopla) is worth 165K, my neighbour rents his mirror image flat for £725 pcm. I have an offset mrotgage currently at 2.95% pa. With approx 75% LTV my monthly interest is £304, I do have to pay £65 monthly service charge, however even with this added it still only costs me £369 a month to own at current rates. My mortgage rate would have to increase to 6.4% to make it more expensive to own, which is a risk I'm happy to take given that I'm currently £356 better off.

[libspero]

I have a 2 bed in a small (4 flat) conversion. My flat (according to Zoopla) is worth 165K, my neighbour rents his mirror image flat for £725 pcm. I have an offset mrotgage currently at 2.95% pa. With approx 75% LTV my monthly interest is £304, I do have to pay £65 monthly service charge, however even with this added it still only costs me £369 a month to own at current rates. My mortgage rate would have to increase to 6.4% to make it more expensive to own, which is a risk I'm happy to take given that I'm currently £356 better off.

In your circumstance it looks far better (despite the interest lost through the off-set). It looks like you managed to get your house for around £125k.. not bad.

Probably not very applicable to today's buyers if they have to pay current prices.

[Edit to correct mortgage type]

Edited March 27, 2010 by libspero

[tim123]

Clearly, buying a house in the current market is not a particularly sound financial decision, but it is understandably preferable to paying someone else's mortgage via rent. I cannot fathom why rents remain so high, despite a massive glut of rental properties, and a dearth of people able to pay the rates being asked.

Probably because there isn't a massive glut of properties and a dearth of people unable to pay the rental.

Perhaps you are looking at a very small (geographical) sub section of the market

tim

[Si1]

I have a 2 bed in a small (4 flat) conversion. My flat (according to Zoopla) is worth 165K, my neighbour rents his mirror image flat for £725 pcm. I have an offset mrotgage currently at 2.95% pa. With approx 75% LTV my monthly interest is £304, I do have to pay £65 monthly service charge, however even with this added it still only costs me £369 a month to own at current rates. My mortgage rate would have to increase to 6.4% to make it more expensive to own, which is a risk I'm happy to take given that I'm currently £356 better off.

what a pointless ill-informed dopey post...

[Si1]

the flat i am living in cost my landlord £290k. my rent is £1000 per month. a lot of money to rent, an admittedly nice, 2 bedroom flat but i'm sure its cheaper than buying it. its a listed building and so quite old - it has needed something repairing or replacing every month so far as well.

i see a lot of places to rent on rightmove that are also for sale - and none of them are achieving anything like the rent you'd need to make BTL a viable proposition.

this was one of my favourites until they took it off the market.

http://www.rightmove...y-22427128.html for sale £497,500

http://www.rightmove...y-22064674.html or rent for £1600 pm

would that be this one that sold?

03/11/2009 £370,000 Det. F/H No Map 98, Longhill Road, Ovingdean, Brighton, Brighton And Hove, BN2 7BD

giving a yield of about 5% or less tyhan 4% if you consider maintenance etc. very poor. good value rent tho!