Why Aren't Rents Dropping?

[shell]

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!

Pff. Anyone willing to pay that much for an ugly place in the middle of nowhere like that is a mug. If that had been rented it would have been haggled down to £1100 or simply remained void. What a joke.

BTW FYI Brighton and Hove were hammered in last HPC!

[Tired of Waiting]

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.

Boom Boom, you are forgetting that the major part of a mortgage monthly payment is the rent of the capital borrowed, called "interests".

Then you will profit/bear any increase/decrease in the property value.

Bet on your HP forecast.

[jonb]

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.

So if the base rate increases to 4%, you will be worse off. 4% is very low by historical standards, and it is very likely that rates will increase to at least this level in the next 3-5 years. The long term average is 7%.

[Ben from Dover]

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.

Top class post

[Ben from Dover]

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.

Same here in south east kent. We rent for £395 a practically identical flat that cost us £500 in 2003. Rents have dropped very slightly over the medium term but not been any short term drops and no rent rises for years.

Edited March 27, 2010 by Ben from Dover

[Tired of Waiting]

Same here in south east kent. We rent for £395 a practically identical flat that cost us £500 in 2003. Rents have dropped very slightly over the medium term but not been any short term drops and no rent rises for years.

Here (West Sussex) the rent for a 2 bedroom flat was around £600 in 2003, went up to almost £800 a year ago, and is now down to around £700.

[ader]

In the areas I know off rents are about the same as they were before the insane hpi.

e.g. £500 a month for a 2 bed terrace.

This is the same rent as they fetched in the early nineties when they cost £50k to buy.

Of course back then banks would only lend 3 times single salary or 2.5 times joint.

i.e. rents are already rock bottom I wouldn't expect them to fall much (except the crappy new build flats).

btw, the long term average boe rate is nearer 8% than 7% and the average long term mortgage rate people actually pay is somewhat higher than this.

[pie-eater]

My LL has just offered me another year with same rent as last year. We didn't get back to him and he called, leaving a message on my mobile offering a 5% dicount on last year's amount.

We're bored with living here so we're going to pack up and give Dulwich a try.

The beauty of renting....

[_w_]

Top class post

Thanks.

I rent a flat in one of those flat complexes on the side of the river Thames in West London. This part of the Thames is beginning to look like a canyon, a bit like East London.

After my last post I had a quick look at neighbouring buildings tonight at about 8pm. Here are the result of my every non-scientific survey:

- To my left: late 1980s. About 20 flats, all but 2 empty. Empties: approx. 9 in 10

- To my right: late 1980s. 10 flats, 2 occupied. Empties: approx. 4 in 5

- Across the river left: late 1990s/2000s. 100 flats. Between 7 in ten and 9 in 10 empties

- Across river center: two 1970s towers 100 flats each at least: empties, approx. 1 in2

- Across river right: 150 flats, 1990s/2000s complex: approx. 3 in 5 empty

- Across river far right: 1990s/2000s complex 2-300 flat complex: approx. 9 in 10 empty

It's only when I counted that I realised the extent of the damage. It's shocking.

[sleepwello'nights]

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.

Proves that the changes enabling Landlords to regain possession more easily dramatically increased the supply of property available for rent. The market then determined the amount that could be charged for rents.

Another effect would be that local councils did not have to provide the capital and resources necessary to provide and maintain housing stock. Thereby the burden on council tax payers was reduced.

[Tired of Waiting]

Thanks.

I rent a flat in one of those flat complexes on the side of the river Thames in West London. This part of the Thames is beginning to look like a canyon, a bit like East London.

After my last post I had a quick look at neighbouring buildings tonight at about 8pm. Here are the result of my every non-scientific survey:

- To my left: late 1980s. About 20 flats, all but 2 empty. Empties: approx. 9 in 10

- To my right: late 1980s. 10 flats, 2 occupied. Empties: approx. 4 in 5

- Across the river left: late 1990s/2000s. 100 flats. Between 7 in ten and 9 in 10 empties

- Across river center: two 1970s towers 100 flats each at least: empties, approx. 1 in2

- Across river right: 150 flats, 1990s/2000s complex: approx. 3 in 5 empty

- Across river far right: 1990s/2000s complex 2-300 flat complex: approx. 9 in 10 empty

It's only when I counted that I realised the extent of the damage. It's shocking.

That is very interesting. Thanks for bringing this new issue.

But part of these flats may have had their lights off because the people were out, on a Saturday night. It would be interesting if you could take another look Monday night.

[Mr Yogi]

I cannot fathom why rents remain so high

Rents are actually quite cheap currently when put into context.

In the early '90s I rented a 3-bed terraced house for £425pm. The same house today would command around £550pm.

The market value of that house 17 years ago would have been around £40k. Now it is more like £140k.

Do the maths. Rents are cheap.

[_w_]

That is very interesting. Thanks for bringing this new issue.

But part of these flats may have had their lights off because the people were out, on a Saturday night. It would be interesting if you could take another look Monday night.

I am planning to and will report. I agree about the Saturday effect although I've been seeing them for a a few weeks now and the overall density doesn't seem to change.

[Tired of Waiting]

I am planning to and will report. I agree about the Saturday effect although I've been seeing them for a a few weeks now and the overall density doesn't seem to change.

Cheers. A major factor for these empty homes is probably that the closest thing we have to a property tax in Britain is council tax. But that is caped. I've lived in other countries (USA and continent) and I have never seen that. Property tax should be just proportional to value, period. No cap. They should even change in a revenue neutral basis. It would probably be between 0.5% and 1% of value/year. I bet you would see lots of these very expensive houses coming back to market pretty soon afterwards.