L&g Rental Scheme

[Nozick]

The annihilation of the hated private rentiers and their parasitical grasping continues:

http://www.theguardian.com/business/2016/jan/27/legal-general-to-build-and-rent-out-3000-new-uk-homes

[Neverwhere]

But rather than buying up old buy-to-let properties, Stanworth believes L&G is “better off creating purpose-built blocks” with shared utilities.

Good to see that they're not going to swoop in and save the highly leveraged buy-to-let crowd, like they're all complaining about (and secretly counting on).

[The Knimbies who say No]

"The UK private rental market has traditionally been dominated by individual buy-to-let landlords,...."

/hyperventilating

Traditionally?! This BTL shite's been going less than 20 years!

FFS!

[Guest TheBlueCat]

It's strange how the pension funds in the UK don't do much more of this like they do pretty much everywhere else on the planet.

[Neverwhere]

It's strange how the pension funds in the UK don't do much more of this like they do pretty much everywhere else on the planet.

It's not that strange. It's because prices (including bare land prices) are so out of whack with incomes that yields are rubbish. Pension funds tend to look for income streams rather than capital gains plays, as I understand it.

[VeryMeanReversion]

I'm all for this. New stock, professionally run.

I hate BTL and the hoovering up of existing single family houses and the insecurity that creates (for the individuals involved and the economy as a whole due to the vast amounts of leveraged £ involved).

[Si1]

I'm all for this. New stock, professionally run.

I hate BTL and the hoovering up of existing single family houses and the insecurity that creates (for the individuals involved and the economy as a whole due to the vast amounts of leveraged £ involved).

Professionals, not accidental innumerate amateurs.

[justthisbloke]

Is there any historical / etymological link between pension (old age income) and pension (short term accommodation in mainland Europe)? Whenever I hear "it's my pension, innit?", I'm reminded of travels of my youth staying in lodgings called "pensions" run by their old lady owners.

[Snugglybear]

Is there any historical / etymological link between pension (old age income) and pension (short term accommodation in mainland Europe)? Whenever I hear "it's my pension, innit?", I'm reminded of travels of my youth staying in lodgings called "pensions" run by their old lady owners.

The Oxford Dictionary says of the word’s origin in English “Late Middle English (in the sense 'payment, tax, regular sum paid to retain allegiance'): from Old French, from Latin pensio(n-) 'payment', from pendere 'to pay'. The current verb sense dates from the mid 19th century.

In early use a pension was a payment, a tax, or a regular sum paid to keep someone's loyalty. The word is derived from Latin pendere ‘to pay’, the source also of stipend (Late Middle English). Use of the word to describe an annuity paid to a retired employee has developed since the early 16th century.”

In French. I presume that the word equally came from the Latin. (I can’t check that, I don’t have a subscription to an etymological French dictionary). Anyway, by 1602 it is recorded as meaning “sum of money given for being fed and lodged” and by 1609 as meaning “a house where one is fed and lodged for a particular fee”.

[SarahBell]

Does ti really say they're after 3-4% yield?

[porca misèria]

Does ti really say they're after 3-4% yield?

Their business is annuities. If they can get 3-4% net of all management and maintenance costs, voids, derisking, that's an excellent yield in today's market. Individuals can get much higher yields by taking higher risks, but you can't do that with annuities.

[65243]

Their business is annuities. If they can get 3-4% net of all management and maintenance costs, voids, derisking, that's an excellent yield in today's market. Individuals can get much higher yields by taking higher risks, but you can't do that with annuities.

Utter Tosh, this is tantamount to saying that houses are good value.

And I don't really see why it's any better for an HPC if institutions get into the rental market just as private landlords leave it. This will still underpin the market.

If you have a pension with Legal and General now is the time to move it. An immoral investment is an immoral investment.

[Up the spout]

Their business is annuities. If they can get 3-4% net of all management and maintenance costs, voids, derisking, that's an excellent yield in today's market. Individuals can get much higher yields by taking higher risks, but you can't do that with annuities.

3-4% yield and the potential of an increase in the underlying capital, the bean counters will be ecstatic.

[Bland Unsight]

Utter Tosh, this is tantamount to saying that houses are good value.

And I don't really see why it's any better for an HPC if institutions get into the rental market just as private landlords leave it. This will still underpin the market.

If you have a pension with Legal and General now is the time to move it. An immoral investment is an immoral investment.

I don't think it is.

As a life insurer is looking for something in which to park money that will generate yield, a hefty capital loss, though unwelcome, is not the end of the world, because they will not expect to realise that capital loss.

Even acknowledging that they are investing in a bubbly asset class is a matter of limited consequence as all asset classes have been intentionally stoked by quantitative easing could be argued to be bubbly.

That's the insurer's perspective, and from that perspective build-to-rent may now be more of an option than it was in the past in the UK, and thus in a sense may offer 'value' because although the yields are terrible, the yields on alternatives are now much worse than they were in the past.

Of course from the perspective of a household looking to buy, rents are pretty much static and prices have gone up, so UK housing looks terrible value, (and the consequences of holding a bubbly asset are much worse for an individual household because often almost all the household's financial wealth is tied up in the house).

[justthisbloke]

3-4% yield and the potential of an increase in the underlying capital, the bean counters will be ecstatic.

If a 3-4% rising yield - after all costs - is possible, then maybe houses are fairly priced in this income-suppressed environment.

But I don't think such a yield is possible - certainly not at the amateur BTL level anyway. Yield only *appears* higher because they fudge (or ignore) the costs - most particularly time and effort.

My shares pay me 4% while I sit on the beach, tend my garden, or ride my bike. I don't need to *do* anything[1] and the income just flows. If I owned a BTL, I don't think I could outsource the management so totally. I might be able to pay 12% to a letting agency to run it - but as soon as one of the risks kicks in (non-payer, cannabis farm conversion, etc) it's the LL who has to sort it all out.

[1] Maybe not quite true. Occasionally I have to make a decision on some rights issue or other corporate action. But ticking a box is hardly onerous compared to seeking an eviction, or replacing a burned roof.

[Up the spout]

I don't think it is.

As a life insurer is looking for something in which to park money that will generate yield, a hefty capital loss, though unwelcome, is not the end of the world, because they will not expect to realise that capital loss.

Even acknowledging that they are investing in a bubbly asset class is a matter of limited consequence as all asset classes have been intentionally stoked by quantitative easing could be argued to be bubbly.

That's the insurer's perspective, and from that perspective build-to-rent may now be more of an option than it was in the past in the UK, and thus in a sense may offer 'value' because although the yields are terrible, the yields on alternatives are now much worse than they were in the past.

Of course from the perspective of a household looking to buy, rents are pretty much static and prices have gone up, so UK housing looks terrible value, (and the consequences of holding a bubbly asset are much worse for an individual household because often almost all the household's financial wealth is tied up in the house).

Very well put! I expect a large insurer will measure capital growth and yield in decades, just as a large oiler measures the output of its fields in decades. The UK's average house price is about 6x median income I think, so a dip in value of 17% of the house sees you lose a year's worth of salary, not a problem if you keep your job and don't need to engage in a fire sale of your only asset.

[btl_hater]

Utter Tosh, this is tantamount to saying that houses are good value.

And I don't really see why it's any better for an HPC if institutions get into the rental market just as private landlords leave it. This will still underpin the market.

If you have a pension with Legal and General now is the time to move it. An immoral investment is an immoral investment.

If they are going to build new housing at a higher standard than is currently available then surely that is a good thing. Just introduce lifetime tenancies like much of the continent enjoy and it would be massive step towards a proper private rental sector fit for purpose.

[Up the spout]

If a 3-4% rising yield - after all costs - is possible, then maybe houses are fairly priced in this income-suppressed environment.

But I don't think such a yield is possible - certainly not at the amateur BTL level anyway. Yield only *appears* higher because they fudge (or ignore) the costs - most particularly time and effort.

My shares pay me 4% while I sit on the beach, tend my garden, or ride my bike. I don't need to *do* anything[1] and the income just flows. If I owned a BTL, I don't think I could outsource the management so totally. I might be able to pay 12% to a letting agency to run it - but as soon as one of the risks kicks in (non-payer, cannabis farm conversion, etc) it's the LL who has to sort it all out.

[1] Maybe not quite true. Occasionally I have to make a decision on some rights issue or other corporate action. But ticking a box is hardly onerous compared to seeking an eviction, or replacing a burned roof.

I don't know the details but if they're building and renting the places they might have some juicy incentives to do so. Unfortunately big business will have much more leeway and influence than individuals do, they might get tax incentives, are able to buy land without planning permission and build on it etc.

[Snugglybear]

Apparently Nigel Wilson from L&G was on the Today programme on the BBC this morning talking about the insurer building modular homes.

BBC Business Live http://www.bbc.co.uk/news/live/business-3561161207:25

Today on Listen Again here http://www.bbc.co.uk/programmes/b071ftsq

Story also from the Construction Enquirer website

http://www.constructionenquirer.com/2016/02/23/lg-to-launch-55m-offsite-housing-factory-in-leeds/

[Si1]

I don't know the details but if they're building and renting the places they might have some juicy incentives to do so. Unfortunately big business will have much more leeway and influence than individuals do, they might get tax incentives, are able to buy land without planning permission and build on it etc.

Small scale landlords in this country have had spectacular tax incentives forever, it's about time the playing field was leveled out to equally permit PROFESSIONALS into the game.

I'm an l&g shareholder BTW, do you have a problem with me big nasty shareholder being able to freely invest my cash in profitable schemes that might actually provide decent housing?

[porca misèria]

I'm an l&g shareholder BTW,

I'm not, but I've occasionally considered buying for my SIPP. This story might actually make me more likely to buy: I like holding companies that do Good Things. Even if L&G don't get this right, they're blazing a trail for others to follow.

[Simon Taylor]

Utter Tosh, this is tantamount to saying that houses are good value.

And I don't really see why it's any better for an HPC if institutions get into the rental market just as private landlords leave it. This will still underpin the market.

If you have a pension with Legal and General now is the time to move it. An immoral investment is an immoral investment.

Not sure that it is tosh; this type of development increases supply and will improve quality. Competition improves the breed, etc etc.

Half arsed landlords renting out a crappy conversion flat with poor heating, skanky bathrooms and with a sod-it attitude to maintenance will find that their market may be about to shrink.

[billybong]

Slightly off topic. From the OP's guardian link.

L&G and PGGM will initially build 650 flats in Bristol, Salford and Walthamstow, north-east London, to help tackle the housing crisis. Only about half of the 250,000 new homes thought to be needed every year are being built.

So about 125,000 a year still only being built.

So nearly a year after the general election and the increased rate of house building promise is still nowhere near being met or even being attempted.

Back on topic 3000 from L&G is neither here nor there in terms of the numbers required but one can only assume that it's maybe a form of trial run and that it's intended to increase the number if house prices collapse. That's not to say I hold any brief for the likes of a financial sector company like L&G.

Edited February 24, 2016 by billybong

[R K]

I'm all for this. New stock, professionally run.

I hate BTL and the hoovering up of existing single family houses and the insecurity that creates (for the individuals involved and the economy as a whole due to the vast amounts of leveraged £ involved).

Me too. Long overdue.

government ofc would be an even better builder of last resort since they can act countercyclically, have no duration/commercial risk and can borrow at negative real rates. Also, govt assets belong to all of us so its not just a private asset/transfer to pension company savers.

Edited February 24, 2016 by R K

[Si1]

Me too. Long overdue.

government ofc would be an even better builder of last resort since they can act countercyclically, have no duration/commercial risk and can borrow at negative real rates. Also, govt assets belong to all of us so its not just a private asset/transfer to pension company savers.

Nice point.

On the other hand a large private PLC might not be tempted by political considerations to sell all their good stock off at subsidised prices to individuals.

Interestingly, whilst universities and nation state are the oldest existing institutions, for longevity and long term outlook some more venerable financial institutions come in at 3rd. Companies such l&g and Barclay's, for example, now have a200 year history and a very multidecadal outlook in certain assets, AFAIK.