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ARENAPUA

The Torygraph - House prices can keep rising only if the Government backs mass buy to let

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It's been a good weekend so far with articles implying the house price march isn't sustainable, with this one from the telegraph and the times I talking about the death of buy to let for the amateur landlord.

http://www.telegraph.co.uk/investing/buy-to-let/oxford-academics-house-prices-can-keep-rising-government-backs/

 

Quote:

 The fact that we cannot sensibly expect those trends to continue as they have for much longer may tell us many things. Not least over what we ought to expect to happen to house prices in future. They can keep rising only if we keep moving this quickly towards a mass private renting future.

 

Fact is the populace will simply never accept the idea of mass renting. It would mean the giving up of the most fundamental British aspiration..

 

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1 hour ago, ARENAPUA said:

. They can keep rising only if we keep moving this quickly towards a mass private renting future.

 

Whilst i like Dorling and his central observation that housing is in a bubble, if we went to an all renting scenario then yield would still dictate prices should be lower.

But maybe he's making a cruder point then this and trying to soften people up to the need for lower house prices by saying 'your children will never own a house'.

Edited by Si1

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30 minutes ago, Si1 said:

Whilst i like Dorling and his central observation that housing is in a bubble, if we went to an all renting scenario then yield would still dictate prices should be lower.

But maybe he's making a cruder point then this and trying to soften people up to the need for lower house prices by saying 'your children will never own a house'.

Yelds would be looked at from a different perspective. An investment bank would run this as a business and have much lower capital cost and in fact a better rental product, rather than a mish mash of terraced houses, flats and ill purposed properties with 5 different mortgages. 

I'd imagine rental costs would decline too. 

Imagine this, corporate ownership and mass rental market might in fact lower house prices. 

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Quote

In the rest of Europe people have a greater choice over whether to rent or buy. Those who rent have much better security of tenure and enjoy lower rents for higher-quality properties. Those who buy elsewhere in Europe do not expect to make the financial gains that Britain’s homeowners and landlords have made in recent decades.

 

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It reads like a blackmail to me. Support BTL or the holy HPI will stop, all those trillions of wealth could disappear . At least they are making right connections, not just typical immigration moaning. 

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49 minutes ago, hotairmail said:

I think the point he is making is that house prices can only keep going up if a greater share of the housing market is being taken over by landlords.....investors outbidding each other for a diminishing supply of existing properties with extra credit going into the market.

There inevitably is a point where the share can no longer can increase. That is the point when house prices cannot move further upwards. And if capital gains are no longer added to returns, then you would expect some correction based solely on yields.

 

Indeed, fair point.

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17 minutes ago, slawek said:

It reads like a blackmail to me. Support BTL or the holy HPI will stop, all those trillions of wealth could disappear . At least they are making right connections, not just typical immigration moaning. 

Dorling isn't pro btl.

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2 hours ago, hotairmail said:

I think the point he is making is that house prices can only keep going up if a greater share of the housing market is being taken over by landlords.....investors outbidding each other for a diminishing supply of existing properties with extra credit going into the market.

There inevitably is a point where the share can no longer can increase. That is the point when house prices cannot move further upwards. And if capital gains are no longer added to returns, then you would expect some correction based solely on yields.

 

That's where Build to Rent comes in. Think of it as shrinkflation applied to the property market. It admits the creation of additional microhousing rungs at the bottom the ladder while maintaining (or indeed increasing) aggregate sq. ft returns for housebuilders and developers. At the same time, by setting up institutional investors as landlords, it licenses the City to capture a profitable stream of revenue that successive govts have inadvertently allowed BTL amateurs to corner. Win win for Mr Hammond and his bankster friends, lose lose for those poor unfortunates on the receiving end - kenneled like dogs and facing the prospect of having to sacrifice an ever-greater share of their income for the privilege.

 

 

Edited by zugzwang

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1 hour ago, Si1 said:

Dorling isn't pro btl.

Given how thick and entitled your average BTLer is they won't get that this is an ironic piece.

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1 hour ago, nome said:

Given how thick and entitled your average BTLer is they won't get that this is an ironic piece.

*waits for Fungus to turn up *

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4 hours ago, hotairmail said:

I think the point he is making is that house prices can only keep going up if a greater share of the housing market is being taken over by landlords.....investors outbidding each other for a diminishing supply of existing properties with extra credit going into the market.

There inevitably is a point where the share can no longer can increase. That is the point when house prices cannot move further upwards. And if capital gains are no longer added to returns, then you would expect some correction based solely on yields.

 

Agreed. But also it's a matter of how the whole pyramid is supported, or not, by the equity the bottom level has, or doesn't have, the chance to build up. 

Replacing a generation of equity-building FTBs with a generation of renters eventually leads the pyramid to collapse because the equity gets too concentrated at the top. 

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.

Quote

 

Oxford academics: 'House prices can keep rising only if the Government backs mass buy-to-let'

 

Oxford academics - so it must be right and likely they are right but ultimately it depends mainly on the levels of credit.  

Likely they're heavily into BtL and most likely share holdings in corporate BtLs as well. 

They seem to have forgotten that mass buy-to-let seems to imply ever tinier homes for the masses (that'll not include Oxford academics) and that's on top of them already being the tiniest in europe.

Ultimately if everyone (apart from the likes of Oxford academics of course) lives in a tiny corporate kennel then it sounds like all that stops prices rising is how much QE etc they can do, how much the government is prepared to bail them out and how competitive say other investments are such as long term bonds etc etc.  It's just driving the UK economy ever more into a corner that gets more and more difficult to get out of.

Edited by billybong

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9 minutes ago, billybong said:

.Oxford academics - so it must be right and likely they are right but ultimately it depends mainly on the levels of credit.  

I doubt very much that Dorling and Fransham wrote the headline.

The headline itself is in inverted commas, but it is not a quote from the article. It clearly links to the final paragraph (emphasis added):

Quote

As long as house prices continue to rise much faster than wages in the UK the trends shown in the graph can be expected to continue, regardless of Brexit. The fact that we cannot sensibly expect those trends to continue as they have for much longer may tell us many things. Not least over what we ought to expect to happen to house prices in future. They can keep rising only if we keep moving this quickly towards a mass private renting future.

Consider stridency with which they reject the idea that "those trends" can continue earlier in the article (emphasis added):

Quote

This year’s impossible-to-continue social statistic is found in the rise in private renting in Britain. The rise has now reached such a speed that if it were to continue at current rates, within 10 years half of all households headed by someone aged under 55 would be renting privately. Within another 10 years half of all households would be.

Hence a fair reading of the article is

  • the PRS cannot keep growing as it has done
  • hence house prices are going to crash

Is anyone surprised the Telegraph sub-editors didn't go with "End of BTL mean a house price crash"?

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8 hours ago, Bland Unsight said:

I doubt very much that Dorling and Fransham wrote the headline.

The headline itself is in inverted commas, but it is not a quote from the article. It clearly links to the final paragraph (emphasis added):

Consider stridency with which they reject the idea that "those trends" can continue earlier in the article (emphasis added):

Hence a fair reading of the article is

  • the PRS cannot keep growing as it has done
  • hence house prices are going to crash

Is anyone surprised the Telegraph sub-editors didn't go with "End of BTL mean a house price crash"?

I also doubt if they wrote the headline but the article is written by them (or at least that's what it says beside the article) and I think a fair reading of the article is that they're saying that the current house price trends can't continue unless there's mass buy-to-let (corporate BtL) - and that does seems to be the policy that the government is developing.  They're expressing reservations about the sustainability of house prices unless people and specifically telegraph readers accept and get behind mass BtL

Likely it's aimed at the wealthy telegraph readers who own significant amounts of property plus BtLs.

I would have more or less agreed with your two conclusions if they'd said something along the lines that the government's apparent policy of mass BtL to solve all problems is impossible - although ultimately house prices depend on levels of credit (and associated government props) rather than how much BtL there is.. 

Edited by billybong

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I hope Theresa and the rest of the Conservative bigwigs read this. Makes a complete mockery of their sham home owning democracy mantra,  in fact I'd say straight from the playbook of the WPK, Workers Party of Korea.

I see this as a new novel way of professor Dorling restating his long held position that this crash is going to completely fck you over. 

Edited by AvoidDebt

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19 minutes ago, AvoidDebt said:

I see this as a new novel way of professor Dorling restating his long held position that this crash is going to completely fck you over. 

Yes, it looks like a different angle of attack, one that attempts to avoid the kind of superlative that cause your average Telegraph reader to immediately turn off (like "crash"). The failings of the article (the failure to successfully link rising prices as the cause of falling home-ownership and the failure to successfully link BTL activity as the cause of rising prices) is most likely a tactic to avoid offending the BTL reader by pinning the blame on them - we all know he blames them.

Ultimately, the conclusion BTL'ers need to come to is that their activities are anti-social but their egos require them to see themselves as providing a social service. They can't be told this, it is something that they have to do all by themselves. So anything that causes them to reflect on the social impact of their "business" without moralising should be welcomed.

Edited by Digsby

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On 09/04/2017 at 10:21 PM, billybong said:

I also doubt if they wrote the headline but the article is written by them (or at least that's what it says beside the article) and I think a fair reading of the article is that they're saying that the current house price trends can't continue unless there's mass buy-to-let (corporate BtL) - and that does seems to be the policy that the government is developing.  They're expressing reservations about the sustainability of house prices unless people and specifically telegraph readers accept and get behind mass BtL

Dorling has posted his original copy here by the way, if you want to explore whether the Telegraph made changes. 

http://www.dannydorling.org/?p=6003

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20 hours ago, Patient London FTB said:

Dorling has posted his original copy here by the way, if you want to explore whether the Telegraph made changes. 

http://www.dannydorling.org/?p=6003

Thanks for the link,  The original seems to be solely attributed to Dorling so it's not clear where Fransham fits in.

The original seems pretty similar to the telegraph article although I didn't compare in great detail or word for word etc.  Interesting that it focuses on rental percentages in europe where the lowest home ownership/owner occupation percentage is apparently Switzerland with about 45% whereas the UK has about 64%.  Germany has about 53%,  There's no mention of the US which has an almost identical percentage (65%) to the UK - that's the US which is supposed to have the most successful and resilient economy in the world.  Accepted it hasn't been doing that great recently but that also applies to most every other country.

The UK now has quite a large rental sector compared to most other countries in europe - refer to the links and bar chart below.

Quote

So can mass private renting be sold to the British? The argument for increasing private renting in the UK was that the rate was below what was usual in many other European countries and having a population that can more easily migrate is good for the economy. In the rest of Europe people have a greater choice over whether to rent or buy. Those who rent have much better security of tenure and enjoy lower rents for higher quality properties. Those who buy elsewhere in Europe do not expect to make the financial gains that homeowners and landlords in the UK have made in recent decades.

As long as house prices continue to rise much faster than wages in the UK the trends shown in the graph above can be expected to continue, regardless of Brexit. The fact that we cannot sensibly expect those trends to continue as they have for much longer may tell us many things. Not least over what we ought to expect to happen to house prices in future. They can only keep rising if we keep moving this quickly towards a mass private renting future.

 

It's also not clear why he put that final sentence in a perhaps back to front manner - apparently saying that only moving towards mass private renting will provide higher house prices in future  - unless he really just means that more house price rises will lead to more people renting.  If he means the former he gives no detailed reasoning and that seems significant as house prices mainly depend on levels of credit rather than amounts of renting.  

Him putting it in that back to front way (with the house price carrot) was one of the reasons I thought that the article was in a roundabout way trying to convince telegraph readers of the need for much more renting and therefore more corporate Build to Rent and on a massive scale.

I had thought he was associating corporate Build to Rent  (and consequently more mass private renting) with rising house prices as presumably under the current unimaginative (aka "innovative") system builders would need the incentive of rising prices to build those buildings (to sell to the corporate landlords) so that would imply more manipulation of house prices and more lax lending by lenders and more government manipulations, ruses and props etc - but he doesn't say.

 

https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

http://ec.europa.eu/eurostat/statistics-explained/index.php/Housing_statistics

Distribution_of_population_by_tenure_status%2C_2015_%28%25_of_population%29_YB17.png

,

Edited by billybong

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I still don't get what happens when generation rent retire? I know I live in London so out of touch with the rest of the country. But my pension will not cover my rent,I will have little to no assets, a point will come where if the prices don't come down i'm giving my deposit to my kids and going on a cruise..

So piss poor and broke along with the other 50% of renters who pays to wipe my bum in the nursing home? I have no assets to sell as my Landlord has all my money?

It must bankrupt the country this system we are running? Any ideas who covers the shortfall to house the renter generation?

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11 hours ago, macca13 said:

It must bankrupt the country this system we are running? Any ideas who covers the shortfall to house the renter generation?

It does, and that is why it is finally coming under a sustained and brutal attack from the government and the Bank of England.

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On 4/12/2017 at 0:34 AM, macca13 said:

I still don't get what happens when generation rent retire? I know I live in London so out of touch with the rest of the country. But my pension will not cover my rent,I will have little to no assets, a point will come where if the prices don't come down i'm giving my deposit to my kids and going on a cruise..

So piss poor and broke along with the other 50% of renters who pays to wipe my bum in the nursing home? I have no assets to sell as my Landlord has all my money?

 

I dont say the following with malice, for a long time the big divide between those who have an easy life and a hard life has been generational wealth.

An estimated £200 billion annually is gifted/inherited from old to young. Many people get such gifts and inheritances and that gives them a leg up in life and also enables them to help their own kids. Most people who find life hard or difficult are comparing their lot to the average who had a huge leg up in life due to this annual £200 billion transfer of wealth

 

On 4/12/2017 at 0:34 AM, macca13 said:

It must bankrupt the country this system we are running? Any ideas who covers the shortfall to house the renter generation?

 

The marginal rate of tax on landlords who buy with borrowed funds is post S24 very high sometimes as much as 80-90% if not more.

So if the government gave you say £1000 per month in housing benefit, it would get £800-£900 of that back in income taxes so it will only cost the government £100-£200 per month to house you. The £1000 per month headline figure is expensive but the post taxes cost falls down to a much more affordable £100-200 per month. Thats actually less than social rents which are closer to what £500 per month but the social landlords do not pay corporate tax as they do not make a profit.

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2 hours ago, RushRoad said:

The marginal rate of tax on landlords who buy with borrowed funds is post S24 very high sometimes as much as 80-90% if not more.

So if the government gave you say £1000 per month in housing benefit, it would get £800-£900 of that back in income taxes so it will only cost the government £100-£200 per month to house you. The £1000 per month headline figure is expensive but the post taxes cost falls down to a much more affordable £100-200 per month. Thats actually less than social rents which are closer to what £500 per month but the social landlords do not pay corporate tax as they do not make a profit.

If you think that a "marginal rate of tax" of 90% means that £1,000 of housing benefit paid to a landlord results in £900 of income tax paid to HMRC then you are as stupid and ignorant as you are annoying.

An astonishingly idiotic post. One of the worst I've seen in a long time.

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9 hours ago, RushRoad said:

 

I dont say the following with malice, for a long time the big divide between those who have an easy life and a hard life has been generational wealth.

An estimated £200 billion annually is gifted/inherited from old to young. Many people get such gifts and inheritances and that gives them a leg up in life and also enables them to help their own kids. Most people who find life hard or difficult are comparing their lot to the average who had a huge leg up in life due to this annual £200 billion transfer of wealth

 

 

The marginal rate of tax on landlords who buy with borrowed funds is post S24 very high sometimes as much as 80-90% if not more.

So if the government gave you say £1000 per month in housing benefit, it would get £800-£900 of that back in income taxes so it will only cost the government £100-£200 per month to house you. The £1000 per month headline figure is expensive but the post taxes cost falls down to a much more affordable £100-200 per month. Thats actually less than social rents which are closer to what £500 per month but the social landlords do not pay corporate tax as they do not make a profit.

Wow.

I feel a shark has been jumped here.

Forget GAAP. We are in in the realms of Quantum accounting.

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7 hours ago, Bland Unsight said:

If you think that a "marginal rate of tax" of 90% means that £1,000 of housing benefit paid to a landlord results in £900 of income tax paid to HMRC then you are as stupid and ignorant as you are annoying.

An astonishingly idiotic post. One of the worst I've seen in a long time.

 

Where is my mistake?

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