Why Rent In London Is Out Of Control Right Now

[NoHPCinTheUK]

 

[NoHPCinTheUK]

Being a London landlord, my mortgage interest payment goes up for more than 100% during last year. Service charge goes up for more than 100%. I actually subsidize renters for their benefit of staying in London as they refuse rent increase. From investment prospective, it makes more sense to sell up and put the money in fixed deposit.

 

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[NoHPCinTheUK]

As a landlord I can sadly confirm that you can blame yourselves and the government for this. You wanted higher taxes on landlords and increased regulatory burden, and you got both! Well done. Last year saw Landlords sell up and leave in droves almost 150k landlords left. This has caused the spike in rents for the dwindling properties that remain. I’ve always tried to do the best for my tenants but now I’m afraid I’m considering exiting myself as there is literally no point me making a loss to house someone for less than it costs me to provide a quality home and make a small return on the tens of thousands I worked hard to save and invest…

[MARTINX9]

You might imagine all these landlords built their flats personally and all of these properties self combust as soon as they decide to sell up!

All BTL growth has achieved is pricing out young people from buying a home at the lower end of the market.

[Nick Cash]

There’s a phrase which I’m struggling to recall.

Oh yes. Supply and Demand.

Short term supply problems mean increased rent. Long term supply surfeit means reduced rent. And an increase of properties available to buy. Either to other landlords or to people who previously rented.

Will supply outstrip demand? 

 

[captainb]

Just now, Nick Cash said:

There’s a phrase which I’m struggling to recall.

Oh yes. Supply and Demand.

Short term supply problems mean increased rent. Long term supply surfeit means reduced rent. And an increase of properties available to buy. Either to other landlords or to people who previously rented.

Will supply outstrip demand? 

 

Where's that coming from? Net migration of 550k plus natural population growth and consistently low construction...

[Nick Cash]

1 minute ago, captainb said:

Where's that coming from? Net migration of 550k plus natural population growth and consistently low construction...

Hence my last question. 
 

Supply has been below demand for decades now. There are many reasons. Net migration is one. Low interest rates another. Selling off council housing etc etc. 

[captainb]

Just now, Nick Cash said:

Hence my last question. 
 

Supply has been below demand for decades now. There are many reasons. Net migration is one. Low interest rates another. Selling off council housing etc etc. 

Perhaps short term. But long term the fundamentals are high prices driven by high demand.

Of course that could change with a mass council home building in London, or mass building on green belt and/or net migration in 10s of thousands.

Just wouldn't bet on it.

[Nick Cash]

3 minutes ago, captainb said:

Perhaps short term. But long term the fundamentals are high prices driven by high demand.

Of course that could change with a mass council home building in London, or mass building on green belt and/or net migration in 10s of thousands.

Just wouldn't bet on it.

You’ve got that the wrong way around. Short term (this years rental prices in London) the fundamentals mean high prices. Long term (not sure how to define long term) we should see lower rentals. In the meantime there will be a tussle between landlords and FTBs over buying whatever property comes to market.

[14stFlyer]

16 minutes ago, captainb said:

plus natural population growth

There is no natural population growth.  Our fertility rate in the U.K. is below replacement, as indeed it is for the rest of Europe and indeed most of the rest of the world.  

[captainb]

1 minute ago, Nick Cash said:

You’ve got that the wrong way around. Short term (this years rental prices in London) the fundamentals mean high prices. Long term (not sure how to define long term) we should see lower rentals. In the meantime there will be a tussle between landlords and FTBs over buying whatever property comes to market.

On what basis? There simply are not enough property's to fullfil demand whether rental or purchase in London.

Hende why a Mayfair flat goes for 2m and a house in Middlesbrough goes for less than the price of bricks to build.

Longer term there will be less rental properties but still a cohort of people fresh off the train from Nottingham or fresh off the boat from Calais looking to fill them and driving the price up

[captainb]

4 minutes ago, 14stFlyer said:

There is no natural population growth.  Our fertility rate in the U.K. is below replacement, as indeed it is for the rest of Europe and indeed most of the rest of the world.  

Fair point from 2025 in UK 

As for the most of the rest of the world.. not so sure.. see Africa, India, SE Asia, central and southern America.

Estimate peak global population 2100

https://en.m.wikipedia.org/wiki/Projections_of_population_growth#:~:text=Based on this%2C the UN,in 2095–2100%2C according to

Edited February 19, 2023 by captainb

[Nick Cash]

1 minute ago, captainb said:

On what basis? There simply are not enough property's to fullfil demand whether rental or purchase in London.

Hende why a Mayfair flat goes for 2m and a house in Middlesbrough goes for less than the price of bricks to build.

Longer term there will be less rental properties but still a cohort of people fresh off the train from Nottingham or fresh off the boat from Calais looking to fill them and driving the price up

I think there has been a huge increase in new builds in London. There’s a thread today re a high rise in Alperton for example. At the moment there is an imbalance between property to rent (very low, as landlords exit the market) and properties to buy (Maybe increasing as less potential landlords buy). All of which, of course, changes monthly as people decide to move back to London to work or move away from London as it’s crap. Or not.

Central London should never be compared to anywhere else in the UK as it’s a different market (or was before Brexit and Ukraine War).

 

[mynamehere]

Video is a bit vague on causes, but I don't think BTL is the main driver, it's pent up demand from covid, plus increased international students, returnees, lack of construction too. 

If renters are able to find these kind of extra sums, 25% increases etc, then can the OO market really crash that hard? There must always be willing landlords, even with tax regime, eyeing up those yeilds?

[Freki]

13 minutes ago, 14stFlyer said:

There is no natural population growth.  Our fertility rate in the U.K. is below replacement, as indeed it is for the rest of Europe and indeed most of the rest of the world.  

I will just point out that replacement rate and population growth are different. The shape of the pyramid is the critical factor

[captainb]

9 minutes ago, Nick Cash said:

I think there has been a huge increase in new builds in London. There’s a thread today re a high rise in Alperton for example. At the moment there is an imbalance between property to rent (very low, as landlords exit the market) and properties to buy (Maybe increasing as less potential landlords buy). All of which, of course, changes monthly as people decide to move back to London to work or move away from London as it’s crap. Or not.

Central London should never be compared to anywhere else in the UK as it’s a different market (or was before Brexit and Ukraine War).

 

Whether there's a new rise in alperton or not the statistics on UK housebuilding particularly in SE are grim if you feel property is over priced.

The move out of London caused by high costs is a more interesting one.. personally I thought prices would fall over covid substantially because of this but sadly they didn't and now theres pressure in most firms for back to office. In financial services where I am standard is 4 days now in office and see Amazon and Google have started the 3 days in office as well.

All good change of course, but personally can't see London rentals becoming cheap in next decade, builds will remain low, greenbelt protected regardless of cost and immigration high most of whom want to live SE- sadly for youngsters who I think are people shafted. 

Edited February 19, 2023 by captainb

[Nick Cash]

4 minutes ago, captainb said:

Whether there's a new rise in alperton or not the statistics on UK housebuilding particularly in SE are grim if you feel property is over priced.

The move out of London caused by high costs is a more interesting one.. personally I thought prices would fall over covid sustainably because of this but sadly they didn't and now theres pressure in most firms for back to office. In financial services where I am standard is 4 days now in office and see Amazon and Google have started the 3 days in office as well.

All good change of course, but personally can't see London rentals becoming cheap in next decade, builds will remain low, greenbelt protected regardless of cost and immigration high most of whom want to live SE- sadly for youngsters who I think are people shafted. 

But it’s not just Alperton. There’s huge projects buildings flats in London. Unless the population of London can maintain this growth prices must come down. You believe (I think) that demand will always outstrip supply. I don’t. 

[captainb]

11 minutes ago, Nick Cash said:

But it’s not just Alperton. There’s huge projects buildings flats in London. Unless the population of London can maintain this growth prices must come down. You believe (I think) that demand will always outstrip supply. I don’t. 

Number of new builds are sadly not high in even recent historical let alone actual historical (think about how many 1930s semis there are in z4/5)6), leading to consistently high rental and price inflation

 

https://www.standard.co.uk/homesandproperty/property-news/london-new-homes-construction-building-affordable-council-developers-flats-b1034000.html

 

 

[14stFlyer]

3 minutes ago, captainb said:

Fair point from 2025 in UK 

I guess you are basing this 2025 date on the ONS updated projection from early 2022, or this article in the FT based on it?  
https://www.ft.com/content/7a558711-c1b8-4a41-8e72-8470cbd117e5

Either way, I am afraid this is looking out of date already. Death rate has been higher than birth rate in the U.K. for 2020, 2021 and 2022 so natural decline is already occurring for the U.K.   I understand that CoVid19 has an influence on this, but assuming that trends will reverse and that births will again outpace deaths in the U.K. population requires a leap of faith rather than an application of logical thought in my view. 
 

35 minutes ago, captainb said:

Estimate peak global population 2100

https://en.m.wikipedia.org/wiki/Projections_of_population_growth#:~:text=Based on this%2C the UN,in 2095–2100%2C according to

Again, this is WAY out of date. It is using projections from a 2014 UN-collated dataset that are now just plain wrong. Everyone knows this.  Taking China alone (which  also turned negative for natural population growth last year), the central estimate for 2100 is out by hundreds of millions of people. We know this.  My view is not based on projection, it is just that since 2014, things have not worked out the way the UN-collators expected in China, India, SE Asia, Europe… and Africa will not grow as much as expected either.   Based upon current trends Global population will peak somewhere around 2050 or so, not 2100. And the peak will be over a billion lower than thought a decade ago. 

Note: looking at very recent papers on sharp national-level fertility drops post-CoVid, it could be even lower and earlier. But this view is more speculative right now as there could be some bounce back. 

[captainb]

6 minutes ago, 14stFlyer said:

I guess you are basing this 2025 date on the ONS updated projection from early 2022, or this article in the FT based on it?  
https://www.ft.com/content/7a558711-c1b8-4a41-8e72-8470cbd117e5

Either way, I am afraid this is looking out of date already. Death rate has been higher than birth rate in the U.K. for 2020, 2021 and 2022 so natural decline is already occurring for the U.K.   I understand that CoVid19 has an influence on this, but assuming that trends will reverse and that births will again outpace deaths in the U.K. population requires a leap of faith rather than an application of logical thought in my view. 
 

Again, this is WAY out of date. It is using projections from a 2014 UN-collated dataset that are now just plain wrong. Everyone knows this.  Taking China alone (which  also turned negative for natural population growth last year), the central estimate for 2100 is out by hundreds of millions of people. We know this.  My view is not based on projection, it is just that since 2014, things have not worked out the way the UN-collators expected in China, India, SE Asia, Europe… and Africa will not grow as much as expected either.   Based upon current trends Global population will peak somewhere around 2050 or so, not 2100. And the peak will be over a billion lower than thought a decade ago. 

Note: looking at very recent papers on sharp national-level fertility drops post-CoVid, it could be even lower and earlier. But this view is more speculative right now as there could be some bounce back. 

All fair, particularly the covid impact is unknown or not.

But if population peaks between 2050 and 2100, in 2022, in most of the world it must logically be growing. (Most being most people not geographical land area etc).

I do get and agree demand won't grow forever but (assume) in context of London house prices we are talking of a 5 to 10 year horizon. If it's 50 all well and good but most of us will be in the grave or close to.

Edited February 19, 2023 by captainb

[14stFlyer]

39 minutes ago, Freki said:

I will just point out that replacement rate and population growth are different. The shape of the pyramid is the critical factor

I think I understand what you mean here Freki. In countries that have had a high fertility rate within the last 20 years, then populations will continue to grow, even if replacement rate is low (as all these recent babies turn in to adults of child bearing age and have kids of their own, whilst relatively fewer mature adults get old and die off). This is not the case in the U.K. where fertility rates have been close to or below replacement for a while and death rate already exceeds birth rate (or is very similar to it if you think there has been a pronounced and ongoing CoVid 19 effect that will reverse). 

[14stFlyer]

6 minutes ago, captainb said:

if population peaks between 2050 and 2100, in 2022, in most of the world it must logically be growing. (Most being most people not geographical land area etc).

I do get and agree demand won't grow forever but (assume) in context of London house prices we are talking of a 5 to 10 year horizon. If it's 50 all well and good but most of us will be in the grave or close to.

Yep. I agree.  Global population is indeed growing and will definitely continue to do so for your 5 or 10 year timescale. And if we continue to have net migration of 500k or so per year, I agree that demand pressures for accommodation in the London area, and indeed our other major cities, will continue to be strong. 

I personally am not convinced that this level of net migration to the U.K. will be sustained, even on a 5 - 10 year timescale. But it might be. 

[Nick Cash]

6 minutes ago, 14stFlyer said:

I think I understand what you mean here Freki. In countries that have had a high fertility rate within the last 20 years, then populations will continue to grow, even if replacement rate is low (as all these recent babies turn in to adults of child bearing age and have kids of their own, whilst relatively fewer mature adults get old and die off). This is not the case in the U.K. where fertility rates have been close to or below replacement for a while and death rate already exceeds birth rate (or is very similar to it if you think there has been a pronounced and ongoing CoVid 19 effect that will reverse). 

So will the UK population grow or decline? That is the only relevant question. 
 

The causes of the growth are irrelevant.

[winkie]

3 hours ago, captainb said:

Where's that coming from? Net migration of 550k plus natural population growth and consistently low construction...

No that is not the main reason, one big reason why a shortage of supply is because those that can afford to buy London property might not live in London or even live in the country......thousands of empty property, the wealthy who can will not rent it out, don't need to.......we have been very happy over the years to export our housing and continue to do so.

Look up into the dark skies, the lights are not on.

[captainb]

6 hours ago, winkie said:

No that is not the main reason, one big reason why a shortage of supply is because those that can afford to buy London property might not live in London or even live in the country......thousands of empty property, the wealthy who can will not rent it out, don't need to.......we have been very happy over the years to export our housing and continue to do so.

Look up into the dark skies, the lights are not on.

Agreed that is an issue. There will always be some empty homes (refurbishment, being built etc) but buy to leave is a high end specific London issue. Trophy assets in Croydon or Hendon not so much.

 

As for being the main issue, again if you consistently have housing completions in the low 10s of thousands and population growth that high, even if there were no empty new homes whatsoever you would still have significant upward pressure.

Would suggest the only two options for materially lower long term prices, are significant downward pressure on immigration levels or lifting greenbelt restrictions around London to allow significantly more housebuilding - like in the 1930s or 1960s. Cant see either happening tbh.

Nowithstanding taxing buy to leave heavily is a good idea to at least get them rented out.

Edited February 20, 2023 by captainb