New EICR to cover any changes made by outgoing tenant?10:00 AM, 4th May 2021
About 2 weeks ago 95
Dear Ms Beddoes.
I am writing with regard to the following article:
Unfortunately, this is a very ill-informed article. As an academic portfolio landlord (one who runs a property business whilst also studying the intricacies of the private rented sector), I would like to explain what is wrong in the article, point by point. I would appreciate it if this could be passed to the author for their comment.
‘The rent from buy-to-let properties, which we estimate at £55bn-65bn ($73bn-87bn) a year, is equivalent to the salary bill for the financial and insurance industries, in which over 1m people work.’
There is no line of causation between these two ‘facts’ or indeed any sense in linking the two.
This is very London-centric. In many parts of the country, house prices have not recovered to their 2008 levels. By stating that the housing market ‘seemed like a one-way bet,’ with no qualifying statement after this, it implies it was a one-way bet. It was not. If returns had been guaranteed, everyone who could have would have invested in what is actually a business fraught with risk.
This is a curious statement, as it implies that the consensus is that the growth of the PRS is unwelcome. The author points out the importance of rented housing for workers who need to be mobile and therefore for productivity in the economy, however they could also have pointed out how the sector has stepped in to plug the gap created by millions of council and Housing Association properties being sold off, and also how the sector provides essential housing for students and immigrants. It would be better to have said that this is the second most numerous tenure in the UK after owner-occupation and one which must be protected and advanced.
Asserting that small-scale landlords are ‘amateurish’ is biased and without evidence. It is wrong to assume that larger businesses will necessarily be ‘better.’
There is also no exploration of why private housing might be deemed to be ‘non-decent.’ The ‘non-decent’ definition would apply for example if there were a tiny bit of mould in the utility area (something I have in my privately-owned house). Houses are not ‘perfect’ and the old Victorian stock making up a lot of the PRS has some issues like this which require significant maintenance. The age of the housing stock is not landlords’ fault. Also, contrary to the assertion above, I could say that ‘many’ landlords manage their houses well.
I am not sure of the significance of this point. Many who privately rent now, might if they had still had access to social housing still have voted Labour; also, the number of private renters has gone up so one would expect the number who voted Labour (and maybe Conservative) to have also gone up.
This is inaccurate. There wasn’t a ‘tightening of the rules on how landlords write off interest costs against income tax.’ There was a change in the rules. Tightening the rules suggests that landlords were exploiting loopholes in the rules, but there were no loopholes. They just applied generally accepted accounting principles, like any other enterprise in the country, whereby when a business pays tax it is first allowed to offset the costs of producing the taxable profit. Paul Johnson of the Institute of Fiscal Studies has called the justification of this ‘plain wrong.’ The Institute of Chartered Accountants has further stated:
‘The idea that landlords will be taxed on the profit of their businesses, but not be allowed to offset the costs of creating that taxable profit is absurd, unjust and unsustainable. It overturns a fundamental, centuries-old principle of taxation.’
It is also misleading to say that this applies to landlords with large mortgages; it would be more accurate to say it applies to landlords with significant borrowing costs – as it can equally apply to a portfolio landlord who provides lots of housing to the low-paid – so the mortgages can be quite small, but numerous. Clearly, if landlords catering for the bottom end of the market are driven out of business by what is for many a huge new liability, this will have devastating impacts for the tenants with the lowest incomes. For an indepth analysis of the implications of this iniquitous tax levy, I refer you to my report:
There are several issues here. Firstly it was the act of the Treasury – backed by the Bank of England – in launching a fiscal attack on landlords which made it more likely landlords would start selling off in large numbers, potentially causing the very ‘crisis’ the Bank of England should have been seeking to avert. However, the evidence is that landlords do not panic sell in a down turn; considering the 2008 ‘property crash’ didn’t cause landlords to sell, this myth is pretty much busted.
The assertion that landlords default more than owner-occupiers is also false. In fact, according to what was the Council of Mortgage Lenders, buy-to-let has always been significantly safer. For example, a recent review by mortgage providers showed that East Midlands loans were 8 x safer and East of England 6x safer in the hands of BTL landlords, with the whole country averaging 3.25 x safer.
It won’t come as a relief though to the increasing numbers of people who cannot or do not want to buy property and who need a good supply of rented housing. Rented property is already in short supply and demand is predicted to increase. Assuming, as this article does implicitly, that rented housing is a bad thing, is simple bias.
In fact, it would have again been more accurate and less biased to frame this as landlords and first time buyers mostly not competing for the same houses. This was the finding of the independent research from the London School of Economics and is also common sense to landlords. First time buyers don’t want our houses of multiple occupation and they don’t want the little terraces in grubby streets known for drug-taking and/or areas full of benefit claimants. Conversely, speaking personally, I have never wanted the new-builds which are promoted to first time buyers, as the rent is often not sufficient to cover the mortgage and other costs of the business.
It is also counter-intuitive to suggest landlords would bid up prices. Landlords are not emotionally attached to homes they purchase for rental; they do not ‘fall in love’ with properties and have to have them at any cost. The only research I am aware of on this, suggests that putative owner-occupiers on average pay 1% more than landlords for equivalent properties.
This is an inaccurate statement. The study it refers to which was published by the National Housing and Planning Unit in 2007 found that only 7% out of the 150% rise in property prices between 1996 and 2007 was due to increased lending to landlords; another way of putting it is that 143/150ths of those price rises were not associated with landlords’ activities at all.
The rise in prices was presumably caused by increased demand for housing of all kinds coupled with a chronic under-supply of new dwellings, which would have been greater without BTL. What would prices and rents have be now if landlords had not contributed greatly to the housing stock? Considering there would have been a worse shortage than we currently have without landlords commissioning new-builds, bringing decrepit housing back into use, converting commercial premises for residential use and converting larger properties into houses of multiple occupation (housing large numbers of young workers very effectively), it is likely landlords have brought prices down more than they have increased them.
The author also misreported/exaggerated (instead of saying 10% of the 150%, which is misleading they should have said 6.66%); but in fact they have misquoted, with the figure closer to 4.66%; a pretty trivial figure in the grand scheme of things. By exaggerating and focusing on this small statistic, the author fails to account for or even refer to the other 95% of the rise in house prices. There can only be one explanation for why it is presented in this way; to falsely lay blame at the door of landlords for house price rises.
Correlation does not equal causation. There are many factors why first time buyers have been purchasing more in recent years and the increase in their numbers predates the fiscal attack on landlords.
In fact, institutions have only really moved into the student market in any significant numbers. It is not in their interests to move into the huge ‘social’ type sector within the PRS. They don’t want to invest in terraces in Merthyr Tydfil; they specialise in the more lucrative niche market of city flats and studios. As for them benefitting from economies of scale, what they are really now benefitting from is a preferential tax treatment compared to traditional private landlords purely by dint of having ‘inc’ at the end of their name. This is because they are still allowed to offset their finance costs when calculating profit which gives them a huge advantage over private landlords, many of whom are now faced with tax bills levied on fictitious income.
What is also more to the point for poor cash-strapped students is the much higher rents institutions invariably charge.
Using the pejorative term ‘amateur landlord’ just about sums up the inherently biased approach taken in this article. In fact, whether a landlord is an institution or an individual has very little bearing on their ‘professionalism.’ Many private landlords run businesses comprised of hundreds of properties. They are no less professional than institutions; but they are certainly better value for money.
The ‘golden age’ of the private landlord is certainly not over, moreover, as they will be needed for many decades to come by the 5 million households they currently serve and according to projections, by millions more in the future.
Finally, on a more general point, I would like to say that I was until recently a subscriber to the Economist and assumed that when I read articles on specialised subjects, that these were accurate, independent and unbiased. The fact that as an expert in the field of the private rented sector I can see all the flaws in the above article, calls into question the probity of all of the articles in the Economist about subjects on which I have no expertise.
I would very much like you to get back to me with your thoughts and those of the journalist concerned, on my critique. I would also be happy to write an article for you on this or related matters if you would like; it would be especially advisable for the Economist to publish an article on the new tax levy on landlords and I would happy to write that for you.
Dr Rosalind Beck
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