RICS warn Government policy could increase rents 25% over the next 5 years

RICS warn Government policy could increase rents 25% over the next 5 years

8:45 AM, 24th December 2015, About 7 years ago 2

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The Royal Institute of Chartered Surveyors (RICS) has warned that rents could outstrip house prices with tenants paying as much as 25% more in 5 years time.RICS

Chief economist for RICS, Simon Rubinsohn, was concerned that recent government moves to discourage Buy to Let with a cap on mortgage interest relief and increasing stamp duty will significantly reduce supply in relation to demand thus causing increased inflationary pressures on the price of renting.

However, in the short term RICS are predicting house prices to increase faster in 2016 at 6% with rents only increasing by 3%.

Medium term RICS statistical analysis is predicting rental prices to rise an average of 5% per year for the next 5 years and house prices to increase by 4.7% per year over the same period.

Mr Rubinsohn said, “Critically our principal concern with the measures announced by the government is that they are overly focused on promoting home ownership at the expense of other tenures. Discouraging Buy to Let could see private rents take even more of the strain if institutional investment doesn’t increase significantly, particularly given the likely reduced flows of social rent property going forward.”

On the subject of Owner Occupier supply Mr Rubinsohn was more complimentary about policy saying, “Looking further out, there is some justification for taking a more optimistic view of new build with significant incentives being put in place to deliver starter homes. While this may not on its own stem the upward trend in house prices, it could help to slow the rate of growth to something closer to the probable rise in household incomes.”

Below is the RICS 2016 house price forecast by Region:

East Anglia – 8%
South East – 7%
West Midlands – 7%
North West – 6%
Wales – 6%
York and Hum – 6%
London – 5%
Northern Ireland – 5%
South West – 5%
East Midlands – 4%
Scotland – 4%
North East – 3%



12:50 PM, 24th December 2015, About 7 years ago

The accuracy of such forecasting is highly debateable: who knows whether Clause 24, the stamp duty hike or a sustained excess of demand over supply will necessarily lead to an increase in rents? Rents outside London have not exactly been racing ahead over the last few years: instead we have seen an increase in supply to meet increased demand. There will be a myriad of decisions to be made on pricing by hundreds of thousands of landlords as their properties come available for new tenancies or rent increases over the next few years, and although some may argue that landlords will "have" to pass on tax and interest rate increases to tenants, there is the question of affordability for tenants, whose ability to pay the increased rents is not unlimited. It seems highly unlikely that salaries are going to increase by 25% over five years, and I think rents have historically tracked salaries, not house prices. Landlords impacted by Clause 24 may find that demand melts away if they increase rents too hard - people will find alternatives to renting, such as sharing or living with parents - and that they simply have to absorb much of the extra costs and accept even lower yields.

However, it seems unlikely that the supply of rental property is going to increase to match or exceed demand: even if institutional investors build thousands of new flats for rent, as the Chancellor is clearly signalling he wants them to do (e.g. their protection from Clause 24, and the attempts to force an amalgamation of local government pension schemes and pressurise them to invest in UK infrastructure), I can't see these mass housing schemes being cheaper to rent than properties supplied by small BTL landlords. You just have to look at the very high rents charged by private institutional student housing, to get the impression that these institutions are expecting a high return on their investments and have a significantly higher cost base than small landlords, who don't have fixed labour costs and rarely bill for their time.

We all have our own decisions to take over rent levels, but personally I can't myself charging 25% extra in five years time: if Clause 24 and interest rates allow me, I will still want to place a higher value on achieving 100% occupancy with good-quality tenants rather than driving my rent levels as hard as possible.

Annie Stevens

19:27 PM, 24th December 2015, About 7 years ago

It's true we will all find different ways to deal with Clause 24, and many of us won't need to put up rents, as we will still be within the 20% tax band even adding mortgage interest to our income. As Tony says too, many tenants just couldn't afford big increases and would be forced back home to their parents or sharing with friends. I have recently taken early retirement from my job, not because of Clause 24, but as it happens, that will prevent me slipping into the imaginary 40% tax bracket. We have eight properties on a mixture of low historical trackers and good recent fixed rates, so for the time being our interest "income" isn't too high. Our income has dropped dramatically of course, and it remains to be seen if we can sustain ourselves on our unpredictable rental income and my tiny pension. I had a notion to try buying, refurbing and selling as a strategy going forward, but the 3% stamp duty hike will have a major impact on that, given how hard it is to find do-er uppers around here with any profit potential in the first place. My husband is of the view that we should just sell everything and go and live in a caravan somewhere.

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