Blain’s Morning Porridge – 28th March 2023: The Rent Debate – Part 2. How to Fix UK Housing.
“Our house in the middle of our street… Our house was our refuge and our keep.”
This morning: Part 2 of the London Rent Crisis. London, and whole UK housing market, is broken. Demand greatly exceeds supply allowing rotten greedy landlords to game the system and abuse tenants. Can it be fixed – absolutely…
I got a considerable amount of stick for my comments on London’s broken rental market last week. My modest proposal to stick the heads of greedy, dishonest professional landlords on the spikes of Tower Bridge might have worried more than a few readers. It was suggested my article lacked balance. Yes, it did.
I picked a good time to get angry. Obscene rentals are back on the national agenda. Last night the BBC, in its Panorama programme, raised the rental crisis and concluded London’s Slum/Rackman landlords have taken us back to the Victorian age in terms of overcharging for dangerous, poor quality housing – highlighting one particularly noxious example with a record for breaching rental laws converting 4 small ex-council flats into 24 insanitary bedsits on which he makes over £20,000 per month on. He preys on desperate housing benefit claimants. It was naked, disgusting greed. As tax-payers we pay that cost. Fit it. Fix him.
There is also a great article on Bloomberg – about the Swedish Housing market. The title sums it up: What Broke Sweden. Its worth a read for anyone thinking about the economic implications of failed housing policy.
The good news is many Porridge readers – including some right at the top of property financing and leading commercial landlords, came back with some serious suggestions and proposals to fix London’s rental sector. I will outline these below in the hope our current government or the next might pay attention. There are some great comments on the original article: An Open Letter on London Rentals
There were a number of predictable comments to my piece, my favourite being: “Worst piece of analysis I have ever seen and you claim to work in finance? You ought to educate yourself rather than rant just cause your daughter can’t pay her rent herself. Shocking really!” Exactly the kind of comment I predicted someone would make.
Many others criticised my comments but remained polite and constructive. They observed I was ranting, and that a serious discussion is required to solve the problem. Agreed – but a solution needs to happen quickly. We can’t delay.
The fact remains…. London’s rental market is broken. On top of increasingly sticky inflation, corporate slowdown and job insecurity, few young professionals can weather a 32% hike in their rental spending as the cost of everything goes up from council tax costs, bills, transport and food. Many workers will be forced out of London. I received many emails and linked-ins from desperate young City lawyers, junior bankers and other young City workers trapped in rental insecurity.
The exit of the rental demographic will have profound effects on London’s economy. Not the least will be the ultimate question: who is going to make your massively overpriced cup of coffee in the morning? Not even the best Barista in Britain will be able to afford to live in The Smoke anymore. (I spotted this looming crisis some time ago, so I’ve just done a course covering coffee from bush to cup at the marvellous Winchester Coffee Co – fascinating! The issue will be persuading our office Landlord to fit a decent coffee machine – on which I can control the grind. When I inevitably get binned for spending too much time making coffee and being utterly wrong about markets, at least I have a skill to sell…)
The Conservative Government did promise a comprehensive review of rental markets about a thousand years ago, but maybe it got distracted looking for jobs with fake Korean companies, Brexit Bumbling and being snottery during the pandemic.
Easy as it is to pot-shot the Government, last year it presented a white paper: “A fairer private rental sector”. Minister for Levelling Up Michael Gove (complex fellow, but I like his direct appreciation of problems), noted 2.8mm UK citizens should not pay to rent homes unfit to live in. He railed about tenants scared to complain, the problems of unfair rent increases, and that the imbalance between supply and demand, especially in London, which allows Landlords to simply serve a no-fault Section 21 notice to quit on any tenant who might question a rent hike, rendering accommodation security a lottery.
Gove wants to end Section 21 to give tenants the right to end it except if the Landlord can show valid grounds to end a tenancy. Most of my correspondents agree it has to go and 1-year tenancies be replaced by 5-yr plus tenure. Security of tenancy is critical to solve the rising mental health crisis caused by the torture of living in rented flats. Too late for my daughter though. On Saturday morning each flat of the floor of the block where she lives were served and required to sign for Section 21 notices, giving them 2 months to quit. She called the agent and was bluntly offered a simple choice – agree to the 32% rent hike in writing, commit to pay it or get out. That particular Landlord is sidestepping tenant rights on tribunals, gaming rental law, and manipulating the rules to force tenants to pay over the odds for accommodation.
She and her flatmates spent the weekend looking for alternative accommodation, there is absolutely nothing available – they reckon have no choic but to take the cut-throat 32% increase. That means a commensurate fall in their consumption – and forget any chance of saving for their own flats or pensions. In the face of such bad corporate behaviour Gove wants to put quality, affordability and fairness at the heart of the rental market. Good luck with that Minister.
The fact is inflation and higher mortgage rates have impacted private Buy-to-Let retail landlords. Many single property landlords find themselves with higher monthly payments, on top of an increasingly hostile rental tax regime and regulations. As a result, they feel forced to sell or raise rents. The question is – who is the fool? The tenant for being unable to afford the higher rent because they didn’t plan their future expenditures to account for the potential of higher costs, or the Landlord for taking on a financial burden they are unable to bear when rates rose? When inflation is 10%, why are flat rents rising tripple that?
The professional landlord class – either firms, or individuals with large portfolios – has no similar excuse for 32% rent increases. Their costs and interest rate sensitivities will be hedged or zero. That said.. despite their greed, lopping their heads off and nationalising the housing stock will not solve the current London housing crisis. It may make it worse.
The fundamental problem is that rental demand and supply are unbalanced. It’s taken 40 years since Thatcherism – everyone entitled to own their own home – to lead us to this position (including personal debt from housing!) Nothing wrong with the policies of home ownership and selling social housing stocks – but it seems incredible no one foresaw the consequences of not replacing sold council stock with new. Government of both hues is guilty.
The only way the current crisis can be solved is to correct the massive shortage of homes in London, and elsewhere across the UK. It requires a massive building and conversion programme, at a time of skills shortages and cost volatility. It can be done – but only with a serious government will and serious changes to the way homes are planned, prioritised and financed.
Today, I am told the immediate threat to the London rental market is a surge of returning Chinese students into the UK – and they all want good flats, encouraging greedy Landlords to use Section 21 to evict existing tenants to accommodate them. These dispossessed people have literally nowhere to go – their skills are not always transferrable outside London (certainly the jobs my kids do only exist in London), nor are there other flats to rent. Because they are in regular jobs, they can’t get housing benefit. To stay in London, in many cases close to family, they will have to become unemployed to get benefits to pay their rents. That’s…. unhelpful for the economy.
Social housing was one of the UK’s great triumphs – clearing slums and building homes for heroes after the unpleasantness (x2) with Germany last century. Government built over 4.4 million homes between 1945 and 1980 – with the additional benefit of creating economic growth through the building trades.
Since 1980, and the de-facto privatisation of the social housing stock, the number of social homes built has cashed. It fell to 6 thousand new council homes around the country in 2020. It has left over 1.1 million people on the social housing waiting list, largely forced to take whatever poor-quality rentals are available and claim benefits to afford them.
Yesterday the retiring head of L&G was in the FT saying levelling up is failing: “Are we building enough affordable housing, social housing, build-to-rent housing? No!” Yet the funding should be easy. New programmes to finance Social Housing through not-for-profit Housing Associations, guaranteed by government, could provide a very effective way to kickstart social home building, enticing the large UK real money accounts to finance these projects.
Some housing associations have “issues”. I’ve met CEOs who think they are bankers with hedge fund wealth expectations. Some are failing. Some are very good. What’s not to like about secured and guaranteed Housing Association bonds to finance new social rentals? What’s wrong with the large real-money accounts becoming responsible, sustainable landlords? I’ve looked at it many times. It should work. It will cost little to finance at a modest rate over gilts – and the guarantee from the state would be secured on the assets of the association.
It should not be a problem to target capital from the investment sector into a rental sector crying out to create more homes… but somehow it is. My sources in commercial property say there is plenty of capital that could immediately be directed at building rental properties. But there are many issues to overcome, like landlord costs to remove cladding, the root cause of the Grenfell Fire. The commercial property professionals point out the problem is not the desire to build more property for rent, but the broken, prohibitively expensive planning system – and hint broken and marginally competent local authorities are unqualified to run social housing.
I am assured that if Government set its mind to building new social housing, rejigged housing associations, and opened the gate to housing association developments, we could solve the rental crisis in 5-7 years. In the meantime, controls will be needed on issues like clamping down on greed, providing longer tenancies, the end of Section 21 insecurity and some form of rental controls.
Fixed rents set by local government has historically been disastrous – even short-term rent freezes (as we saw during Pandemic) can be abused, but would provide breathing space to create a new rental system/market. A system that gives renters long-term security, fair rent reviews and is equally fair to the landlord in terms of the ability to evict tenants for failure to pay or behaviour issues is required. Is it beyond the wit of man or government?
No time for Five Things this morning – I am rushing to catch the early train, which probably means an hour or so standing at the station being told what’s gone wrong with Britain’s railways today..
Out of time, off to the day job…
Strategist – Shard Capital
Rather than looking at this one problem on its own and trying a repeat of the postwar house building programme we need to consider a wide range of issues, before we start building on more green belt land.
Such as, there are very large numbers of baby boomers sitting in family homes which are not only too large but rapidly becoming totally unsuitable for them in their declining years. So some way of encouraging them by even subsidising their move to smaller better adapted properties with perhaps communal facilities and nearby local services should not just be considered but implemented, at least on an experimental basis to see what works.
The conversion of retail and office space in city centres should be encouraged, possibly through tax incentives, or their opposite. Such conversion would have the added benefit of reducing the time taken to commute to work and should, if it were done right, be attractive to the young office workers as well as baristas.
Short term lets should be discouraged, nay eliminated, by whatever means necessary so as to provide long term accommodation for local employees, and their families. This applies as much to seaside resorts as city centres.
Again the purchase and retention of empty houses and flats for purely speculative purposes should again be completely eliminated. There is no room for non-resident and non-tax paying Russian and Chinese, etc., billionaires to occupy potentially useful residential properties in our major cities, and the tax raised by forcing them out will come in useful to the exchequer.
These are all points that I have raised previously with my local MP, a Tory, without any response, and it is pretty obvious that any Tory government will be slow implement even one of them. But something must be done if only to remove the profit incentive from the Rachman type landlords at the bottom end of the market.
There’s always Logan’s Run for point 1? 😉
Also shouldn’t forget the ‘S’ of ESG. EU possibly a bit ahead on tapping the markets for Social Bonds but I would guess demand would equally be there for UK social issuance. On a separate note, was the 1980s housing-themed song reference you were looking for (channelling?) this: https://www.songfacts.com/lyrics/carter-usm/sheriff-fatman
Maybe ripe for a re-release.
Planning for the conversion of commecial property – shops & offices to residential is fairly relaxed, tho no HMOs amazingly. I found out to my cost that local councils are on the lookout for empty tertiary shops as they can levy higher rates than when occupied. Oh and the long awaited property crash might actually arrive.
I read Porridge regularly and respect your well researched and thoughtful articles. However, your anti landlord rant was, for you, surprisingly unbalanced.
I come to this with a foot in each camp having both a son and daughter living in rented accommodation in London but also as a private landlord with 20+ years of running a portfolio at times of over 70 properties.
Where I agree with you is that for our son particularly who is poorly paid as he follows his passion to be a chef, the London rental supply and prices makes it all but impossible for someone like him to “live” after paying his rent and the bills. The demand for good quality rented accommodation is such that we just pray that his landlord is prepared to continue his tenancy at the end of the current term.
But, in the same way that Panorama focussed on the proportion of landlords who are not responsible and take advantage of vulnerable tenants, you view does not reflect the real life position of being a responsible landlord.
My stance has always been that we should provide safe and reasonable homes for those who may not be in a position, for whatever reason, to purchase their home. The result is that over 20 years with multiple properties there has never been sufficient surplus for us to take a penny out of the business and the only gain has been from the increase in capital value over the period and even this is now very heavily taxed.
If you want landlords to be more responsible then we need tenants to be more responsible as well. I can evidence many cases where a tenant who arrives with glowing references then stops paying the rent after the first two months and it then takes up to two years for us to gain possession, and then to cap it all our dear tenant trashes the place. Add to this, the houses ripped out and used as cannabis farms, brothels, and being sued almost monthly for personal injury which in one case was because our tenant had hurt himself while bypassing the electricity meter!
Combine this with the removal of mortgage interest relief, reams of new legislation hitting the sector, and penal tax legislation, rising interest rates, massively increased refurbishment costs and you will understand that being a responsible landlord is not the gravy train that many perceive it to be.
Yes – the sector needs transformation but to keep on going on at landlords will encourage more to sell out which is exactly what I did in 2021 which will only reduce supply and push rent higher. Changes need to be made but these must also penalise irresponsible tenants who seem to feel that because they rent means that they can treat someone else’s property with complete disrespect.
I am sure the vast majority of private landlords are decent people. I am equally sure the vast majority of tenants are equally good.
Its the minority that are the problem.
THe bigger issue is the policies that allows them to be so – in that there has been failure!
I am writing to you from Vancouver on the west coast of Canada and have been following your posts about the London housing/rental crisis with jaw-dropping fascination. A 32% rental increase here would be simply straight out illegal as landlords here are bound by law to a maximum increase of 2% per year (roughly inline with normal inflation). During Covid, rent increases were forbidden as everyone was clearly hunkering down.
Now that inflation has ballooned, our legislated rent increase (thank Buddha) has not gone beyond 2%.
Which brings me to the question – why are rental increases of 32% even allowed to exist in a supposedly progressive city such as London?
Politicians need seriously throw down the gauntlet and protect their citizens.
Very fair question – how can rent hikes 3 times the rate of inflation be legal? Ask our government.
Bill, i am a fan of yours, but again you miss the point. Although there are some unscrupulous landlords, most are not. It is business, & they are looking for a reasonable (not usurious) return. This “rapacious landlords” line is superficially alluring to you and the idiot Michael Gove (looking for the next bandwagon to jump on) but the problem is low stock, caused by govt driving landlords out of supplying properties by their overzealous regulations and adverse tax changes; & also the planning process which remained unreformed – and essentially means very little new supply. Guess what, reduced supply, increased demand means higher rents. The private rental market was working well until Osborne, Gove and their ilk killed it by both action and inaction. This country is badly run. Thats the root problem. Duncan
This is country is not badly run… it is barely run at all, and disasterously so.
13 years of bad politics.
I pray it gets better…
If a significant proportion of the problem was caused by landlords taking properties because of tax changes etc., then we would expect these properties to appear back on the market and thereby impact the sales price. But we don’t see that happening, so if government policies are driving landlords to take properties out of the rental sector then they must clearly be hoarding them instead.
So maybe the government, rather than being kinder to landlords, needs to clamp down on them further by taxing empty properties out of existence!
I’m intrigued by your comment “Nothing wrong with the policies of home ownership and selling social housing stocks” given that most of the rest of your article highlights lots of reasons why the policy of selling social housing stocks WAS the root of the problem we currently face.
A ready supply of social housing at an affordable local government set rate would (DID) provide a base case (and cost) for putting a roof over people’s heads. In turn one might argue that this would (and DID) prevent the build up of a bubble in housing costs due to their being a ready supply of affordable rented accomodation.
Fast forward and we now have almost no available social housing. This has of course allowed Mr Market to set the base price. A price which is now eye watering (and not just in London!!). So high in fact that more often than not it far exceeds the cost of a mortgage on a similar property. Someone above notes that he tries to offer accomodation to people who can’t afford to own their own home. I hate to pooh pooh such an argument but the reality is that said person COULD afford to own their own home at a much lower cost than they currently pay for it if it (and all equivalents) weren’t owned by landlords! Your original solution to whom would gain my hearty blessing.
I contend that the bottom line remains that IF there was a ready supply of affordable social housing then it would not be possible for Mr Market (however responsible or otherwise he may be) to set eye watering rents because people would not need to pay them as there would be a cheaper alternative. So ultimately it does come back to Thatcher, so why dissemble on that point?
And to be clear, you are quite right to rant about this issue. Because if nothing else causes it then the “need” for people to spend such a massive proportion of their income on putting a roof over their heads whilst simultaneously transferring their wealth to aforementioned boomers ought to lead to an uptick in the manufacture of guillotines before too long.
Great article and lots of truths in there.
I grew up in London, in a working class suburb in South London, my father an electrician with British Telecoms and his carpenter brother in law, were both made redundant in their 50’s in Thatcher’s 80’s. They were lucky they bought a run down terrace house and renovated and sold it. This they did for 15 year before retiring.
I grew up with this business, now living in Tasmania the last 20 years, I am a College Teacher and as a side hustle, I buy old houses on larger plots and build a spec house on the plot and sell them. I am creating supply and making money on this. NO AXE TO GRIND, I see that landlord bashing is coming, so I am selling the the rentals I own. I will continue with these small developments, but I would say they used to take 18 months to flip, now it takes 2.5 to 3 years to do a project. 100% of the time increase is council rules and requirements. I build standard low cost brick veneer houses, have a set design that is energy efficient, well set out and sells immediately (It cost a lot to get the design, but Building Designer charges minimal to then redraw for next project). Doubling time to build adds greatly to all financial holding costs, cutting profit and future projects, there are many I do not do now due to additional costs.
To make Housing Associations work, the rules need to be very clear on building costs and where money can be held, i.e. not more than 10% of average building costs of similar sized private firms in similar markets. Cash surpluses in a bank or building society, (sponsorship and slightly better rates could easily be obtained for the social kudos). I did a short spell at Bovis Homes and in a Housing Association, it would be vastly cheaper, if this was given to private builders with strict cost and time guidelines, add apprenticeship requirements (stops ageing of tradies).
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