Sunday, 20 November 2011

Think Of A Number - Slight Return

When landlords let a property, there are two ways to go.

One owner visited all the letting agencies, who in turn visited with their clipboards (parking the inevitable Smartcar outside. Incidentally, does anyone else think they only use these to provide a genuine excuse for not giving tenants a lift…)

Anyway. The various agencies assessed how much money the flat would make. Every visiting agent asked how much their predecessor and brother-agent had suggested, before telling the landlord they would make it their life’s goal to rake in even more money, and that the previous estimate was too low. With cartoon pound signs rolling in their wide and bloodshot eyes, they cranked up the rent. They all did. All of them – even if was by £5, they suggested he could make more money than their cautious, clueless predecessor promised.

Now, the landlord is a human being, and fell for it. Little was said about the state of the place: no matter that the place was unfurnished, situated in the badlands, in need of renovation. Nothing about the aging, heritage d├ęcor, or lack of facilities - no the rent was going to be so high that the landlord would roll around naked in tenners and bling, feasting upon foie gras wrapped in gold leaf.

The owners were going abroad, so couldn’t feasibly manage the property themselves. Since they emigrated, the flat has regularly been empty, and prospective tenants have even made contact with the absentee owner (via friendly neighbours) to suggest reducing the rent. It is empty now, and the owner has never dined upon diamond encrusted quails eggs. In despair, a former tenant organised repairs, hiring the landlord’s relatives, where appropriate. What exactly does the letting agency do here?

Elsewhere, another landlord wishing to rent out his property was visited by a brace of letting agents (a swoop?) and listened in awe to the money he could make. Later on, after some sweet and fleeting dreams of easy wealth, he woke up. Interestingly, he was about to rent a place by the seaside, and realised the letting agents were talking crap (you can tell by my elegant phrasing that I am wordsmith, can’t you?) and, brandishing a crucifix, he said to the letting agents: get thee gone.

He let’s the flat himself, renting to people he trusts and likes. Mates recommend contractors for repairs, or sometimes do the work themselves. The rent is reasonable, so tenants want to stay, not move out at the earliest opportunity. Nobody bothers anyone, as he knows what it’s like to be a tenant, since he is one himself. He wants what will one day again be his actual home to be looked after, but never bothers tenants, and arranges days – even weeks in advance before he comes to call in person.

This is why rents are rising. Rents are rising because…prepare for a sharp shot of obvious, but people are forever putting up rents – a self-serving and damaging process in this time of low interest rates, and it can’t go on forever.


Fred Smith said...

Rents are up because... Maybe estate agents, who have seen their income fall due to sluggish house sales, are determined to make it up from the rental sector? Competition for lettings mean they simply promise more than the other guy with the predictable escalation. It'll only stop when renters are priced out/decide to live with parents etc.

RenterGirl said...

You might have a point, but they were never benevolent before, and have now taken over the rental sector. It's not all good. Renters are already priced out, and can't all move back to their parents: older tenants and divorced people with kids.

Anthony Crow said...
This comment has been removed by a blog administrator.
RenterGirl said...

Thanks Anthony. But any attempt at free ads are deleted, so here's your comment:

Having been a tenant and now a landlord, i think many agents prey on the nievity of prospective landlords. Any good landlord worth his salt should treat it as a business and do his due diligence, this will provide good returns. For example i ensure i have the best shower that i can and a good kitchen ( always with fitted white goods) as this will make a poroperty more attractive and thus will mean smaller times when the property is unlet. I also ensure the property is priced correctly in order tro attract tenants. its just as important to stage a house for rent as it

Matt Wardman said...

I think I like the realistic cut of your jib RG, just having found the blog.

I agree on changes of tenant for the sake of it; futile and usually costs both landlord and tenant 1-3 months' rent each when it is all added up.

However, figures say that average rents are down not up in real terms, and in *cash* terms pretty much where it was in 2008.

Reference from the source used by the Guardian when they published their last shock horror piece about "rents at record levels", disproving their point

London perspective?

RenterGirl said...

I agree. It's in London. But elsewhere, agents and even landlords hear this and still think: 'Great! Money for me!'

Matt Wardman said...

Yep, and it doesn't help when media publish misleading nonsense !

I'd be interested in your take on two points:

1 - The type of landlord you say you like (renting own property, not wanting to flip tenants, just wants a tenant who will look after it) is precisely the type being driven out of the market.

They are often identified as such in reports by various campaigners.

2 - What do you think of regulation such as the Newham £500 per rented property 'Selective Licensing' tax which is aimed to come in soon, and the benefit (or not) to tenants?

Personally, I think they are mad. It will cost £15-18m, and guess who will end up paying?


RenterGirl said...

The media is London based, and that what counts to them. Hmm...Not sure about Newham. But this I know: we need Rent Officers back - we need them to be able to determine what is a fair rent, especially since they decide on Local Housing Allowance rates. But landlords being forced out? I am also in favour of professional, rather than dilettante amateur landlords, who must be made aware of costs and risks, and that renting out a flat involves risk and spending money and time.

Matt Wardman said...

Yes - I'm not in London and I find quite a bit of national media pretty useless !

>we need Rent Officers back - we need them to be able to determine what is a fair rent, especially since they decide on Local Housing Allowance rates.

That depends how it is done.

One of the things which the fair rent system caused was a lack of investment in property, and the death of private rental. Why would anyone pour their savings into a black hole?

Compare the quality of a normal rented property now to one from 198x and there's quite a difference.

How would you make it work, and where would a 'fair rent' be defined from - I'd be interested to see your ideas in a post.

>But landlords being forced out?

Absolutely for small buy to letters.

There's a reason why buy to let mortgages have been at around 10% of all mortgages since 2009.

Regulation is getting heavier.

Financially, 90% of it is a mugs' game at present. The best finance you will get is around 4%. The typical rental yield in London would be about 3%, before you've paid for maintenance, 12-15% of that for management etc. You get more in a bank, without having to invest time.

And with house prices being down by a quarter or more from the peak and more to go, there's no capital gain either. Real house prices are back to 2003 levels.

Many more are sitting it out mitigating loses.

Perhaps I'd better blog about some of this.

RenterGirl said...

I wasn't aware that house prices were down a quarter - first I've heard of it. Houses are homes, not piggy banks, and tenants can only pay so much of their income. And incomes are falling. Income must be the basis for fair rent, but remember when mortgages were 2.5 salary? If landlords aren't regulated (or letting agents) then both especially the latter will, as I have said...think of a number. And when the limit is reached, where do people live? people pay too great a proportion of their income as rent. It can't go on.

Matt Wardman said...

You can play with the Land Registry data here:

Taking Sep 2007 to Sep 2011 the average sale price fell from 181,933 to 162,109 in Sep 2011.

The last time it was 162,000 was in April 2006.

That's a drop of 11.5% in cash terms. Inflation over the period has been about 13%, which makes the fall about a quarter.

If you take the other 13% off to et a real value, we are back at spring 2004 prices.

Given another couple of years (-10% or so predicted) and affordability will be back where it was a decade ago, but LLs - and purchasers - who stretched at the wrong time are in a bloodbath which will crystallise when interest rates go up.

London is nearly back at peak in *cash* terms (ie 13% down in real terms), while my area (East Mids) is down 20% in *cash* terms, which means 30%+ off the peak after inflation.

On Rent Officers, Fair Rents need to reflect somehow the cost of providing property as well as income levels, because people investing have to be able to afford to pay for the houses Ts live in.

Finding the balance is the key. If it is impossible to provide homes at an affordable cost (for the LL) then homes cannot be provided, unless we are into subsidised housing, which then means higher taxes or money not spent on something else.

Matt Wardman said...

BTW I'd agree on LA regulation; the qualifications are already in place and all it needs is stopping non-qualified people doing it.

I'd also maybe agree on LL regulation *if* it can be done without imposing massive extra costs on everyone, which inevitable end up being paid by tenants, as that is where all the money comes from in the end.

I might even agree on larger LL's (<12 properties?) having to meet LA qualifications if they rent directly.

And I'd say that T's need to educate themselves much of the time.

RenterGirl said...

When responsibility for housing is placed in private hands, it always ends badly. What other motive is their other to make money by raising rents? I agree that those who entered buy-to-let when prices were at their peak will be stung, but they are running a business, which involves risk. And yes, we can all agree that LA's need to restrained. No - actually restrained.

Matt Wardman said...

I'd disagree with quite a lot of your last comment.

I'd say that plenty are using the private rental sector as a whipping boy, and with plenty of policies which are simply political and/or counterproductive and/or hypocritical and/or simply stupid.

Unfortunately most of this will cost tenants millions.

Example 1:

Newham's Selective Regulation of all rented property is alleged to be to address 'Rogues' yet Shelter's recent FOIs to all local authorities suggest that known 'rogues' are around 1 landlord in 600. That's grounds for targetted enforcement, not blanket licensing.

Example 2:

Social landlords up and down the country selling off stock as not upgradeable to defined standards, now being enthusiasts for application of those standards to
that stock.

But that's one for another day.

Matt Wardman said...

My last posting today!

>When responsibility for housing is placed in private hands, it always ends badly.

That is far too broad brush, and I simply disagree.

Private rental housing stock has been gradually increasing in quality for years, and the Shelter research I referred to above succeeded only in identifying a tiny proportion of 'rogues' after a huge effort.

>What other motive is their other to make money by raising rents?

That depends on the LL, and their motivations.

Try the Peabody Estates, or any current LLs of the type in the post.

Raising rents does not usually equal the best long-term return.

RenterGirl said...

Private, amateur, untrained (they should be trained) landlords don't understand that high rents drive tenants to move out asap, and that high rents are unsustainable. I blame those buy-to-let course of a few years ago, and the attitude lingers. Councils are refusing to snap up bargain newbuilds, aimed at new buy-to let business. The thought that they are regulated might deter bad landlords.