A major report is due to be launched at Westminster today on the private rented sector.
Written by housing expert Professor Michael Ball, it controversially warns that current returns for landlords are so low that property investors would have done better to put their money elsewhere.
This is despite media reporting of rising rents, says Ball, who describes it as ‘hype’, which fails to take into account costs and inflation.
He says that because landlords are not making enough from their investments, it is restricting the amount of new accommodation available to meet increasing demand. He warns that there is a serious risk of landlords disinvesting in the sector either by leaving it entirely, or by not investing in the upkeep and improvement of their properties.
Ball, who is Professor of Urban and Property Economics at the University of Reading, says that rents remain significantly below their early 2008 levels, when adjusted for inflation.
The report, ‘Investing in the Private Rented Sector’, used a new economic model fed with financial data from over 200 landlords.
This found that present rent levels do not cover landlords’ expenses when all factors are taking into account, including refurbishment and borrowing costs, agents’ and legal fees, voids and arrears, energy and safety certificates, repairs, depreciation and regulatory compliance.
Additionally the tax burden on the private rented sector is much more than on other types of tenure, averaging £1,000 a dwelling.
Sharp real falls in the value of their properties over the past four years have pushed total annual returns for many landlords into negative territory, claims the report.
Ball says that almost 90% of English landlords are private individuals and couples and he claims that many would have been better off if they had invested their money elsewhere.
The report warns that the consequences for tenants will be ‘grim’ as they face increasing rents and a chronic shortage of properties. It calls for Government reforms to the taxation and regulatory treatment of the sector to alleviate pressures on rents.
Commenting ahead of the formal launch at today’s meeting of the All Party Parliamentary Group for the Private Rented Sector, Ball said: “There is much hype about the private rented sector at present, but the reality is that landlord returns are generally poor and with a weak economy are likely to stay that way.
“Investment in the past was driven by rising house prices, now there is a need to rethink taxation and regulation so that rental returns come to the fore at rent levels that are affordable for tenants.”
Alan Ward, chairman of the Residential Landlords Association, which commissioned the report, said: “Professor Ball’s report demonstrates clearly that the private rented sector is taken for granted – the returns are only superficially rewarding because few landlords account for the cost of regulation and taxation.
“Only the lack of an alternative secure investment, and the curse of capital gains tax, prevents many landlords from dis-investing just when more people need private renting because of lack of access to the owner occupied and social rented sectors.”
Today’s launch is due to be attended by housing minister Grant Shapps and shadow housing minister Jack Dromey.
It is interesting how much things in this market has changed and also incredible that people would not take refurbishment and borrowing costs, agents’ and legal fees, voids and arrears, energy and safety certificates, repairs, depreciation and regulatory compliance into consideration. If you want to become a landlord you should do your research and take everything into consideration. Although it may seem like a long drawn out route making such a financial mistake will be longer.