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Thursday, February 23, 2012

Can Government push down rents?

Giz us more rent!
The reduction of rents paid out through the benefit system is under debate with our politicians, not just with the London Mayoral contender, with rent controls on the agenda , Ken Livingstone, as we mentioned the other week, but nationally. The changes in single persons allowances are probably only the start.

Many argue that landlords have nothing to worry about. That the rental market is too buoyant and that reducing housing benefit payments will just result in landlords moving out of the sector and renting to private tenants instead moving to the highest bidder. If the Government won't pay the rent then someone working will, so here's a sleeping bag, goodbye and good luck with finding a job.

Maybe so,  I probably hold that point of view in places such as London and other relatively affluent areas across the country. I struggle to see that with the current high demand in the rental market  the Government would be able to dictate to hard on rents.

However, what about the dead towns, the dying sprawls of industrial history that cover large swathes of the midlands and the north. Areas that were flooded with Government support and made up Government jobs, - "Can you shuffle those papers and then pass them to Debbie because she needs to do a bit of shuffling before she goes to pick up the kids at 3."

The Government created a fraudulent middle class to give these old industrial areas a sense of affluence, for the poor to orbit around, but drive around these areas and you're find that these Government paper pushers are in the minority, most are still poor, most of the area still grim, most unemployed.
You see the concept of 're-generation' was only ever a PR stunt, a surface re-polish, to a 'Changing Rooms' quality of refurbishment. These areas never truly recovered from the collapse of whatever industry they were based upon, their 're-invention' truly only a tatty facade based around a zinc clad museum or a repainted crane at a dockyard.

It's in these area that the Government if financially prudent could push rents down hard.

These areas where street after street of grim terraces sprawl out, where in many respects house prices and rents have been almost solely propped up by the Government pockets, reliant on what the 'big man' is prepared to hand out, in wages, benefits or rents.

So if  the "big man' decides to be less giving, less generous what will happen to these charity fueled areas?

Well firstly, if the Government decides to pay less housing benefit to push down payments landlords will find it difficult to put up much resistance. They will struggle to argue that they can get more from a private tenant, they would have no choice but to accept what the Government is prepared to give them, however low.

"Thankyou sir, very kind of you." wizened landlord doffs cap and exits council offices stage left.

House price falls will follow, as a rush of landlords selling up flood the market. Depopulation will increase as the aspirational move to areas of opportunity, as it was before the charity handouts but more so. They do say the eighties are back in fashion.

I don't wish to panic landlords but the situation is at the whim of those in Parliament, your property investments dependent on political will and the tide is moving towards greater restrictions on housing benefit payments.

Remember the 'Big Man' we've got at the moment is not the one who needs the benefit recipients of these deprived areas to like them, they are not the one that was prepared to buy their votes and calm them with delusions.

Reality is back with us after the collapse of the banks.

So don't be surprised to see the country continue to divide  further, which is a worry for us all, especially if you are a landlord in a deprived area. When you read articles listing that Hull has 79.36 people for every job, Stoke  73.32 and Sunderland 53.66, compared with the best as Aberdeen with 0.88, Reading with 1.21 and Cambridge 1.56.

'Giz us more rent' .....please, ...Im a landlord.

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nick taylor said...

ok point taken.
i have a number of properties in the areas described for the last ten years. I made a concious decision to buy in these areas for one reason and that was the annual return on investment, which even in 2001, was a no brainer.
I paid around the 14/17K per property, with a rental return of around £50 per week, which gave a return of 15%, double the interest rates.I had no interest in capital gain and was quite happy.
In 2008 those same properties were selling for 57/65K, and of course i did sell some.
Today those properties are down to £29/33K,but the new benefit DSS rental return is now £4420 per annum, which is still a return of 13.3%
Back in 2001 interest rates were around 5/6%, today you will be lucky to get 4.5% on a five year fix.
So from my point of view, it is still a no brainer, even if the BIG MAN, reduces the rents by another £10/15 per week you are still on a winner in my opinion.
Obviously my management procedures are very different for DSS clients but to date, i have never had many problems, probably due to a good team.

Hawkeye said...

Thanks for a very interesting comment Nick.Your figures shed light on the reality for many landlords in this sector of the rental market - ie, its been an incredible investment and in many respects underlines what Im forecasting. If I was in the Governments shoes wanting to cut housing benefit budgets Id go in hard cutting these areas where 1, landlords are making a killing re yields and 2, where there is a very monopolised market ie, most rents paid by the government and not individuals wages. You got in at the right time and seemingly would weather any rental storm but other landlords might of bought at the 60k figure.
I think what your figures also underline is the very differing fortunes of the country. You're saying you have already seen a 50% drop in property prices, in comparison a house sold down my street last month for 5% more than the exact same property sold at the peak at the end of 2007 and that's in Bath not London. My prediction is that the country will become further divided and I'd advise to take this into account when investing. But nobody can see the future, let's hope its bright for everyone and not just some of us. Hawkeye

Laughing Magpie said...

You need to get out of London a bit more. Large swathes of the midlands and the north aren't dying infact many areas are quite affluent. Anyway back to the main point. If the government want to reduce rents down they should do so in London and the south where ridiculous sums are being paid out in housing benefit. It is scandalous that anyone should receive in excess of £2,500 a month in Housing Benefit! Don't reduce payments in the 'real' world where a typical local housing property achieves around £500 per month.

CornwallTaffy said...

In the valleys of South Wales housing benefit for the single person has already been reduced and is now due for the second reduction. It is true that in the private low rent terraced properties sector, the squeeze is on. Escalation of unrecoverable debt is pointless and landlords are being forced into making tough decisions which could well rebound on local authorities and the Big Man himself.

Hawkeye said...

Laughing Magpie, having lived in Liverpool, Manchester, Stoke, and Nottingham and having never lived in London it might be worth re reading my post. I talked of the more affluent areas across the country. I'm not saying there isn't wealth in the north, it's the large sprawling areas of poverty that sit between them Im referring to. I don't see them as a figment of my imagination, maybe I do get out after all.

catherine said...

I think you should stop moaning and be grateful the government are paying your mortgages as some or the properties rented out by landlords in the private sector are in a sorry state. You should not be making a profit from the tax payers money for your retirement. Ok buy property to rent out but you should only be allowed to charge a fair rent which would be the same as the councils as the majority of people who are renting are on minimum or low wages, struggle to live and have to have their money topped up to live. People should be able to work and afford bills and with council rents the majority of people can. They do not have a good life but they can pay the bills from wages. Unless they have never worked and those people are different. Lots of people have lost jobs and are still loosing jobs so the tax payer should not be paying you these high rents and you should be paying towards your own mortgage and if you cannot afford to you should not have brought the property in the first place and landlords should only be paid what the council rents are, so I hope the government drop the rents and if you cannot keep the properties tough, we are not here to give you a good living. Maybe the government will buy them and rent them out to homeless people at a fair and reasonable rent. So stop moaning and be grateful for what you got and be pleased your having a better life than some and if you cannot afford to keep the property sell it, like eeryone else has to. Catherine

Hawkeye said...

Hi Catherine, Unfortunately you seem to have stumbled upon our blog by mistake. This is a website for landlords looking to profit out of property. Therefore the focus tends to be about that. If you wish to condemn the state of society I'm sure there are far better forums to do that in. Good luck finding them. But I would love to meet the 'eeryone' you refer to in your post, he sounds very enigmatic and a touch scary.