Landlords – How have they changed over recent years? (My Thoughts)
Landlords – How have they changed over recent years? (My Thoughts)
A lot has been written about the make up of todays landlord groups. Labour is convinced that there is no mass exodus of existing landlords, rather favouring the view that the number of landlords has not altered dramatically.
If that is true, there is a very good reason for it – the nature of todays landlord is changing, if not already changed. Throughout the 1980s until the mid noughties, property was seen as an investment and part of a future pension pot. As such a lot of middle aged “family” buyers bought one or two properties to let out with a view to either cashing in at a future date or passing onto their children. For many, this was seen as a cottage industry, with the landlords offering a quite personal service.; with most tenants being known to the owners whilst at the same time, providing a passive income.
Today, many of those well intentioned landlords are now retiring and selling up, as they cannot see a future in the current set up of the Private Rental Sector (PRS). There is now an onerous level of regulation, which particularly appears to lean toward the rights of the tenant, in addition to growing draconian tax rules. These two areas alone make running one or two properties virtually unprofitable, and a drain on the finances – hardly a good business model! Needless to say, these landlords are selling up and unintentionally placing more and more good, but lower paid, tenants out on the street and at the hands of the already underfunded and under resourced local authorities.
These landlords, in the main, have tended to be more sympathetic to their tenants and have a broader understanding of the problems they might experience. Having little or no mortgage to pay off, they can be much more considerate on the initial rents and subsequent rent rises, so have a residual number of tenants who will remain far longer until their own circumstances change and they need to move on. Pushing these landlords out of the market is sheer folly, as there are no replacement landlords who can match the financial freedom that they have. This will lead to further rent increases due to a growing imbalance in the supply and demand of suitable property available.
So what of the new landlords? They appear to be split into two groups. A younger generation who are looking purely at the highest yield and the institutional groups who are looking to run the rental on an purely economic model having minimal outgoings and a consistent yield. In both cases the properties let out will be run on purely business lines with nominal consideration for the people paying the rent. Many of the younger group will have little “life experience” and some may never have owned a property, so they will have no idea of the challenges they will face once they start building a portfolio. The larger landlords will not be able to afford the time and cost of being as personal as the individual landlord, with tenants running the risk of becoming a number and not an important “human part” of the process.
In fairness, the younger group may have been on an expensive “landlord” course and now think that they have all of the tools needed to be a successful landlord. The underlying problems, in many cases are that they do not have any empathy with the tenants and because of tight financial margins (due to high borrowing, high leveraging or just a high interest rate on their mortgage), they are driven by yield and the need to maximize the rental figure being achieved.
The result firstly leads to financial pressures, with the rents that they ask always being at the top end of their sector. Any rent increases will probably follow suit as a higher yield and profit is chased – this is at the expense of the tenant, many of whom already have bursting financial budgets! Secondly, the greater profit comes from flats, shared houses and HMOs (Houses in Multiple Occupation), due to the greater density of people housed and paying rent, relative to the ground footprint of the property.
The problem we are now seeing is one big disconnect between what the government would prefer the sector to look like and what the housing market needs. They favour large landlords, each with hundreds of properties, meaning that the landlord is likely to be a company or an institution. In this instance, the landlord will look at the market as a commodity and will require a decent yield (about 5%) and one that is as economical as financially possible to administer. This will involve a lot more flats coming to the market, which in many locations outside of the big cities, is not what the undersupplied market needs. As a tenant, if you have a young family, with children and a pet, you will be trying to rent a house with a small garden and preferably parking – Not living in a 10th floor 2 bedroom flat with just a balcony, if you are lucky!
The PRS is shrinking and becoming a smaller space in which individual and small landlords are able to operate effectively, due to the regulatory pressures, coupled with ever tightening financial margins. It is no longer an encouraging option for many new landlords to start up in, unless they offer HMOs or similar. From a larger institution`s point of view, a portfolio of different properties in separate locations is both costly and time consuming to manage, and one that makes very little sense as an investment. This bizarre and unnecessary situation has been brought about by successive governments listening too attentively to tenant groups and not gaining a deeper understanding of the problems they are unwittingly building up – the dreaded law of Unintended Consequences!!
The above would not be so concerning, if the local authorities had a plentiful supply of social housing to take up the slack, which could remove the growing pressure on the lower end of the PRS. Unfortunately, due to years of cut backs, underfunding and a lack of resources, they have less property available now than in the last century. Many private landlords have almost become an informal arm of social services, having to deal with a multitude of issues that do not come under the landlord remit, but are necessary to ensure an ongoing smooth tenancy with less stress. Over this period, local authorities have come to accept that the PRS would cover up this housing shortage. During the PRS boom, this was a possible and indeed a profitable model to run for some landlords who embraced housing benefit tenants. With the numerous changes over the last ten years, coupled with the soon to be announced Renters Rights Bill, this now is proving an unworkable model to adopt. Landlords helping these more vulnerable tenants are finding the growing tenants rights unrealistic, and in many cases uneconomic with which to comply. Compared to the rest of the PRS, the needs of this group are more varied and for many, the incomes are considerably lower than current market rents!
The government may be right in their assessment that the number of landlords has not dropped significantly, but scratch below the surface and it becomes very apparent in more rural areas, that the current rental shortage is not just an issue of an understocked market. It is as much about the wrong type of landlord offering the wrong type of property, that is unsuitable for many tenants who are unable to buy a home of their own.
The government`s assertion that many of the new rules in the Renters Rights Bill are there to help balance the rights of landlords and tenants more fairly, are critically flawed. Their aim is to help the poor and vulnerable, yet this group are the very ones who end up being evicted, as the landlords who currently help them either sell up or change the type of tenant they want to rent to. This group can`t afford the new high rents and have no social housing to fall back on. Unwittingly the government is only helping this group to become homeless, whilst achieving precious little else and if the current trend of the changing type of the landlord continues or gathers pace, it will only become a worsening situation for these unfortunate tenants!