PROPTECH-X ‘Proptech & Property News’: Renters Reform Bill | Sunak overheats the market

Will the Renters’ Reform Bill level up the rental sector?

It is still unclear whether or not Michael Gove, the incumbent Secretary of State for Levelling Up, Housing and Communities (DLUHC) will be able to level up the lettings industry and strike a fair balance between the needs and rights of both landlords and tenants.

I may be cynical, but with a general election on the horizon it is simple mathematics – with 8.7 million tenants in the private rental sector alone, far outnumbering landlords, it is likely that new legislation will favour the tenant rather than the landlord.

Scrapping Section 21 has been heralded as the cure-all to levelling things up, but it is only used 7% of the time, and despite the government and many pro-tenant charities vilifying landlords, the reality is that landlords like tenants because they pay rent, which is a basic function of the commercial symbiotic relationship that exists.

“Just as the Chancellor overstimulated the residential housing market with his SDLT giveaway, tinkering with real estate mechanisms often has unpredicted outcomes.”

If draconian measures are dreamed up by Gove to punish the misdeeds of the landlords, then there will be less rental stock, which means rental inflation. Just as the Chancellor overstimulated the residential housing market with his SDLT giveaway, tinkering with real estate mechanisms often has unpredicted outcomes. 

There is also talk in Whitehall of rent caps being introduced. Given that we are in a period of huge inflation not seen since the 1970s, how can rents be capped when basics like utilities and food prices spiral ever upward? It just would not make economic sense. 

If the passing rent was £1,500 for a rental, but the government says the rent needs to be capped at £1,200, how does the landlord who is running a business (the supply of a property asset in return for capital) make a profit? 

There are other initiatives in the mix, like a portal for landlords to help them with their obligations, and yet on the macro level, the registering of landlords in some boroughs of the UK has proven to be an abject failure. It has been costly and it adds another layer of red tape, deterring new landlords from entering the market.

It has long been my thought that the government is in favour of large institutional landlords, for obvious reasons. This slow creep of policy has in my opinion been behind the raft of legislation and taxation that has crept into the sector in the past two decades. 

Yet as we see, with the tragedy of Grenfell, owned and managed by Kensington & Chelsea Borough Council, and the huge amount of sub-standard housing that exists in the housing association stock up and down the country, big organisations are often very poor at being a landlord. 

Whereas the majority of accidental landlords in the PRS, whose portfolio is a single property, actually want to do what is good and fair by their tenant, safeguarding their property asset by maintaining it. 

It is very polarising to position tenants as the poor underclass, subjugated by the rich landlord class who are only interested in the rent. If the government and others actually took the time, they would see that many tenants are not poor, and many landlords are sitting with wafer-thin returns on the properties they rent out.

And if the government decides to court the voting power of tenants, 60% of 18 to 35-year-olds do not own their own home. This might have the knock-on effect of even more landlords selling up and exiting the system, making the housing problem worse rather than better.

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Is Rishi Sunak to blame for the overheated housing market?

Since his super-rich and non-dom status has been plastered across the media, Chancellor Rishi Sunak has been quiet as he attempts to avoid the glare of the public’s stare. But is he the architect of the present problems with the housing market?

Sunak’s play was a textbook copy of Nigel Lawson’s folly – tinkering around with the financials of the housing market in 1988, causing two million to move in a year, MIRAS changes, followed by a four-year housing recession. 

“The average agent is listing, in some cases, 60% less inventory than they normally would, causing house price madness.”

Is the present superheated property market, stimulated by the Chancellor’s SDLT giveaway, going to yield the same results? 

I was active as an agent from the mid-1980s to 2016, and in all that time, through different markets, there has never been so little housing stock to sell in the UK. The average agent is listing, in some cases, 60% less inventory than they normally would, causing house price madness. 

In my area, the tip of Oxford and Buckinghamshire, two-bedroom homes are £300,000, up from £250,000 just over a year ago – that’s £150,000 a bedroom, an index that can not sustain. In my village, a new home developer is marketing semi-detached properties at £500,000. Again, just over a year ago, second-hand semi-detached properties were selling at £350,000. 

Where will it all end? Many buyers are going to reflect in a few years, in a state of misery, that the home they live in is not worth the price they paid, and their two-year fixed-rate mortgage at 2.3%, which is expiring, has now jumped to 3.8%, which means huge wage inflation is needed.

The Prime Minister can talk about levelling up and making property affordable for first-time buyers all he wants, but if his Chancellor allows super inflation on property prices, this type of rhetoric rings hollow.

A more significant problem for the government is this – if the housing market stalls, so do the other industries that depend upon it. For sure, in the financial sector re-mortgage business will be brisk, but the amount of associated trades that feed off a person who moves is staggering. 

Because a person who moves home becomes, for a period, an uber-consumer, on average pushing around £47,000 into the economy. A big figure made up of SDLT revenue, agency and solicitor costs, surveying costs, the purchase of new carpets, housing goods, conservatories, landscaping services… the list goes on. If the pace of movers slows so does the multi-billion economy that sits behind it. 

But can we really lay the blame firmly at Rishi Sunak’s door? Well, there are other things in the mix, like the great resignation and working from home, all stimulated by the pandemic. For many, life is too short. Cutting back or just doing work that pleases the soul rather than what pays the mortgage has seen many dump the mortgage and move. 

“…from his premium, gilded financial position, the future will always be bright. Rishi has little to worry about.”

Working from home means that many can move away from the large conurbations and London is no longer the centre of the business universe. Also, if working from home means home is a one-bedroom flat, well that needs to be swapped for a property that can have a study or workspace. 

I think that Rishi’s SDLT cash giveaway galvanised the minds of many in the nation to act, so in my opinion he has to carry the can. But from his premium, gilded financial position, the future will always be bright. Rishi has little to worry about.