Investing in Private Renting

Nov 19, 2011 | Finance & Taxation Reform, Reports

In 2011, we commissioned Professor Michael Ball of the Henley Business School, University of Reading to investigate the true cost to landlords of renting out property.

The Report highlights that rents remain significantly below their early 2008 levels, when adjusted for inflation. The report used a new economic model fed with financial data from over 200 landlords. Following a survey of landlords’ costs and returns, the research 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.

Currently, almost 90% of English landlords are private individuals and couples and many residential investors 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. Economic recovery will also be significantly held back by a lack of affordable rental housing. 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 of his Report today (November 22nd) at the House of Commons at a meeting of the All Party Parliamentary Group for the Private Rented Sector, Professor 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.”

Responding to the report, Alan Ward, Chairman of the Residential Landlords Association commented:

“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.”

 

This report was written and researched by:

Professor Michael Ball

Professor of Urban and Property Economics

Professor Michael Ball is the Professor of Urban and Property Economics at Henley Business School, University of Reading. Michael’s research interests cover housing studies, urban economic, commercial property investment and real estate markets, urban regeneration, land-use planning, urban history and construction economics.

He has published extensively, co-authored the textbook, the Economics of Commerical Property Markets, and was author of the annual RICS European Housing Review (www.rics.org), which was for 12 years the prime publication on European housing markets.

He was Lead Panel member of the Housing Market and Planning Analysis (HMPA) Panel of the Department of Communities and Local Government, from 2007-2010 and has advised many other public and private bodies. He also co-chairs the Economics Group of the European Network for Housing Research.