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Categorized | Property

An asset class that dare not speak its name

Posted on September 22, 2016

Estate agents' 'Let By' signs stand outside residential properties in Romford, U.K., on Friday, March 11, 2016. Bank of England Governor Mark Carney and his colleagues have repeatedly said a surge in buy-to-let property investment may pose a risk to financial stability. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Aged 36, I recently bought my own apartment in London. Given where prices are these days, I remain stunned by my own achievement and luck. But some of my more successful or fortunate friends are already going a step further and acquiring buy-to-let properties. The thing is, though, they aren’t admitting it.

One friend owns a second property on the London outskirts that he thinks none of us know about — but we all do, thanks to a leak via another friend some months back. Another in my circle told me on the phone she was “thinking of buying an investment property” but spoke in whispers, as she was on the bus and couldn’t bear for strangers to overhear. Bearing this in mind, how many of the rest are quietly at work on their own buy-to-let empires?

    It appears these friends are not alone: a survey by the National Landlords Association reveals that one in five landlords is too embarrassed to admit it. In London, a quarter of landlords hide the fact; they are more forthright in Wales and Scotland, where only 17 and 13 per cent respectively will not own up to their additional homes.

    That landlords’ discomfiture is highest in London comes as little surprise. House prices for first-time buyers in the capital are now more than 10 times earnings, up from half of that 15 years ago. Rents too have risen sharply, forcing increasing levels of overcrowding. In the face of an acute housing shortage, affecting the capital worse than anywhere else, landlords are an obvious target for residents’ frustration.

    Stickers currently plastered around London, adorned with cockroaches, label landlords “parasites”. But it is not just anarchic sticker fiends who take this view: the anti-landlord movement claimed no less a recruit than the former chancellor, George Osborne, who shocked many staunch Conservatives by introducing a series of tax changes aimed squarely at buy-to-letters. When the party of Margaret Thatcher turns against them, perhaps it is time to ask whether the days of amateur property investors are numbered.

    Is it really landlords’ fault, though, that house prices are so high, that demand for rented homes is strong, or that yields from other investments are so low, pushing people into property? The Bank of England is among the institutions that say our shift towards renting is a structural one. It is mirrored in the US, Ireland and Australia, among other countries.

    While you can (and many do) criticise UK government policy for not sufficiently boosting construction of new homes, the decline in home ownership also taps into trends such as urbanisation, higher education, divorce and migration. In any case, as the housing charity Shelter has frequently pointed out, honest and attentive landlords can mean the difference between a comfortable home life for tenants and one plagued by mould and vermin. (Like all former tenants, I have my war stories. There was the landlord, for example, who claimed he had “fixed” a large water leak into a bedroom by taping a bin bag to the wall.)

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    If all the buy-to-let landlords were to sell up at once, in an odd outbreak of Corbynite sentiment, it would release £1.1tn of housing stock. That would probably bring prices down, while leaving people who still couldn’t afford to buy somewhat stuck. I asked one of my top-secret landlord sources (my mum) why she kept her status quiet. “I feel like such a capitalist,” she sighed.

    If we, as a society, really hate landlordism, there are still some dilemmas to be dealt with. For example, should we give a pass to the “accidental landlords” who own an additional property because they bought it before they met their property-owning partners? Or inherited it from a deceased parent? Will we allow a small number of landlords to continue operating for those who want to rent because their work or study in a particular city is temporary?

    In any case, I suspect there’s another reason for the excruciating awkwardness of buy-to-let as a conversation topic, and that’s less socialist fervour than the widening divides within the middle class. We bourgeois Brits still have many things in common, such as our upmarket educations and our Yotam Ottolenghi cookbooks. But as the FT reported in 2014, where once the doctors, lawyers, City workers, architects and teachers all milled around in a similar middle-class zone — a world in which private education for your children was feasible but might hurt your leftwing sensibilities if you were that way inclined — now there are stark and widening differences between us. That paid-for education is fine for some, impossible for others, even within our fairly narrow metropolitan bracket.

    Where once we wouldn’t have been so different, the housing crisis exacerbates these divides. Some of my friends, in their mid-30s, are renting rooms in shared houses where the living room has been converted to a bedroom, while others have multiple tenants of their own. We range from the genuinely struggling to those thinking it might be time to hire someone to manage the property portfolio. Admittedly, none of my contemporaries, as far as I know, have reached that stage, but in this world of shy landlords, who truly knows?

    Whether the Secret Society of Landlords will keep expanding seems to be an open question. The new housing minister, Gavin Barwell, has strongly indicated he will call a halt to his predecessor’s laser-like focus on people owning the homes they live in, and has declared an intention to build homes of “all tenures”; however, he also had kind words for big institutional landlords who have begun building purpose-built rented blocks in the UK. Some of these offer tempting deals with WiFi included, a special app for repairs, and a big pension fund rather than my mate Dave as a landlord.

    If the institutions get a special deal from government, that could bring profound changes to the UK’s rented sector. At their best, the professional landlords could provide an efficient, friendly renting experience and a source of new home construction that is independent from traditional housebuilders. At their worst, they may create a series of overpriced, impersonal towers diverting renters’ cash to overseas billionaires.

    Either way, it is conceivable that mega landlords will become the norm before some of us join the ranks of those forced to mumble awkwardly into their pear and fennel salad when the subject of scummy slumlords comes up.

    Judith Evans is the FT’s property correspondent. Email: Twitter: @JudithREvans