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Whether you like it or not, a lack of social housing is an opportunity for landlords

Friday 20 April 2018

By Carl Agar

Whether you like it or not, a lack of social housing is an opportunity for landlords

You may be forgiven for believing that the days of making a fortune from property have long gone. 

The financial assault on landlords has been widely publicised - tax changes reducing the relief on buy to let mortgage interest, a stamp duty surcharge introduced on second and successive homes, and the fact that landlords are now being targeted for increasing regulation has pretty much dampened the mood of many existing and aspirational landlords. 

At present the sector is facing new legislation to regulate letting and managing agents, a ban on letting agent fees, amendments to existing HMO mandatory licensing legislation and an increasing amount of Selective Licensing schemes being introduced all over the country.
 

The housing crisis

But why is the government making life so difficult for buy-to-let landlords? The short answer is that the UK housing market is in crisis. But rather than attend to the under-supply of housing which has caused this disaster in the first place, the government has in recent years gone for the jugular of buy-to-let landlords. 

This has always been a popular vote-catching exercise as there are far more tenant voters than landlord voters and the remaining public voters will always tend to support most initiatives targeting those appearing to prosper at the expense of others. They have, in effect, blamed the inability of ‘ordinary families and individuals’ to get on the property ladder on buy-to-let landlords purchasing too much of the ‘precious housing stock’ - without acknowledging that the real driver for this was the reduction in social housing stock that would have typically provided much needed housing for families that are not in a position to buy their home. 

The truth is that whilst the social housing provision has been steadily decreasing, the demand for such housing has not. 
 

Demand and supply imbalance

The drive for new homes and the desire to assist first time buyers has seen such buyers channelled into the new build market with such things as the help to buy scheme meaning that the housing stock left in the resale market, that would have typically been for first time buyers, has now been purchased by investors and used to support the tenants that have been left stranded by the reduction in social housing. 

Consequently, we have been left with a situation in which inexperienced private landlords are acquiring properties to let to a tenant type that requires lots of guidance and support – and when that doesn’t materialise, the result is often disastrous. 

This has lead the government to apply forms of regulation to the sector as a whole and introduce financial measures in order to try and professionalise the sector and ultimately deliver a better service. This is a very aspirational approach from the government and a very painful approach for the unsuspecting private landlord.

But hey- it's not all doom and gloom. Honest. There is a reality to the challenges we face in this business, but once understood there is also an opportunity to refine your business model, professionalise your approach and come back stronger and more profitable than before.
 

How landlords can ‘beat’ the change


Most people fear change and that’s a natural reaction. However, if you are prepared to embrace it and understand it then you may well find yourself in a position to really benefit.

The savvy landlord has started to look at their business in depth and make positive changes. 

They start by checking they have the right financial structure for their business, taking on board the recent changes to taxation. Once they’ve done that they get frugal – it’s time to maximise rents where possible and iron out waste. They shop around to find less expensive tradesmen to carry out joinery work, plastering, heating maintenance etc. In HMOs they look at increasing the energy efficiency of their buildings in order to decrease the running costs. They look at their current financing and seek to find better mortgage rates. 

These are just a few things that the proactive landlord in today’s market will be doing.
 

Diversification or even relocation could be on the horizon


The really smart landlord now starts to look at the other opportunities appearing in the market place and asks the question, is it time to diversify? They look at other areas to those they have traditionally invested in - as well as other investment types such as HMOs, serviced accommodation or even commercial property. 

The really shrewd landlord looks at such things as selective licensing as a way to buy more stock at knock down prices from landlords exiting the market through their fear of new legislation. 

A more obvious future strategy for many landlords is Build-to-Rent. The government is encouraging private landlords to invest in property schemes aimed at supplying good quality housing for rent within the private sector. Under the Build-to-Rent Fund investors could receive a government loan for up to half of the development costs. This has now been replaced by the Home Building Fund which is offering up to £3bn in funds to the likes of small to large-sized builders, custom builders and developers. This is a great opportunity for landlords to literally build their portfolios from the ground up. These properties can be let to the private market or even to a housing association but either way will represent a great return with low running costs. 

Like many other professionals today, landlords have been forced to look at new models of working – and as we will no doubt find out in years to come - that’s not necessarily a bad thing at all. 
 

Embracing the new market

Times change. Markets change.But property is still a way to make money if you change too. The fact is that you will still make more by investing your money in the right property than by leaving it in a savings account. You just have to research and learn what and where the right property for you is. 

As Simple Landlord Insurance’s latest report shows, the ‘emerging landlord’ is a rather different creature to the one we’ve all been used to. The stereotypes of the past – the Rigsbys, Fat Cats, Dodgy Wheeler Dealers or Accidentals - either no longer exist, are leaving the market, or won’t be able to survive under the new conditions. 

Personally, I look forward to a more professional and more prosperous private rented sector driven forward by landlords and investors committed to playing their part in the provision of housing for this country.

Take a look at the full Emerging Landlord report – including more commentary from Carl – here . 

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We want to add value to landlords with interesting news and views! Our Hub includes information and opinions on the housing market from a variety of expert sources – please just be aware it doesn’t always reflect Simple’s opinion, or the products and services we provide.

Article by:

Carl Agar

Carl Agar

Carl Agar is the managing Director of Big Red House letting agents, founder and Chief Executive of The Home Safe Scheme, has been the Yorkshire representative of the National Landlords Association for the last decade - the UK’s largest landlord association, as well as being a Landlord and Investor.