In this week's blog, we are unpacking a potential divide emerging between the interests of UK landlords and government legislation being introduced to protect tenants. These actions are a possible protective measure to target unscrupulous bad actors looking to profiteer from the more challenging economic conditions we find ourselves in. Primarily changes could affect smaller property investors first and foremost; however, with the growth of corporate BTR and developers retaining units for future cash flow, any legislation centred around tenancy protections could impact onward refinancing options. Market liquidity to adequately provide refinancing options for exiting our facilities is something we monitor, so it's worth exploring here.
Michael Gove recently appeared on BBC's Sunday with Laura Kuenssberg to speak on a range of voter-friendly policies and ideas; Mr Gove referenced everything from pulling a version of Thatcher's 'short sharp shock' policy out of mothballs to criminalise casual vandals with the threat of doing some tidying up, through to the prohibition of laughter to tackle the growing problem of Nitrous oxide abuse in communities. Mixed into these heady touchpoints, it was briefly referenced that legislation to tackle bad actor landlords exploiting the crisis to put rents up based on the threat of eviction may also soon be on the cards.
Now we have no issue with that; there will always be an element looking to exploit a crisis; it was recently reported in the news that one business bought the entire historic Welsh mining village of Aberllefenni for one million and are currently forcing out their tenants with substantial rent increases of up to 60 per cent. It doesn't take much to see these actions are morally questionable, and the government are correct to intervene potentially, but the issues may come in the how rather than the why.
The obvious route to go down is rent caps, rent freezes, and housing control to protect tenants, but currently, the government states there is a different route it wants to explore. What that is, is very much 'to be confirmed'. They may have one eye on Scotland and some of the pitfalls that they have run into since introducing rent caps; it was reported in the Architects Journal that a 1500-home development in Glasgow being built by the developer "Get Living" has now stalled even with full council planning approval, as banning rental increases had led to a situation where the numbers aren't tenable. In an ideal world, government decree can control rents in this way. Still, unfortunately, often, these policies are introduced without a fundamental understanding of how the debt pile works to get bricks in the ground, so perhaps here, our government has made a wise choice in not mirroring some of these policies.
Removing the instances where schemes are entirely self-funded, which is a limited number of top-tier PLCs and market players, most mid-level developers complete projects by raising a mixture of investors' capital and primary development facilities, and the rental expectations confirmed by the surveyors are priced into the end game refinancing decisions. So, if you decrease those - you reduce the number of homes built at a time when we need more.
So, what do they do? There is never a loud argument for nothing, as nothing is often conflated with inertia; however, there is also a counterargument that free market forces usually sort themselves out when one least expects. Lettings Agent Today recently posted figures from London lettings agency Chesterton's, revealing that 10 per cent more tenants moved in February this year compared to the same month in 2022, with 37 per cent more rental properties on the market than in February 2022. When they canvassed the agencies branches, they found that "the uplift in available rental properties created more competition amongst landlords, many opting to reduce asking rents to attract the right tenants". There is a strong argument that an increase in people looking to rent will only drive the prices up if the supply issues aren't addressed, so rather than tackling this issue with the blunt instrument policy that will send shockwaves through the sector, it needs to be looked at from the supply side - where we come in.
Make it easier for developers to build, support smaller developers, nurture that industry, and let the free-market look after itself.
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