Neither Rishi Sunak nor Sadiq Khan have a handle on how to deal with the issues in the residential property market.
And Khan’s most recent brilliant idea, that he has suggested to the government, is rent control and rent caps.
This won’t work and here’s why.
Landlords have certain costs to cover, these range from mortgage payments to service charge costs, as well as ongoing maintenance and repairs.
The only reason the majority of landlords will hold onto a property is if they can make a profit or if they have a net income coming out of the asset.
But if they are losing money every month then most landlords will simply sell and that’s exactly what we don’t want.
Landlords selling squeezes the market and means there is significantly less supply for the huge demand of tenants, which is one of the main problems we’re currently facing.
Fortunately, Khan doesn’t actually have the power to implement rent controls, he can only ask for it and the government won’t do it, but here is something more realistic and effective that they could try.
Stop landlord bashing.
Instead, encourage people to be good landlords and police the bad ones by enforcing the existing regulations rather than relentlessly introducing new ones.
The government needs to create an environment where people want to invest in property because they can make a profit.
And these profits don’t have to be excessive, but if landlords are losing money, they won’t stay in the market and that’s bad for everyone.
It’s like any investment, if you put your money into stocks and shares, you want to make some sort of return over a period of time otherwise you’ll pull your money out.
There have been a number of actions that the Conservative government have taken over the last 12 years to de-incentivise investing in property.
For example, landlords used to be able to claim tax relief on their mortgage and claim a fair wear and tear allowance but the section 24 tax reforms have removed this for property owners who hold property in their own names.
As this no longer exists, when you combine it with the fact that interest rates have been rising, owning a profitable rental property has become very difficult.
And this is just one of a number of policies that the government have put in place forcing landlords to sell, which has diminished the number of rental properties available and caused the current volatility that we are experiencing in the property market.
As for solutions, there are a few ways you can increase supply, with the obvious one being to build more.
The government could build on council owned land, starting with social housing and council houses, but they could also allow existing landlords to build up on their properties.
The other solution is to make better use of existing accommodation.
There’s lots of properties with huge amounts of unused space or the lay out of the properties are poorly planned.
So, what we’ve been doing here at Rocket is helping our clients buy properties and then adding one or two bedrooms, making better use of the space, while complying with standards and still providing quality accommodation for tenants.
It’s also more affordable for tenants, as more people are able to share the rental cost of the property.
And this has worked well on an individual basis, but for larger investors to be able to do it and receive a reasonable return, more government support is needed.
In the current climate, we are 1% away in terms of the numbers making sense, but if the government are willing to help, which is well within their capabilities through tax incentives, then hundreds of tenants in London could gain access to affordable and quality accommodation.
This isn’t even an idea that we are gatekeeping here at Rocket. If other agents see what we are doing and try it too then more power to them, we just want to see landlords making a profit and tenants not having to pay extortionate rents, whether we are involved or not.
It’s important to remember landlords aren’t part of a get rich quick scheme, like anyone else investing their money they want to make a reasonable return, but without the government doing something the property market will continue to descend into chaos.
And so that is why I’m urging Rishi Sunak and Sadiq Khan to take our advice and take action today.
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