Buy to let and the reconfiguration of Londons housing market Steve Wilcox University of York.

Buy to let and the reconfiguration of Londons’ housing market

Steve WilcoxUniversity of York

Buy to let and the reconfiguration of Londons’ housing market

Housing market trends House Purchase Affordability Intermediate Housing Market Private Rents Affordability Renting and Buying Future trends and PRS policy issues

Housing market trends

House price to income ratios

Mortgage cost to income ratios

Regional trends

Housing market affordability in Great Britain

0.0

1.0

2.0

3.0

4.0

5.0

6.01987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Ra

tio

s

0

10

20

30

40

50

60

Pe

rce

nta

ge

s

House prices to earnings Mortgage costs to earnings

All full time earnings and first time buyer house prices

Regional trends in home owner affordability

0

5

10

15

20

25

30

Mo

rtg

age

cost

to

in

com

e ra

tio

s

North East North West Yorks & Humber

East Midlands West Midlands East

London South East South West

Wales Scotland

Underlying factors

Sustained economic growth Lower interest rates Inadequate housing supply Availability buy to let mortgages Growth in private rented sector

Household growth and house building 1991 - 2003

0

5

10

15

20

25

30

35

Av

era

ge

an

nu

al ra

te o

f h

ou

se

ho

ld f

orm

ati

on

an

d

ne

w h

ou

se

bu

ild

ing

Household formation New house building

Growth in new buy to let mortgages

0

20

40

60

80

100

120

140

160

180

Th

ou

san

ds

1999 2000 2001 2002 2003 2004 2005 2006 2007

Source : CML website : New advances per half year

Growth in private rented sector in England

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

Th

ou

sa

nd

s

SEH : Households

Growth in private rented sector in London

0

100

200

300

400

500

600

700

Th

ou

sa

nd

s

CLG : Dwellings

Upturn in wider Private Rented Sector& lettings to Housing Benefit claimants

0

500

1000

1500

2000

2500

3000

3500

Th

ou

san

ds

PRS dwellings HB Caseload

Data for Great Britain

Nearly a half of all moves each year are into the private rented sector in England

0%10%20%30%40%50%60%70%80%90%

100%

Per

cen

tag

es

Private Rented Social Rented Home Owner

In London over a half of all moves each year are into the private rented sector

0%10%20%30%40%50%60%70%80%90%

100%

North Midlands London Rest ofSouth

England

Per

cen

tag

es

Private Rented Social Rented Home Owner

SEH : 2006/07

Non decent homes in the PRS

0

200

400

600

800

1,000

1,200

1,400

1996 2001 2003 2004 2005 2006

Th

ou

san

ds

0

5

10

15

20

25

30

35

40

45

Per

sen

tag

es

Numbers Percentages

Source : English House Condition Survey

Housing market affordability in 2006

House price to income ratios Intermediate Housing Market Affordability of private rents Renting and Buying compared

House price to income ratios in 2006

0

1

2

3

4

5

6

Regions

Rat

ios

House price to income ratios in 2006

Key

Broad and narrow intermediate housing markets

Not in work

In workbut on HB

Not on HB but cannot buy at LD level

Cannot buy atLQ level

Can buy atLQ level

Narrow intermediate

housing market

Broad intermediate housing market

Broad and Narrow Intermediate Housing Market in 2006

0

10

20

30

40

50

60

Regions

% w

ork

ing

ho

use

ho

lds

Working HB Narrow IM Between LD & LQ

Proportion of working households in the Intermediate housing marketin 2006

Key

House prices, mortgage costs, rents and earnings compared (1994 = 100)

50

100

150

200

250

300

350

400

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ind

ex

House prices Mortgage costs Private rents Earnings

First time buyer house prices and mortgage costs

Affordability of private rents and mortgage costs in 2006

05

10152025303540

Regions

Perc

en

tag

e o

f h

ou

seh

old

earn

ing

s

Mortgage Costs Private rents

Rents as a proportion of mortgage costs in 2006

Key

Future prospects for private renting

Demographics & demand Investment returns Crunches & Cycles Fiscal & policy regimes

2004 projections for London

0500

1,0001,5002,0002,5003,0003,5004,0004,500

1997 2001 2006 2011 2016 2021 2026

Tho

usan

ds

Married couples Cohabiting couples Lone parentsOne person Other

Commercial rental returns (UK)

Return 2001 2002 2003 2004 2005 2006

Income 5.7% 4.8% 4.0% 4.0% 3.7% 3.5%

Capital 10.8% 14.1% 6.1% 5.6% 4.3% 12.8%

Total 17.0% 19.6% 10.4% 9.5% 8.1% 16.8%

Source : IPD UK Residential Index – based on portfolio of 9,040 dwellings

Rental returns ( Central London)

Return 2001 2002 2003 2004 2005 2006

Income 4.1% 3.0% 3.3% 3.1% 2.8% 3.1%

Capital 10.8% 14.1% 6.1% 5.6% 4.3% 8.9%

Total 12.5% 10.8% 3.1% 7.6% 5.5% 12.3%

Source : IPD UK Residential Index

Rental returns ( Inner London)

Return 2001 2002 2003 2004 2005 2006

Income 5.6% 4.6% 4.0% 4.1% 3.8% 3.9%

Capital 15.8% 13.7% 2.4% 1.8% 5.1% 10.1%

Total 22.2% 18.9% 6.5% 5.9% 9.0% 14.4%

Source : IPD UK Residential Index

Fiscal & Policy Regimes

The Rugg Review Capital Gains Tax Reforms Institutional landlords or better product? Private renting and mixed communities