What I have found strange is that supply of apartments in London is huge.. and yet it has no effect on rents. And very at odds with the office market - where pricing is weak...
Have you cross checked to see how many of the properties are also for sale? I have seen several that are for both rent and sale. Also, the AirBnB market has also changed rent dynamics in many places.
Very interesting analysis. Not meaning to wind you up, but the other Russell (Napier) has talked about rent controls as a potential tool of financial repression. You elegantly map out the political dimensions, Napier includes a government debt dimension, namely
"Rent controls- to strip property of some of its inflation proofing
and make it less attractive relative to government debt "
I would say the big difference on inflation views - is that I see them as purely political - that is inflation comes from implementing policies that voters want.
Most inflation views I read come from government trying to paydown debt - but this ignores the experience of Japan. Inflation is a political, not monetary, phenomenon in my view. I hope to write more about this
Can they though? Governments are really budget contrained. At current prices, the wages (demand) and land prices (offer) cannot meet and be in equilibrium. Cheap debt used to fill in the gap but not anymore. Now, wages cannot raise meaningfully in real term even w massive strikes. Land prices need to come down.
Development Appraisals have been sub 15% for a while now leaving very little margin for contingency and profit. I’d agree Land prices will soften (are softening) but more likely is that productivity will reduce further leading to more supply issues. On top of this, turnover of second hand homes will stagnant as rates increase and affordability contracts.
Look out for more government interventions e.g. VAT reduction on new home sales to bolster Builders margins.
Government controlled NAMA which took all the Bad Bank Assets, sold the valuable UK stuff and held all the Irish Land Bank, all the WIP. Pace was administrative slow. There is a Land Development Agency but there are only so many JV's they can do after two generations of builders are gone.
I don't know about the UK but in the US there have just been "revelations"? (not sure if true), that Landlord software company Realpage might be inflating rents by creating a pricing cartel between landlords:
But yes, to your point this does point towards "fuck landlords", but probably there are some inbetween steps before full rent-controls. NYC is looking at banning landlords from seeing tenant's criminal convictions, California cities like SF, LA and SD are all extending COVID eviction moritoriums (forms of rent control).
The only question about your thesis which I agree with, is that a lot of the political class in places like San Francisco have a lot of their money in property. I would imagine London/UK would be similar. I guess if the Pelosis get pushed out of power by a more populist political part of the Democratic party maybe rent controls are in play?
Its an interesting link. The FTC has been looking at tech getting around anti-cartel laws. This would suggest apartment pricing may be an area of future investigation
Another example in the states that is getting a lot of local communities angry is out-of-state landlords enabled by tech platforms coming in and buying up real-estate they never actually see. It is hard to imagine how someone in California can reasonably own and maintain rental properties in Alabama without going there:
And then, for no reason at all, the supply of rental housing falls off a cliff...
What I have found strange is that supply of apartments in London is huge.. and yet it has no effect on rents. And very at odds with the office market - where pricing is weak...
Have you cross checked to see how many of the properties are also for sale? I have seen several that are for both rent and sale. Also, the AirBnB market has also changed rent dynamics in many places.
Very interesting analysis. Not meaning to wind you up, but the other Russell (Napier) has talked about rent controls as a potential tool of financial repression. You elegantly map out the political dimensions, Napier includes a government debt dimension, namely
"Rent controls- to strip property of some of its inflation proofing
and make it less attractive relative to government debt "
I would say the big difference on inflation views - is that I see them as purely political - that is inflation comes from implementing policies that voters want.
Most inflation views I read come from government trying to paydown debt - but this ignores the experience of Japan. Inflation is a political, not monetary, phenomenon in my view. I hope to write more about this
100% agree. Wouldn't be aging and demographic make deflation the political win though? boomers still have the controlling block of votes
In Ireland there is a 4% annual cap on residential rent increases. https://www.rtb.ie/
Also Gov have indicated that the REITS will be levied high transactional stamp duty and ongoing Local Property Tax for Build to Rent only schemes.
F@&K Landlords started a while ago.
Very interesting! Yes I remember Dublin rents went nuts not so long ago. I did not know that actually done something about it!
I rent in Dublin. You're right. Rent control is coming (unless we get the deflationary burst and the insolvency cycle, finally)
Ireland changed the role few times following worsening renters situation. Now rent is capped at 2% p.a.
https://www.rtb.ie/rent-pressure-zones
Rents are still crazy. Also there is no supply or incentive to create supply while property entities are deemed villainous.
Peak 2007 there were 115,000 new homes built annually. Now it is 15,000 but the population has grown by c.600,000 in that time.
The effects are landlords who may not have increased rent annually in the past now increase it 4% automatically so it’s punitive.
Controls don’t work in my opinion, you let the “free” market sort it out, but governments can’t stop themselves. Rant over. 🤣
The obvious answer would be governments could build loads - but that also seems to be politically difficult these days
Can they though? Governments are really budget contrained. At current prices, the wages (demand) and land prices (offer) cannot meet and be in equilibrium. Cheap debt used to fill in the gap but not anymore. Now, wages cannot raise meaningfully in real term even w massive strikes. Land prices need to come down.
Development Appraisals have been sub 15% for a while now leaving very little margin for contingency and profit. I’d agree Land prices will soften (are softening) but more likely is that productivity will reduce further leading to more supply issues. On top of this, turnover of second hand homes will stagnant as rates increase and affordability contracts.
Look out for more government interventions e.g. VAT reduction on new home sales to bolster Builders margins.
Government controlled NAMA which took all the Bad Bank Assets, sold the valuable UK stuff and held all the Irish Land Bank, all the WIP. Pace was administrative slow. There is a Land Development Agency but there are only so many JV's they can do after two generations of builders are gone.
I don't know about the UK but in the US there have just been "revelations"? (not sure if true), that Landlord software company Realpage might be inflating rents by creating a pricing cartel between landlords:
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
But yes, to your point this does point towards "fuck landlords", but probably there are some inbetween steps before full rent-controls. NYC is looking at banning landlords from seeing tenant's criminal convictions, California cities like SF, LA and SD are all extending COVID eviction moritoriums (forms of rent control).
The only question about your thesis which I agree with, is that a lot of the political class in places like San Francisco have a lot of their money in property. I would imagine London/UK would be similar. I guess if the Pelosis get pushed out of power by a more populist political part of the Democratic party maybe rent controls are in play?
Its an interesting link. The FTC has been looking at tech getting around anti-cartel laws. This would suggest apartment pricing may be an area of future investigation
Another example in the states that is getting a lot of local communities angry is out-of-state landlords enabled by tech platforms coming in and buying up real-estate they never actually see. It is hard to imagine how someone in California can reasonably own and maintain rental properties in Alabama without going there:
https://www.wsj.com/articles/everyones-a-landlordsmall-time-investors-snap-up-out-of-state-properties-11661705278
But politically it does become a Fuck Landlords from out-of-state profiting on us point: