consequences of cv19 and the coronapanic for the Private rented sector
What will be the long term consequences of CV19 and the CoronaPanic for the private rented sector?
This is hard to predict.
We do seem to be having more of these viruses coming along in recent years and the hysterical media and governments of the world are only too keen to scare people when they do.
In the last two decades, we have had SARS, MERS and now CV19, so we seem to be in something of a regular pattern of viruses.
What is driving this?
Well, increasing demand for meat – both farmed and wild -in emerging nations has been blamed. This combined with bad animal husbandry and crowded food markets is lethal – allowing viruses to jump species into humans
Or, perhaps, the reasons are more sinister? Discuss!
So, it seems likely, that unless these factors alter, which I don’t think they will, that there will be another scary virus along within the next few years.
Certainly, the world seems unwilling these days to cope like it did back in the last major pandemic – the so called Hong Kong Flu Pandemic of 1968/9, (please do look it up). This was kept off the front pages by the Vietnam War and The Troubles in Ulster along with more fun events like the moon landing.
But it killed as many people, but somehow without the relentless media attention. Perhaps we have social media to thank for today’s panic – a thing we did not have n 1968. Or perhaps, people are now just more unwilling to accept risk, loss of control and the reality of death?
God help us if the next virus kills more than 0.2% of the population, which is what this virus was achieving (though it is probably a lot less now).
So, the trends I discuss below, which are caused by CoronaPanic, may become embedded.
CoronaPanic and the Private Rented Sector
What kind of future will there be for the private rented sector?
Well, there will be a big hit to incomes and employment – which will surely hit both house prices and rents, though the crack cocaine of rock bottom interest rates will keep the lid on household debt burdens (possibly for a long time) and also underpin house prices (and to a lesser extent) rents, a little.
However, supply constraints, greater monopoly power (as smaller competitors in many sectors increasingly go to the wall) and the sheer costs caused by antisocial distancing could see a rise in inflation after 3 years or so, which will translate into rising house prices eventually. Some governments won’t mind this as it will allow some inflation of the debt away
I see the biggest hit being in inner cities, as people in office type jobs, increasingly move to outer suburban locales and rural areas. There is less need to be physically in the office regularly – and what’s the point of being in the centre when few entertainment places are open?
City centre flats with no outside space will be less in demand as will HMO accommodation, which will also impact student lettings.
There will be less demand from overseas students, though maybe these will be replaced, in part, by UK students, who actually may be more comfortable with traditional HMOs than the overseas students. But that said, many of the “Snowflake Generation” will still be too scared to live with others in a shared house. The HMO type of house seen in TVs “The Young Ones” may be a thing of the past.
Still in the cities, the lowered demand for Airbnb / serviced accommodation from holiday travelers and from business people, will mean a lot of new supply, often of flats, coming from this source too. Their owner-operators will be turning them into longer term let accommodation.
Plus, we will increasingly see redundant offices and also shops in inner cities, being turned into residential. yet more excess supply!
And so, the whole story is of excess supply in the inner cities meeting lowered demand, and this seems to me a perfect storm to create lower property values and lower rents, especially for city centre flats. There was a looming supply of city centre flats in my home city of London, pre-CoronaPanic, this will be only made worse now.
The winners may be more rural and outer suburban areas, possibly though not necessarily close to fast transport nodes. Premium price points of property close to stations and metro links may count for less if people only need to make the occasional commute.
In rural areas, as online retail gobbles up ever more of the high street, property closer to major distributions hubs could become more in demand.
I see there being a real risk of major tax increases for buy to let landlords specifically, on top of general tax increases to pay down the enormous debt caused by the CoronaPanic.
In particular, I think the 20% tax credit enjoyed by non-incorporated buy to let investors will be removed. Equalization of tax between individual and incorporated landlords is a real possibility and changes could be targeted on the smaller incorporated landlords (say less than 50 properties). My recent blog explains my thinking on this:
But despite these risks, we are still seeing and will continue to see net yields of 4 to 5% widely available, often a lot more, plus the potential for capital growth.
With the advantages of leveraging, the attractions of buying to let still will remain strong, compared with other forms of investment.
After all, try asking your bank for a loan to buy shares and you will be shown the door.
Try asking them for a loan to buy a property to let and you will be asked to sit down for a chat.
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