2024 Outlook – Looking Towards a Labour Government and Some More Reasons to be Cheerful

2024 Outlook, Looking Towards a Labour Government and Some More Reasons to be Cheerful

Further to my recent blog, I thought of a few more reasons to be optimistic for 2024.

First, landlord exiting means falling supply which means rising rents. (Not great for tenants, obviously). Nimble landlords, especially those who are not over-leveraged, either with debt or someone else’s equity, should move fast before things change.

Most new entrants will be setting up in a corporate structure, of course.

The landlords exiting today are those most likely to be older and to not be in a company structure and who have maybe made their money and now wish to retire.  

New entrants will be competing with portfolio landlords, many of whom don’t have much debt in their portfolio. Savills say that only about half of all stock of homes in the private rented sector are mortgaged and that about a third of those that do have a mortgage have one that is less than half of the current value of the property. This means they have stomached and can continue to stomach times of higher interest rates comfortably.  

Second, landlords will be cheered by the surprise kicking of the energy performance certificates (EPC) requirement, (to get to grade C), into the long grass. We expected the deadline date to be put back. We did not expect it to be shelved for the foreseeable.

According to Savills, getting to grade C will still require a lot of expenditure – a cool £30bn across all the PRS stock.

Sadly, the reality is that some requirement around EPCs (or their successor) will still be imposed on landlords some time – we just don’t know when that will be – which is why most landlords have been busy upgrading insulation and installing more efficient energy systems anyway.

Third, Section 21 abolition has been shelved for now too, though Labour has promised to bring an end to Section 21 as soon as they get into office.

But the delay of both Section 21 abolition and the EPC grade C “requirement” have given landlords some time to plan. And pigs could still yet fly, and the Conservatives could be re-elected! which would buy yet more time for Section 21 being kept on life support.

Labour Pains

Labour has some daft plans of its own. These include a four month notice period for landlords and the right for tenants to have pets. The former means landlords will just have to plan ahead more, the latter will mean that anyone with a pet will just find they keep losing out to tenants who don’t have a pet. And tenants who get a pet after the let has started will likely just have to expect more property inspections. If the landlord sees pet damage, they will just hike the rent by more than they otherwise would.

Labour also wants to ban bidding wars between tenants. Mmm, I think if there is a bidding war between tenants, that just indicates the landlord has simply priced the rent too low.

We often end up with two, sometimes three perfectly suitable tenants. And yes, sometimes, when they get wind of that, tenants have offered us more rent than we originally asked for. But I think a landlord who allows a bidding war is being unethical. It is just “not cricket”. If you priced too low, then tough, suck it up, till the next rent review point.

In these situations, we will always look at all the candidates carefully and will honestly give it to the best candidate – there is always something that makes one better than another, even if it is just a small thing. If we genuinely cannot find any difference between candidates, we would simply give it to the one who responded to our advert first.

But really, how on earth does Labour propose to police this bidding wars ban? And is it really that common anyway? What does the data and research on this show?

I suspect that the “bidding war” story is something that Generation Rent found just a few cases of, then got the Grauniad to cover and blew up out of all proportion. The fact is, landlords want to price the rent right first time, they don’t want silly bidding wars. No sane landlord wishes to spend a wet Tuesday night showing loads of different tenants a property and then have a daft bidding war. It is just nonsensical.

Looking to 2024 – More Positives

There are plenty of positives around right now.

With annual net migration at around three quarters of a million, demand for rent will continue strongly and landlords are seeing strong demand generally but especially in London and the Midlands as well as Wales and the Southeast of England. Anywhere there is work, there will be inward migration and anywhere there is both, there will be strong demand for rented property.

Recent high interest rates have put a dampener on new house building and suppressed demand from potential buyers, who are finding mortgages harder to make work as a result of higher rates, (though they are now falling slightly). With less people buying, they remain renting.

Even with falling interest rates, housebuilders are still facing challenges of lack of skilled workers, highly inflating materials and wage costs, limited land availability, planning constraints and the costs of having to meet a whole raft of new regulations, especially environmental ones to keep Greta happy.  

So, no surprise then that rents are rising rapidly at around 10% across the UK and around 12% in London. I have seen some predictions of the rate of increase in rents falling off, but personally I cannot see what the drivers would be for a significant fall in rent increases in the private rented sector at this time.  

Recent research from the NRLA, Paragon and from Shawbrook Bank shows that landlords are more likely to be adding to their property portfolio than reducing and this is especially true of portfolio landlords who continue to also look at opportunities in holiday lets, retirement homes and student housing – adding some diversity into the mix.

Paragon’s research is particularly interesting as they are one of the few lenders who really seem to understand the private rented sector and the needs of landlords. I note that their findings came out before the announcement that Section 21 abolition would be delayed.

The recent big falls in inflation and the easing of mortgage interest rates will only stoke confidence further in the early part of 2024 – and give a shot in the arm to house sales and house prices.

There are many reasons to be cheerful, but not much for tenants facing rising rents due to brainless government policy.

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