Should council house rents be at normal market value?

[Cyclone]

You'd be entitled to housing benefit though?

[Cyclone]

Not quite sure if your post is in reply to mine, Cyclone, as it's a bit unclear

 

Erm... Did you miss that bit:

 

What the vendor actually paid should not matter, since the rule holds true when assets appreciate in line with their revenue (as they are supposed to, and indeed most often do, in a 'normal' market unbiased by a bubble effect).

It was, and I did.

Under normal circumstances the vendor would sell up and reinvest the money somewhere else. But if the capital is still appreciating they'd sit tight and let that happen, hence why the rent falls below what you'd expect for the ROI.

The issue is when the distance between the asset value and the RoI grows faster than the tenants' revenue allocatable to rent, due to the property bubble effect. Effectively, the time at which RoI based on rental income (which is the only RoI a landlord should consider, as that is investing, not speculating) becomes disregarded for the paper gains of the rental property (which would only ever be realised if the asset is indeed sold, and at the right time/after the right period of course...that's speculating, not investing). Which is what happened in Ireland and the UK in the late 2000s.

Indeed. Unless you were in the market before then of course. In which case it was just a bonus for you.

 

In the context of my earlier post, our Irish landlord was quite happy with €1250: he'd bought the property on plans in the early 80s and was still getting shy of 15% RoI with our rent. The next-door-but-one 'fresh landlord' wasn't so happy with his €650k asset, which was returning precisely zero (save as to the low double-figure paper gains...while they lasted: about 2 years, before the market fell off the Eiger's north face).

Speculation is always risky, but even had he been making a decent return (the latter landlord) he'd have still lost capital and it would have been a bad investment. Nothing is guaranteed except maybe a high street bank account with a fixed return and <50k invested in it.

[ricgem2002]

You'd be entitled to housing benefit though?

so are the gov going to give them housing benefit when they evict them and they move into the new property?

[Mecky]

The whole scenario around social housing in contradictive. The Tories offered the right to buy so people bought their houses, now they say there is not enough to go around, despite the fact I see loads of empty houses each day.

 

There's talk of increasing rent, but isn't the purpose of social housing for those on lower budgets? Maybe employer's should pay their employees more? I can't think of a single person who would prefer to live in social housing if they were able to afford their own home.

[Ms Macbeth]

OK, so let's take that on board, and also some of Ms Macbeth's well made points and look at what sort of standards could be achieved if social housing was set at the market value.

 

Would a non-profit business model at market rent, administered for social good would enable profits to be returned into investment in further housing and improving existing stock?

 

Could you imagine social housing having a waiting list because of the demand to get into it because it is so good?

 

To paraphrase and stereotype - imagine solicitors rubbing shoulders with road diggers... and both being proud of where they live. What happens to your social problems then?

 

When I was a kid, some professionals did live in council housing - several of my teachers did, and some business people. Of course, estates were more divided then, some being quite aspirational, depending on their location. And then they certainly weren't cheaper than private rentals.

 

In my own case, my OH and I had a high rise flat in Scotland which we left to move to South Yorks in 1970. The council flat cost over £5 a week rent, the house we rented privately - £3. Most people rented rooms or lived with families when they first married, until their name came up and by then they'd saved enough for furniture. Changed days!

[L00b]

Under normal circumstances the vendor would sell up and reinvest the money somewhere else.

I realise belatedly that my earlier post should have stated 'landlord' or 'investor', rather than 'vendor'. The 'vendor' is irrelevant. My bad.

 

"Under normal circumstances", a buyer-landlord-investor buys a house to rent out and derive a revenue/profit from the rental over time. Not to sell the property (though it could of course be part of the investment exit strategy, with a corresponding timescale).

 

The buyer-landlord-investor is of course entirely free to resell whenever, but if the original investment strategy is dictated more by the asset appreciation than by the rent-based RoI, that's speculation (the property market goes up/down), not investment (rent-based RoI can be calculated very precisely, and allowing for variations in occupancy).

But if the capital is still appreciating they'd sit tight and let that happen, hence why the rent falls below what you'd expect for the ROI.

It seems it's your turn to have forgotten that a BTL RoI at any given time in the 'BTL life' is based on the asset purchase price at time t0, not the asset market value at time t+whenever

 

And show me an industry where assets appreciate consistently?

Indeed. Unless you were in the market before then of course. In which case it was just a bonus for you.

That's exactly my point: any extra RoI based on the asset appreciation is just that, a bonus. Nice if it happens, so what if it doesn't (up to a point, of course...you wouldn't want the depreciation to wipe out the total RoI at term). It should never be factored in as part of the investment strategy in the first place (e.g. think about the mortgage endowment policies hoo-haa, same principle).

Speculation is always risky, but even had he been making a decent return (the latter landlord) he'd have still lost capital and it would have been a bad investment.

Again, not at all. The landlord only loses capital if he sells for less than he bought the asset for + adjustment for inflation.

 

Regardless of whether the market value of the house goes up and down, so long as that latter landlord keeps the property and has tenants in at a rental rate yielding a profit (in very basic terms, covering mortgage plus a bit, to at least beat bank off-the-shelf products...let's say a minimum of 10%, as that was always my own yardstick), it is a good investment.

 

After that, how good can be assessed by comparison to other investment opportunities available at the relevant time (time of purchase).

[Tony]

So is (part of ) a problem that has been developed where social housing has been allowed to deteriorate and rents follow the deterioration down?

 

If so, is a partial solution to raise rents in social housing and raise the standards and the conditions that people live in? After all, don't people as a group behave according to the conditions that they inhabit?

[INTERVIEWER]

Council homes, and other forms of social housing, are no longer considered necessary by our Conservative/Lib Dem overlords.

 

If my rent was increased to a similar level to that of the private sector, I would be forced to apply for housing benefit - which I would be ineligible for as my income takes me over the limit. I would be faced with a tough decision - move out, and try and find somewhere cheaper. Or more likely I would be forced to leave my employment, and claim benefit to keep a roof over my head while looking for better paid work.

 

George Osbourne and Nick Clegg will be roaring with laughter and slapping each other on the back at the news of my predicament, no doubt. It was how they both reacted to the announcement of the savage spending cuts...

[Tony]

Hold on a tick because that sounds like throwing the baby out with the bathwater. If the additional rent is invested into the housing stock then that creates employment, wealth and improvements in standards of living and social conditions, all of which reduce the need for welfare.

[chem1st]

Hold on a tick because that sounds like throwing the baby out with the bathwater. If the additional rent is invested into the housing stock then that creates employment, wealth and improvements in standards of living and social conditions, all of which reduce the need for welfare.

 

Perhaps when you read the white paper you noticed that the government will now keep 100% of RTB receipts/