to think high house prices are the problem?

[benefitcapclaptrap]

Just watched a news item about the benefit cap being introduced today in some areas. Not sure I totally agree with it but I understand that the reason for it is that the welfare bill is too high. What I don't understand is how reducing housing benefit payments will solve the problem in the long term.

As I see it, the reason housing benefit spending is high is because the rents charged are also high. Too high in fact for the (mostly working,but low paid) tenants to be able to afford to pay without assistance. The usual reason given for high rents is lack of available properties, but I can't see the evidence for this locally (south east) or in other towns I have visited.

Instead, I would suggest that, the reason for high rents and demand exceeding supply is actually due to the cost of buying a house being far too high. A large proportion of people who would like to buy a house (and in the past would have been able to afford to) have been priced out of the housing market. Therefore they have no choice but to rent those same houses from a landlord that could afford to buy it. This means the rent is at a rate that not only covers the mortgage the tenant couldn't afford plus extra for maintenance and I presume some amount of profit. So it would follow that the tenant quite likely will not be able to pay the whole rent their self and must apply for housing benefit.

Am I being unreasonable in thinking that if house prices were lower and affordable to most people on an average wage there would be a lower demand for rental properties. In turn this would mean lower rents for those who can't or don't want to buy and mean lower bills for housing benefit. Also if people didn't have to spend such a high proportion of their income on the basic necessity of a home to live in, there would be less need for top-up benefits (e.g. tax credits) and people would be able to spend more which would get the economy moving again.

So AIBU?

Some very interesting points being raised here. I am now wondering what effect the introduction of tax credits (the part that pays towards childcare) and the free nursery places for 3 year olds, had on the increase in housing prices. Did it allow both parents to go to work, where one had previously been a SAHP, and push prices higher due to increased income? Or was needed in response to prices already getting too high, and both parents needing to work just to keep a roof over their family's heads?

I really don't see the London bubble bursting, not until the Russians go elsewhere. That investment from the top is what is holding prices high.

Loads of people of my generation (30-45) are going to get a decent lump from parents eventually because of the housing bubble, which most people I know are already working out how to pass it on to the next generation (my DCs) without having to pay inheritance tax twice.
There are a lot of pensioners with enough income thanks to final salary pensions, that they are income AND asset rich. That money filters down, and is what has enabled thousands to get on the property ladder and that will continue for the next ten to fifteen years. The readjustment in prices will come after that.

House prices aren't too high.
if you take the average earnings of 26k and times by 3 for a couple or 3.5 for a single person then this is enough for a starter home.
It isn't the house price its the high deposits people are expected to find.
Ok, there are areas of the country where it is more expensive to live and people struggle here. This has always been the case though, its nothing new. My ds1 is 21 and will have enough for his first home soon, he only earns min wage but is going for small terrace that needs work doing on it and is prepared to start off at the bottom. It will cost him between 35 and 40K we live in NW.

benefit - it has undoubtedly become a vicious circle, the two income issue. But there was definitely a time when the sudden injection of cash that tax credits and subsidised childcare provided pushed up prices. Gordon Brown has a lot to answer for.

i for one really hope prices crash. sorry if this offends anyone but i couldn't give a shite about your "investment" - a house should be a home, not a way to make money at the expense of people less fortunate. and i want my kids to be able to buy even if i can't.

Agree 100% Moody. Investments can go down as well as up, but for some reason the vested interests don't think that is an acceptable option.

Hester this has been my theory for a long time and I have been wary of expressing it loudly, but increased earnings per household (not per person) will have made a huge difference in the 1980s. Suddenly mortgages became very profitable for the Building Societies because their risks became reduced. With two people working in the household it was very unlikely that the owners would default.

So of course then the banks got wind of this golden egg and decided they wanted a piece of the action too. Our Lady Thatcher supported them by letting the banks sell mortgages too and the hen kept on laying.

If you went so far as to say that womens equality caused the housing boom you could also say that women have contributed to the fact that there is now no longer a choice between working or parenting. We have to work. And average income working women can only do that if we can get childcare subsidised by the state.

Once again the only people that lose are the taxpayers (twice - by subsidising childcare and overpriced housing) and children (arguably).

I agree with the OP and I think house prices are artificially high
you cannot even get a mobile home here for less than 90k

MrsBucketxx, I think very few people would expect LL's to willingly rent at a loss.

As far as I can see, the point that's being made is that if you can't find a tenant willing or able to pay the rent advertised, is that LL's may be forced to choose between (a) having a tenant who's not paying enough rent to cover all the LL's costs, and (b) having no tenant at all, which would mean the LL losing even more money, and (c) selling the property, possibly at a loss.

I haven't seen any posters suggesting that LLs should voluntarily rent at a loss out of the goodness of their hearts.

why on earth would any landlord willingly rent at a loss.

MrsB, I assume you're referring to BTL landlords. A BTL landlord is doing well if they cover their mortgage repayments. It is not, nor has it ever been, a given that the mortgage will be paid fully through rental income alone. This is particularly the case earlier on in the mortgage's life when payments in relation to income are usually high (as with any property purchase).

The investment is in the bricks and mortar which the rent you charge helps to pay for, with a view to it having been paid for in full years (25 maybe) down the line. The return on your investment isn't realised until the property is bought and you then either live in it or sell it on.

I'm afraid it might be you who is failing to understand the meaning here.

Renting at a loss is actually common in Australia:

www.brw.com.au/p/sections/property/negative_gearing_benefits_dry_up_hOkwGp0C5UYsnueNt0m8kL
en.wikipedia.org/wiki/Negative_gearing_(Australia)

when buying a blt mortgage your bank will check you can rent above a certain rate, called the rateable value,

I haven't ever had to rent at a loss but have come close to it. but this doesn't take into account for all the other fees involved ( and damage caused by tenants I spent thousands to correct)

But surely MrsBucket that is the risk YOU'VE taken. No one forced you to invest in property.

annualised over their years in power, house prices went up less than 2% under Thatcher per year and around 9% per year under Blair

Well, yes, but market conditions can change presumably.

Effectively then, you have rented at a loss in the medium term if you take into account other costs. However, you will have the asset at the end, and as many have said, BTL has risks as well as upside.

But rents are subject to market fluctuations!

Surely when you enter into a BTL mortgage and buy a property you take this into account, as well maintenance costs and void periods

This has been going on for years though. I remember reading various threads on property forums years ago from people who'd been sold the lie that BTL was easy money. Maybe it was once, but over a BTL mortgage's lifespan there will be highs and lows.

Moody - it happens in every LHA- landlords/B&B's renting out at ridiculous prices because of people losing their homes....and the councils pay it...

It makes sense that banks check that you can rent above the rateable value when you take the BTL mortgage out.

But this can't possibly give a guarantee to anyone that the property can be rented out at the rateable value for the full life of the mortgage.

Property markets, just like any others, are subject to fluctuations. The warning about how the "value of your investment can go down as well as up" applies to all investments, including BTL properties.

Mrs Bucket - you made an investment...these can go up and down...because that's what investments do...including BTL ventures.

I for one would never rent at a loss.

can't see that ever happening with the rental market being like it is atm.

MrsBucket, people are losing their jobs, people are having pay freezes and pay cuts, people are having their benefits cuts, the government has put a cap on housing benefits. Just who exactly do you think in your wildest dreams can afford to continue to pay these rents?

Yonimoroney negative gearing links are interesting but make my brain ache. Is it a bit like instead of bailing out the banks, they bail out the holder of the mortgage?

I agree - if you're a BTL Landlord, it's an investment. You could have invested that money into stocks, and suffered losses when the markets fall. Likewise, if the value of the property falls, or rents fall, that is a loss you need to take. It's immoral to artificially keep the value high to make sure you don't lose out. And, the e.g.s I gave above are all landlords who bought the properties 10+ years ago, so I doubt their mortgage payments have doubled (like the value of the properties have).

No investment is 100% safe, none. Even gold (which has been seen as a safe haven for decades) fell 8.7% yesterday.

FasterStrong yes, in real terms:

House prices were 3.113x their 1997 level in 2007. In real terms, the rise over the Blair term was 136.5%, which is 9.0% real per year.

Over the Thatcher term, house prices were only 2.87x their 1979 level in 1990. Overall inflation, however, was 2.37x, so the real price increase was only 1.8%. If you look at wage increases (ahead of price inflation), prices did not get higher under Thatcher, I would imagine.

By the end of Thatcher's term, prices had fallen around 13% from their 1989 peak (the peak was 3.29x the 1979 rate), but even so, she did not cause disastrous HPI, as Blair did.

Prices by 1997 had still not exceeded their 1989 nominal peaks, so were by then even cheaper in real terms, and the real annual change over 18 years was just 0.4%, so homes by 1997 were more affordable than in 1979, which is what most people would call progress.

Considering the Labour government as a whole, prices doubled in real terms, a 6% annual real change, which in a low-inflation, low wage-increase, environment, one in which global stockmarkets flatlined, was terrible.

MrsBucketxx, I can understand you not wanting to rent at a loss. But if things got to the point where you couldn't find tenants willing or able to pay a rent high enough, what would you do?

(a) rent at a loss
(b) have no tenant at all, and an empty rental property for possibly months on end
or (c) sell the property, even if it meant selling at a loss

I hate.

I dont accept hb at all, and I have never had an issue. my rental is relatively small 600 a month for a three bed detached is not that much.