The increase of the average rent in Britain over the last year: between 6.3% and 8.5%, according to an article today in the Guardian.
Rent is now between over £1,301 (+11.6%) a month in London, and £519 (-0.4%) in the North East. For new lets, the average rent for Greater London is £1,555.
So as prices in goods and services decline (CPI inflation rate: -0.1%) rents go up, in the London borough of Westminster by a record 28%over the last year.
This is obviously great news for buy-to-let landlords, who can now make more than 9% a year on average on their properties. They only have to find the money for a 25% deposit, and then can finance their borrowing at a much lower rate (say, 4%), given the current low interest rates.
A market, which allows these price rises from one year to the next, when general inflation is non-existent, must be inefficient. The market for housing, of course, is superficially kept low, by the government refusing councils permission to build council housing for rent. So people who could normally only afford social housing now have to rent from the private sector. The bill, of course, is paid for by the state.
Also, council planning laws and restricted spaces for house-building (especially in London) make it difficult for supply to keep track with demand. This is an issue of land allocation to housing. Either by owners not making it available for development and hoarding it, or, alternatively, local planning authorities not giving enough planning consents. A classic supply problem.
Funnily enough, though, for a Tory government, which is keen on supply side solutions to, say employment markets, (by introducing a trade union bill, to make it difficult to strike), it does not tackle the housing market supply. Restricting supply puts value on houses through house (and rent) price inflation, and will make property owning families feel richer, and more likely to vote Tory.
But apart from the politics, it is also an issue of ownership.
Who owns the land, and who keeps hold of it, hoping to make a killing in land price appreciation, before selling it?
The New Statesman back in 2011 had a good summary of who owns the UK. The whole of the article is well worth a look. Here are ten highlights from this article. Just for reference, an acre is just about half a football pitch.
Ten things to know about UK land ownership
- About 150 years ago, only 4.5% of the UK population owned some land, now it is 70%.
- Around 5% — 3 million acres out of total of 60 million acres in UK — is urban land where we live, another 3 million acres is where we work
- 42 million acres are agricultural land. Whereas the owners of agricultural land paid almost all of the UK’s taxes in 1873, they now receive a subsidy of around £83 per acre – at least £3.5bn.
- Urban dwellers pay £35bn in land related taxes, an average of £1,800 per dwelling, or £18,000 per acre.
- Ultimately the Crown owns all the land in the UK, whether it is Freehold, or Leasehold.
- 9 out of 10 acres in England are not urban land, so there is plenty of land for development.
- At the current rate of urbanization, of 14,400 acres per year, Britain will not be “concreted over” for another 2,000 years.
- Behind the scare stories of scared land is a very simple financial fact: an acre of rural land worth £5,000 becomes an acre of development land worth between £500,000 and £1m once planning permission is obtained.
- The current Land Registry for England and Wales is at least 35 per cent short of recording all owners of all property after 86 years of trying. It does not record how many acres each owner holds. So who owns the remaining 35% (the bulk of the land) is unknown.
- In the UK, the average “farmer” receives between £18,260 and £23,000 every year from the taxpayer for an average farm of 220-plus acres, whether or not he or she grows or herds anything. During the ten years from 2000 to 2009, the top 50 recipients of agricultural subsidy received £168m – an average of over £3.3m per farmer.
So the main points to keep in mind, the Crown owns ultimately all the land, who is the actual freehold or leasehold owner of the land is unknown, and the biggest landowners receive massive subsidies, when the the average urban owner pays around £1,800 in property related taxes. This makes the system highly inequitable. And let us not forget, that many properties, which are registered and commercially held, are actually registered in tax havens.
That, coupled with the massive development gains once land receives planning permission (the value increases 100-fold or 200-fold) makes the UK land sector a prime candidate for a tax overhaul.
It will not happen under the Tories, who are happy to artificially restrict supply to the housing market by refusing to let councils build much needed social housing for rent.
So this should make the land and property market one of the main targets for a reform, and to increase the supply, once a new government comes in. Rents would come down, I am sure.