Enfield housing experiment

[Countdown]

RYH64E said:

There are different ways of calculating your profit. If I take an example of a house I've had rented out for 16 years (to the same tenant!), that's un-mortgaged and doesn't go through a letting agent, the rent achieved is about 15% of original purchase price per annum, which is not bad even before the capital appreciation of nigh on 200% is considered. Howver, if I do the same calculation based on current value the rent works out at 5.3% per annum gross, so if that property were mortgaged, had void periods, was let through an agent, and needed regular refurbishment it would be a commercial disaster. Also, the chances of substantial firther capital appreciation is, imo, slim, I wouldn't be surprised if it went down in value. Personally, I don't think there's that much money to be made in letting domestic property, rents are too low compared to current house value.

All based on South East/London prices/rents.

Pretty much correct. Councils make profit because the mortgage has been paid off (or it is based on 1960 purchase prices). It was much harder to get the figures to stack up for "New builds". Based on what little I remember we'd get maybe £4.5k rent per annum per property. Out of this we'd spend £800 on repairs & maintenance and £700 on management. Another £1500 would go into a sinking fund for CapEx leaving £1.5k to cover notional borrowing costs. That is rough figures. Voids would be under 2% and bad debts would be at a similar rate.

For new builds we wouldn't look at anything costing over £80k for houses because the risk/reward profile wasn't right.

[RYH64E]

Countdown said:

Pretty much correct. Councils make profit because the mortgage has been paid off (or it is based on 1960 purchase prices). It was much harder to get the figures to stack up for "New builds". Based on what little I remember we'd get maybe £4.5k rent per annum per property. Out of this we'd spend £800 on repairs & maintenance and £700 on management. Another £1500 would go into a sinking fund for CapEx leaving £1.5k to cover notional borrowing costs. That is rough figures. Voids would be under 2% and bad debts would be at a similar rate.

For new builds we wouldn't look at anything costing over £80k for houses because the risk/reward profile wasn't right.

So when you say:

Countdown said:

I used to work in Finance in Social Housing. Council rents are categorically not subsidised by the Taxpayer. In fact they actually make a profit.

The simplest way of showing this is Housing Associations - completely independent of the Council and yet able to cover their costs quite easily. Another way is to look at the many PH'ers who are successful BTL landlords. A social housing provider knows far more about renting out houses efficiently than your average BTL landlord.

What you really mean is that they can make a small profit providing they get their housing stock for free or at 1960s prices? Free stuff does make business easier, unfortunately there's not much of it in the private sector...

[Countdown]

RYH64E said:

What you really mean is that they can make a small profit providing they get their housing stock for free or at 1960s prices? Free stuff does make business easier, unfortunately there's not much of it in the private sector...

Well, yes and no. The housing stock from the '60s is pretty much paid for but requires correspondingly more CapEx because of its age. Councils can at least cover their costs up to a purchase price of about £80k even allowing for below market rents. This is because they have efficiencies of scale not available to you or I.

ETA RSLs can and do build new properties and rent them out at rates which cover all their costs. No subsidy required.

Edited by Countdown on Thursday 4th September 17:28

[TTwiggy]

I must admit, that when I saw the title of this thread I thought it might be connected to this:

http://en.wikipedia.org/wiki/Enfield_Poltergeist

Which is certainly one way of incentivising council tenants to move on!

[Magog]

Countdown said:

Well, yes and no. The housing stock from the '60s is pretty much paid for but requires correspondingly more CapEx because of its age. Councils can at least cover their costs up to a purchase price of about £80k even allowing for below market rents. This is because they have efficiencies of scale not available to you or I.

ETA RSLs can and do build new properties and rent them out at rates which cover all their costs. No subsidy required.

Edited by Countdown on Thursday 4th September 17:28

Is that because RSLs have their sites allocated or zoned by the planning system? Could they compete like for like with private developers in an open market?

[Countdown]

Magog said:

Is that because RSLs have their sites allocated or zoned by the planning system? Could they compete like for like with private developers in an open market?

Hard for me to say because they're not operating in the same "market". RSLs build/buy cheap properties in sub-prime areas in order to rent them out. Private developers are looking to build properties with a view to selling them and maximising profit.

I doubt private sector could do what RSLs do cheaper than an RSL tbh.

[RYH64E]

It's an interesting topic, the widespread view is that high rents are the result of rip off private landlords forcing prices up, whereas in my opinion high rents are consequence of out of control house prices, and that many private landlords are making no money at all. When interest rates inevitably rise many private landlords will find it very hard to cover their mortgage interest costs.

Most of the new build social housing I see is either built on parcels of land that the council has made available cheaply (there's a development near me built on land behind existing houses that the existing tenants were using as unofficial garden extensions, now reclaimed and built on), or estates where the developer is told that a condition of them building nice properties to sell to decent people is that they build a proportion of cheap houses for a housing association to rent to deliquents and trouble makers.

[V8 Fettler]

RYH64E said:

It's an interesting topic, the widespread view is that high rents are the result of rip off private landlords forcing prices up, whereas in my opinion high rents are consequence of out of control house prices, and that many private landlords are making no money at all. When interest rates inevitably rise many private landlords will find it very hard to cover their mortgage interest costs.

Most of the new build social housing I see is either built on parcels of land that the council has made available cheaply (there's a development near me built on land behind existing houses that the existing tenants were using as unofficial garden extensions, now reclaimed and built on), or estates where the developer is told that a condition of them building nice properties to sell to decent people is that they build a proportion of cheap houses for a housing association to rent to deliquents and trouble makers.

Private rental price is primarily market led.

[Magog]

Countdown said:

Magog said:

Is that because RSLs have their sites allocated or zoned by the planning system? Could they compete like for like with private developers in an open market?

Hard for me to say because they're not operating in the same "market". RSLs build/buy cheap properties in sub-prime areas in order to rent them out. Private developers are looking to build properties with a view to selling them and maximising profit.

I doubt private sector could do what RSLs do cheaper than an RSL tbh.

I'd say that's the problem, there are two different markets and they're heading in different directions with very little in between them. This is especially true in central/inner London, which is now a place only for the very poor and the very rich. At the moment it's the mass of people in the middle, who aren't poor enough for social housing, and not rich enough to buy who are losing out.

[rover 623gsi]

V8 Fettler said:

Private rental price is primarily market led.

and the market is influenced by the lack of social housing and the existence of housing benefit

build more social housing and the rental prices in the private sector would fall