Would property investors run for the hills?
If you read the popular press you will see that landlords have been painted as the devil incarnate making “millions of pounds” from their poor tenants. While it would be wrong to suggest that all tenants are above board and play by the rules there are enough regulations in place to ensure those who do not abide by the rules are punished. However, there is a growing demand for the capping of rental valuations across the UK property market. Is this viable?
Free-market in UK property
Whether we like it or not there is no doubt that the free-market policy of years gone by has made the UK property market what it is today. It is highly attractive to international investors, it is much sought after by domestic investors and brings in a significant amount of money for the UK government via an array of direct and indirect taxes. Even in times of trouble the UK market seems to have a core backbone which offers significant support for prices.
Should rents be capped?
The simple fact is that due to an inexcusable inability from the government of the day and governments of years gone by to “encourage” an increase in the number of new build properties we have a shortage of rental properties in many areas of the UK. This is not the fault of property investors, nor the fault of tenants, as the problem lies fairly and squarely at the door of the authorities and overly strict regulations.
In basic terms, if governments had allowed, or encouraged, more new builds in years gone by there would have been more supply for the property market as a whole. This would have tempered the rise in prices and also offered more properties for rent. So, do you really think that a cap on rents is the long-term solution?
Investors will fall by the wayside
It is strange that critics call for rental caps when markets are doing well and rental values are moving higher. Were these people calling for protection for landlords when property prices were falling and rental values were following suit?
Any investor will buy an asset where the risk/reward ratio offers a fair chance of making a return in the medium to longer term. This risk/reward ratio is very closely associated with market movements, perceived and those ongoing, which will impact on capital and rental values going forward. If the government was to introduce a cap on rents then many property investors would look elsewhere, the sector would lose much-needed investment and the number of new house builds would be impacted.
What is the answer?
The sad fact is there is no simple answer to the problems encountered by the UK rental market at this moment in time. It will take time to build new properties, investors would fall by the wayside if rent caps were introduced and this would make a difficult situation even worse. In many ways, “chickens are coming home to roost” with historic government policies seemingly determined to limit the number of new properties available each year in order to maintain demand for existing property assets. What better way to ensure the long-term trend of the UK property market is upwards?