UK Housing Crisis: Why Buy-to-Let Feudalism Must Die

It's surprisingly lucrative to do nothing in modern Britain if you have a bit of capital behind you. Welcome to the new feudalism.

The rentier class is thriving. And none more so than the nouveau seigneurs in the buy-to-let market, who snaffle up what's left of the UK's scarce housing supply and extort those who can't afford to buy their own home.

What can you do about it? Nothing if you can't buy your own house. Squatting is now a criminal offence so that's out of the question.

You just have to pay the rents or live in the gutter. That's your choice. Forever consigned to a villein status worthy of 1314, not 2014.

Easy returns with little risk but maximum rewards, buy-to-let investors give nothing and expect everything – and they've got it.

Pandora's buy-to-let box was opened in 1996 when the first of these mortgages were offered and now they have "come of age", according to a study by the Wriglesworth Consultancy.

The study was commissioned by Paragon, one of the buy-to-let mortgage pioneers. It found the following:

"Every £1,000 invested in an average buy-to-let property purchased with a 75% loan-to-value mortgage in the final quarter of 1996 would have been worth £13,048 by the final quarter of 2013, a compound annual return of 16.3%."

This is the mediaeval alchemist's wet dream. It's gold from nothing. All they have to do is sit back and let the UK's housing market do the hard work – drive up house prices and rents.

And what makes it even more galling is that many of the investors don't even live in the UK, instead funnelling their capital gains away to foreign lands.

A study by chartered accountants UHY Hacker Young found that the number of foreigners letting out property in the UK hit 2.04 million in 2013, a 6% rise on the year before.

Failures

It's years of near-criminal failures by successive governments that has put us in this mess. Council houses sold off and then not replaced. Barely any affordable homes built. Old ones left to fall into disrepair or converted into commercial space.

Local council nimbyism preventing new developments. And the free-for-all offered to foreign investors, who have never had to pay capital gains tax when they sold up – something that, fortunately, is about to change.

All of these factors and others mean we don't have enough houses in Britain for the people who live here.

It doesn't take an economics professor to work out that if you already don't have enough housing now because you're not building enough, and the population is increasing each year, things will only get worse.

And what happens when supply can't keep up with demand? Prices rise. So those who can afford to own the product – in this case, buy-to-let landlords who hoard several properties each – cash in while those who need it are forced to pay much more.

Hence house prices and rents are on the rise because competition on the demand side is so fierce. The financial crisis knocked house prices back a bit in all regions except London, but they're recovering again and will soon reach their pre-crisis peaks. The general trend has been up.

The Office for National Statistics (ONS) said the average price of a UK house hit £253,000 in February 2014, a 9.1% leap on the same month a year before.

It's no wonder a survey by Halifax found that the high deposits needed to get a mortgage, driven up by spiralling house prices, were the main reason wannabe homeowners can't get on the property ladder.

Hurting supply

Buy-to-let investors and the financial witchdoctors who advise them seem to think that by buying up more homes to rent out that they are increasing the supply and so benefitting the housing market.

In effect, this is like applying leeches to a fresh corpse. It wouldn't have worked before and it ain't gonna work now.

Perhaps the supply of rental accommodation would increase, but that's not necessarily a good thing.

Family homes are split into bedrooms that are rented out separately, with as many adults crammed in as possible.

Old dining rooms become another sub-standard boudoir to yield more rents for the landlord. The standard of living falls. Forget a home of your own, cramped shared accommodation is the only option for many nowadays.

Lots of landlords don't even do their own dirty work, sub-contracting the rent collection and property maintenance to agencies who levy their own additional extortions.

And it gets worse. By taking houses out of the market for first time buyers they are actually shrinking the supply of homes to buy, which forces prices up.

Rising house prices mean buy-to-let investors have to take out bigger mortgages. This then means they have to charge higher rents to not only cover their mortgage costs, but to make sure there's a bit extra to pocket as pure profit – because doing nothing must be rewarded, after all.

According to the Buy-to-Let Index compiled by LSL Property Services, the average rent in March 2014 was £741. In March 2010, it was £659. That's an increase of 12.4%.

The Institute for Fiscal Studies (IFS) calculates that in the 2013/14 fiscal year, household incomes were 6% below their pre-crisis peak on average.

Put simply, rents were rising much quicker than incomes. While consumers were hammered by welfare cuts, weak wage growth, and a spiralling cost of living, buy-to-let landlords kept on cashing in by hiking rents.

And in areas where there isn't enough social housing – which is everywhere – these private landlords fill in the gaps and charge the hefty market rates they help to set.

So they are then siphoning off large amounts of taxpayers' money by accommodating tenants on housing benefit and charging outrageous rents.

The housing madness has got to stop. Radical action is needed from government. A new wave of social housing must be built on a scale similar to the post-war years. And they must go full throttle on affordable housing too.

The feudal buy-to-let market must be killed off because it contributes little to the economy except an occasional tax payment – while making everyone else worse off.