What Does the Long-Term Future Hold for Property Investment?

For years property investment in the UK has been a case study in the truth of the old saying “safe as houses.”

Recently, however, a flurry of fiscal and regulatory changes has caused some property investors to leave the market (or to alter their portfolios substantially), while those who have remained could be forgiven for feeling that they are trying to steer a steady course through brutal headwinds.

Many investors are likely to be asking themselves if there really is a viable, long-term future for property investment. Overall it seems likely that there is and here are some thoughts as to what it will bring.

The North will continue to be the place to be for the immediate future

Even setting aside the potential for Brexit to disrupt the London economy, the fact still remains that property prices in London are, on average, still the highest in the country, which makes it very difficult to achieve good yields.

Those interested in the capital may wish to take advantage of the current slowdown as a buying opportunity and, in particular, may wish to pay attention to the few areas of London which are still relatively affordable and still offer room for growth.

In general, however, it seems more likely that the majority of investors will continue to head northwards to benefit from more attractive prices and better yields. Not only will Manchester continue to thrive, but other cities in the Midlands and North will start to win more attention from investors.

The Right to Rent scheme will be reworked (or revoked)

At the current time (June 2019) the government is appealing a recent High Court ruling that its controversial “Right to Rent” scheme is causing discrimination and breaches of human rights laws.

It appears to be the government’s intent to argue that the scheme itself is not discriminatory and that the problems which have been identified are the result of the scheme being misapplied.

Even if the government wins its appeal (which is by no means guaranteed), it could be open to a further legal challenge, this time by landlords (or, possibly more likely, by an organization representing them).

This challenge could be based on the fact that the legislation, as currently stands, is in breach of landlords’ human rights as the severity of the penalties far exceeds anything which could be considered reasonable.

Such action might even challenge whether it is at all reasonable to demand that private landlords act as unpaid and untrained immigration agents.

The government has to be aware of this and it is entirely possible that a change of Prime Minister will provide an opportunity for the government to change direction and make the rules somewhat more tolerable (even if abolishing them completely is a step too far at this point).

This would spare the government the embarrassment of continuing with an expensive legal fight to protect legislation which has been widely criticized from the moment it was proposed.

The private rental sector will be increasingly run by companies rather than individuals

The regulatory burden on landlords has already reached a point where smaller-scale landlords are becoming increasingly unwilling to continue on their own.

Some have already given up residential property investment while others have reduced the size of their portfolios.

In most cases, however, it is likely that these smaller-scale investors acted with some degree of regret as the fact still remains that there is a massive undersupply of housing in the UK and a particular need for high-quality rental housing.

This means that unless the government steps in and supports the building of massive numbers of high-quality, local-authority-owned housing (which seems in the highest degree unlikely), the private-rental sector not only has a viable long-term future, but has the potential to offer very good returns to those who remain active in it.

For this reason, larger-scale landlords will move in to fill the vacuum left by their smaller-scale counterparts and larger-scale landlords are more likely to operate as limited companies rather than as private individuals.

This may, however, (and possibly somewhat ironically), offer a route back into residential property investment for smaller-scale investors as they may have the opportunity to invest in this market through buying shares in these companies.

Lettings agents will adapt and thrive

Good lettings agents perform a valuable service for landlords which goes well beyond protecting them from penalties under the infamous “Right to Rent” scheme.

Many landlords are very well aware of this and hence will continue to employ them regardless of the fact that lettings agents now have to bill landlords rather than charging their fees directly to tenants.

The only real question is whether or not landlords will absorb this extra cost or whether they will increase rents. Lettings agents may struggle if there is a significant reduction in the overall size of the buy-to-let market.

However, this should not be too much of a danger for the simple reason that the government simply cannot allow the private rental sector to evaporate, although it may be quite happy to allow it to consolidate, at least to some extent.

There will be a concerted push to reduce the short-term rentals market in urban areas

The short-term lettings market can be a useful source of income in the UK’s rural areas, but it is becoming increasingly controversial in densely-populated areas.

Leaving aside the, far from insignificant, fact that short-term lets reduce the number of properties available for those seeking long-term residential accommodation, there are also concerns about the impact of introducing tourism to residential areas.

Basically, people who have to live with each other day in and day out typically have a vested interest in maintaining good neighborhood relations.

Whereas people who are visiting a place on a short-term basis are not necessarily going to be so concerned about whether or not their behavior is inconveniencing those around them.

While “horror guests” may be a minority of those who use short-term lettings, they are still a reality and they do generate justifiable bad press for the rest of the sector.