Buy to let and the
reconfiguration of
Londons’ housing market
Steve Wilcox
University of York
Buy to let and the reconfiguration of
Londons’ housing market
 Housing
market trends
 House Purchase Affordability
 Intermediate Housing Market
 Private Rents Affordability
 Renting and Buying
 Future trends and PRS policy issues
Housing market trends
 House
price to income ratios
 Mortgage
 Regional
cost to income ratios
trends
House prices to earnings
Mortgage costs to earnings
All full time earnings and first time buyer house prices
2007
2006
2005
2004
2003
2002
2001
Percentages
0
2000
0.0
1999
10
1998
1.0
1997
20
1996
2.0
1995
30
1994
3.0
1993
40
1992
4.0
1991
50
1990
5.0
1989
60
1988
6.0
1987
Ratios
Housing market affordability in Great Britain
30
25
20
15
10
5
0
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Mortgage cost to income
ratios
Regional trends in home owner
affordability
North East
East Midlands
London
Wales
North West
West Midlands
South East
Scotland
Yorks & Humber
East
South West
Underlying factors
 Sustained
economic growth
 Lower interest rates
 Inadequate housing supply
 Availability buy to let mortgages
 Growth in private rented sector
Y
Household formation
ou
th
ou
th
S
S
W
es
t
as
t
do
n
E
Lo
n
as
t
E
N
or
or
th
ks
E
hi
as
re
t
&
H
um
be
r
N
or
th
W
W
es
es
tM
t
id
la
n
E
ds
as
a
tM
id
la
nd
s
Average annual rate of household formation and
new house building
Household growth and house building 1991 - 2003
35
30
25
20
15
10
5
0
New house building
Growth in new buy to let mortgages
180
160
Thousands
140
120
100
80
60
40
20
0
1999
2000
2001
2002
2003
2004
2005
Source : CML website : New advances per half year
2006
2007
Growth in private rented sector in England
2,750
2,500
2,250
Thousands
2,000
1,750
1,500
1,250
1,000
750
500
250
0
81
19
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20
SEH : Households
Growth in private rented sector in London
700
600
Thousands
500
400
300
200
100
0
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
19
CLG : Dwellings
00
20
01
20
02
20
03
20
04
20
05
20
06
20
Upturn in wider Private Rented Sector
& lettings to Housing Benefit claimants
3500
2500
2000
1500
1000
500
0
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Thousands
3000
PRS dwellings
HB Caseload
Data for Great Britain
Private Rented
Social Rented
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
91
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
19
88
Percentages
Nearly a half of all moves each year are
into the private rented sector in England
Home Owner
Percentages
In London over a half of all moves each
year are into the private rented sector
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
North
Midlands
Private Rented
London
Rest of
South
Social Rented
SEH : 2006/07
England
Home Owner
Non decent homes in the PRS
45
1,400
40
1,200
35
30
800
25
600
20
15
400
10
200
5
0
0
1996
2001
2003
Numbers
2004
2005
Percentages
Source : English House Condition Survey
2006
Persentages
Thousands
1,000
Housing market affordability in 2006
House price to income ratios
 Intermediate Housing Market
 Affordability of private rents
 Renting and Buying compared

House price to income ratios
in 2006
6
4
3
2
1
Regions
B
G
Sc
ot
W
al
es
En
g
W
S
Lo
n
E
S
Ea
st
M
M
E
W
Y
&
H
W
N
E
0
N
Ratios
5
House
price to
income
ratios in
2006
Key
Broad and narrow
intermediate housing markets
Broad intermediate housing market
Not
in
work
In work
but on
HB
Not on HB but
cannot buy at
LD level
Narrow intermediate
housing market
Cannot
buy at
LQ level
Can buy
at
LQ level
60
50
40
B
G
Sc
ot
W
al
es
En
g
W
S
Lo
n
E
S
Ea
st
M
M
E
W
Y
&
H
W
N
E
30
20
10
0
N
% working households
Broad and Narrow Intermediate
Housing Market in 2006
Regions
Working HB
Narrow IM
Between LD & LQ
Proportion of
working
households
in the
Intermediate
housing
market
in 2006
Key
House prices, mortgage costs, rents and
earnings compared (1994 = 100)
400
350
Index
300
250
200
150
100
50
1994
1995
1996
1997
House prices
1998
1999
2000
Mortgage costs
2001
2002
2003
Private rents
2004
2005
Earnings
First time buyer house prices and mortgage costs
2006
Regions
Mortgage Costs
al
es
W
En
g
W
S
Lo
n
E
S
Ea
st
M
M
E
W
Y
&
H
W
N
E
40
35
30
25
20
15
10
5
0
N
Percentage of
household earnings
Affordability of private rents and
mortgage costs in 2006
Private rents
Key
Rents as a
proportion of
mortgage
costs in 2006
Future prospects for private renting
Demographics & demand
 Investment returns
 Crunches & Cycles
 Fiscal & policy regimes

Thousands
2004 projections for London
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1997
2001
Married couples
One person
2006
2011
Cohabiting couples
Other
2016
2021
Lone parents
2026
Commercial rental returns (UK)
Return
2001
2002
2003
2004
2005
2006
Income
5.7%
4.8%
4.0%
4.0%
3.7%
3.5%
Capital
10.8%
14.1%
6.1%
5.6%
4.3%
12.8%
Total
17.0%
19.6%
10.4%
9.5%
8.1%
16.8%
Source : IPD UK Residential Index – based on portfolio of 9,040 dwellings
Rental returns ( Central London)
Return
2001
2002
2003
2004
2005
2006
Income
4.1%
3.0%
3.3%
3.1%
2.8%
3.1%
Capital
10.8%
14.1%
6.1%
5.6%
4.3%
8.9%
Total
12.5%
10.8%
3.1%
7.6%
5.5%
12.3%
Source : IPD UK Residential Index
Rental returns ( Inner London)
Return
2001
2002
2003
2004
2005
2006
Income
5.6%
4.6%
4.0%
4.1%
3.8%
3.9%
Capital
15.8%
13.7%
2.4%
1.8%
5.1%
10.1%
Total
22.2%
18.9%
6.5%
5.9%
9.0%
14.4%
Source : IPD UK Residential Index
Fiscal & Policy Regimes
The Rugg Review
 Capital Gains Tax Reforms
 Institutional landlords or better product?
 Private renting and mixed communities
