There’s a drama unfolding in the UK, featuring a cast of landlords, institutional investors, developers, government policies, and the cosy homesteads that make up the great British landscape. It’s a complex narrative that interacts with itself, but I shall attempt to summarise the parts. 

In recent years, the world of property development and investment has begun to resemble a rather skewed version of a Dickensian plot - a tale of two properties. In a time of increasing wisdom, I find myself witness to a great deal of foolishness. On one side, we find our stoic landlords, often vilified and embattled, left to manoeuvre the labyrinthine maze of UK property law, regulation and changing tax burdens. On the other, we see institutional investors, handsomely furnished with policies that appear designed to feather their nests. Firmly gaping in wonder on the side-lines, we have the developers, hands tied and barely able to make a move, and a population increasingly left with nowhere to call home. 

But why, one might wonder, are these groups dealt such different hands? And what, if any, are the broader implications for our housing market, and indeed, our society? Allow me to traverse this landscape, diving into the choppy waters of property investment, from the lofty peaks of interest rates to the quiet, shadowed valleys where the voices of SMEs developers seem to fade into silence, from the gusty winds of governmental policies, to brush against that finally recognised and logical public preference of single-family housing (SFH) over high density build-to-rent (BTR).

We will also examine how landlords and developers might band together in the face of adversity, forming alliances in the form of peer group masterminds, like those offered by TableNetwork, to bolster their resilience and even bring about change.

So, buckle up, for today we have quite the journey ahead to complete our RESI round up. Through the valleys and over the hills we go, into the heart of the UK's property market and the challenges it presents. I’ll try not to get too lost along the way. 

An Unfair Playing Field

The government, quite rightly so, has been attempting to bring a sense of professionalism to the Private Rented Sector (PRS). In their eager quest to right the ship, however, one must wonder if they've been led astray by a rather partisan narrative, with an unfortunate penchant for populist policies.

Indeed, one cannot dispute the necessity for improvements in the rental sector, both private and social. A flurry of compliance and legislation has since been enacted, demanding a thoroughly professional approach. All homes should meet the Decent Homes Standard, be economical to run, and demonstrate a fair relationship between landlord and tenant.

However, we find ourselves at a curious impasse where the institutional residential investment sector, garbed in the cloak of Build to Rent (BTR), appears to make the government salivate in its desire for a more equitable PRS. The sector, taking its responsibilities seriously, has been at the forefront of positive changes such as allowing pets, not charging tenant fees, and offering a more responsive service. Yet, it's worth noting, BTR accounts for a scant 2% of properties in the PRS and its pace of construction hardly fills the gap being left by private landlords.

The institutional sector seemingly operates on an inclined playing field. With scale comes cost savings, and their shiny new buildings naturally come with top-tier Energy Performance Certificates (EPCs). But the scales tip further in favour of institutions because, unlike private landlords, they can offset their finance costs against gross income, simply because they are viewed as 'professional'.

There are strides being made towards professionalism among private landlords, too. They have largely upped their game across the board and I find myself generally less embarrassed to be from the UK on the subject of home rentals. Moreover, organisations like the National Residential Landlords Association, led by Ben Beadle, is doing a sterling job of rallying private landlords, educating them about their obligations and promoting a sense of professionalism. This is supposedly what the government desires, but it’s not exactly acknowledging the efforts and Ben is having to go directly to Parliament to point out the government’s inadequacies. 

There Is No Favourable Side of the Fence

Now, let's meander over to the labyrinthine world of governmental policy, where the melody is often sweeter than the reality.

Did you read my illuminating piece written for TableTalk last month? I tried hard to condense the issues at hand when discussing the Renters Reform Bill, but there were many. Our dear government, it seems, is decidedly fond of adding responsibilities onto the shoulders of landlords, whilst skilfully sidestepping the opportunity to institute substantive, effective changes that would actually benefit any parties involved.

The Renters Reform Bill is the latest in a string of legislations imposing new obligations, risks and costs to landlords. Part of the proposal is to get landlords to sign up to a new landlord register, at their own cost of course. It seems to me, however, a wasted opportunity.

Would it not be more effective, and indeed, essential, to capture all the data generated by a tenancy? Would a tenant register not also be beneficial to landlords? The approach, and indeed much of the proposed bill seems rather one-sided, laden with many sticks and no carrots.

Section 24, the lovely tax relief reduction, explained here by Home Made, was introduced by David Cameron in the 2015 Finance Act, and aimed to slow the growth of the PRS and maintain high levels of home ownership. It has achieved some success, with the growth in PRS levelling off at around 19% of the housing market since then. But is this really fair? And wouldn’t an increase in social housing during that time have been of service? 

Landlord-bashing has unfortunately become a popular sport, yet the PRS plays a vital role in providing housing at a time when home ownership is unaffordable and the social rented sector is shrinking further under the Right to Buy policy and the Government’s ineptitude at providing funding for the social housing development. The Government itself states that there are over 25% fewer social properties than 40 years ago, and Shelter cites that last year alone, 7000 social homes were built yet 29,000 were destroyed. These results shouldn’t surprise us since Michael Gove failed to spend £255,000,000 on social housing in the last 24 months alone. 

Institutional money can't replace the role of private landlords fast enough, and even if erasing them would be a good idea in the long run, which it certainly is not, losing them now would be disastrous. 

A fairer, robust, fit-for-purpose PRS that benefits all and keeps private landlords afloat requires understanding what's happening on the ground, which calls for a comprehensive data set. As Richard Berridge 24 wisely advocates, we should follow Ireland's example and expand the Landlord Register to include all the data points from a tenancy agreement. 

Moreover, any mention of scrapping S24 may incite protests, especially from those ideologically opposed to private rental. Yet, to have a well-understood, fully functioning, professionally managed PRS, we must equip landlords with the right tools and incentives. If the government is serious about professionalising the PRS, it must treat all landlords as professionals, and treat them equally. That would be a much-needed carrot.

Just as an accomplished conductor brings together the different sections of an orchestra to create a harmonious whole, the government should wield its legislative baton to orchestrate a balanced housing sector, where landlords and tenants each play their part in symphony, not in discord. The Renters Reform Bill could be the score to this harmonious composition, but for now, it seems, the orchestra is still waiting for the downbeat.

SFH vs BTR: The Choice of the British Public

As we delve further into this narrative, it's vital to take a moment and consider the British predilection for single-family housing (SFH) versus build-to-rent (BTR) properties. Richard Berridge extolls the virtues of SFH a good deal, and there is something almost comforting in the familiar structure of a house, isn't there? The space, the lack of overcrowding, noise, sans the hustle and bustle of multiple neighbours in close proximity. The statistics, as it turns out, reflect this preference quite glaringly.

Indeed the fundamentals of houses versus flats in the UK are clear. As Richard points out, a staggering 80% of us find our dwelling in houses, not flats. A further 83% of new properties delivered in the 2020-21 period were houses, so this is not changing. Even within the Private Rented Sector, houses reign supreme, making up a substantial 56% of stock, and bearing in mind that PRS encompasses Student Rentals and Houses of Multiple Occupation, that number is significant. 

Perhaps it's the inherent charm of a house, the promise of a private garden, or the quiet allure of fewer shared walls. Whatever the reasons, it's quite evident that the majority of Britons prefer houses. And the property market, like any good character in our narrative, is responding to this preference.

The UK's SFH market has seen a flurry of deals in the first quarter of 2023 alone, valued at a mind-boggling £450m. This figure surpasses the total investment for the entirety of 2022 at £330m, according to the erudite folks at Knight Frank in their Q1 BTR Market Update.

Moreover, Paul Staley of Wise Living has reported a 93% increase in new SFH Build to Rent tenancies starting in 2022 compared to the previous year, with 2023 projected to overshadow this figure. It seems SFH is not only on the up and up, but it's running the marathon at a sprinter's pace.

So, what does this mean for our landlords and developers, and more importantly, for the property landscape of the UK? It's clear that the demand for SFH is soaring, but are the policies and the support in place to meet this demand? Are we greasing the wheels for SFH development? 

Riding the Interest Rate Rollercoaster

In a world where every percentage point sends ripples across the economic landscape, the recent surge in buy-to-let mortgage rates has been nothing short of seismic. According to Moneyfacts, the average buy-to-let mortgage rates have made a sharp ascent, reaching 6.9% for a two-year fixed-rate deal last week, a climb from 6.6% just the week prior.

Oh, but it's more than just numbers on paper, isn't it? Behind each decimal point are real-world implications, echoing throughout the property sector. This rapid rate rise has dramatically affected mortgage affordability, as surely as if the ground had shifted beneath both homeowners’ and landlords' feet. 

According to the Office for National Statistics, 1,400,000 people are coming off fixed rate mortgages in 2023. 50% of these are at less than 2%, so their interest payments will more than treble. Imagine, you’re a school teacher. You earn a net average UK income of £1900 a month, and pay a mortgage at £500 per month. This year your mortgage payment is going to >£1500 per month. So your other expenses, that are currently budgeted at £1400, need to reduce down to less than £400 per month. Guess you’ll be downsizing? 

Quite the precarious position for those relying on rental property portfolios too. For some, this upending of the business model has created a precipitous position – and they’ve no choice but to sell up.

But alas, the landlord exodus isn't solely a consequence of the interest rate rollercoaster. The current climate - a perfect storm of escalating rates, mounting taxation, increasingly stringent regulations, enhanced energy efficiency requirements and more - is causing rental stock to plummet. The numbers, once again, are telling. Only 241,000 PRS homes were available last month, compared with a whopping 370,000 in June 2019. That's a startling fall of 35%, according to the diligent folks at consultancy TwentyCi.

Now, one would expect that as rental supply dwindles, rental prices would inflate - an economic dance as old as time. And true to form, rental prices have surged by 23% since 2019. Alas, the vilification of landlords is doing more harm than good. The mathematics of the situation are simply not in landlords' favour, causing an exodus from the sector and leaving renters staring down the barrel of escalating costs and dwindling supply.

One cannot help but ponder why the government has let its policies lead to this calamitous situation. This rollercoaster ride is not just detrimental to landlords but spells a rather grim narrative for renters as well. That’s surely both sides of the voting populous right there? 

Yet, the question lingers: Will there be a course correction, or are we strapped in for an even bumpier ride?

The Dawn After the Storm: Interest Rates and PRS Metrics

And so, as with every rollercoaster, after the high-speed climbs and precipitous drops, there comes a moment when the ride levels out, and our stomachs regain some semblance of equilibrium. Similarly, the lofty interest rates we're currently experiencing, though jarring, will in due course settle and become functional.

Markets have a certain cyclical regularity about them, and they rhyme over time, guided by the seemingly invisible hand of economics. Interest rates, as fearsome as they may currently seem, are not immune to this dance. It's unrealistic to expect a return to the astonishing lows that had become a familiar sight over the past 15 years. But it's equally important not to envision a permanent residence on this current peak. Rather, a reasonable expectation would be for rates to find a home somewhere below the 5% mark.

House prices are in line for a somewhat softer landing than certain doomsayers might have you believe in my humble opinion. It’s largely a matter of supply and demand. The affordability metrics will likely stabilise somewhere functional, and with the UK economy demonstrating robust growth—eclipsing even Germany, according to a recent announcement from the IMF —the demand side of the equation may be poised to hold in the medium term. 

This potentially steadier state of affairs would pave the way for the PRS metrics to regain their allure. So, in the grand scheme of things, we might just see the sun rise after the storm, bringing with it a climate where both landlords and renters can live again. As we journey towards this promising horizon, however, it remains crucial for our government to support the stalwart landlords who provide the backbone to the PRS. 

The Forgotten Voices: SMEs in Development

As we journey further into the complex tableau of the UK housing sector, we find ourselves in the company of an important (I would of course say that), yet often overlooked group - the small and medium-sized enterprises (SMEs) in housing development. These are the unsung heroes (woe is me!) labouring tirelessly in the face of mounting challenges, their voices lost in the noise of political discourse and policy implementation.

Recently, the Home Builders Federation and SME home builders have found themselves compelled to seek the Prime Minister's aid. These entrepreneurs have found themselves navigating the increasingly rough seas of the government's anti-development policies. These policies, while touted as reforms and methods to steady our country’s economic ship, often serve as barricades that hinder these enterprises from delivering the affordable homes the UK so desperately needs.

Refusing to just be sheep, and in an act of collective defiance and frustration, more than 200 SME housebuilders have put pen to paper, drafting a letter to the Prime Minister. Their plea? An ear to listen to their collective voice, that it might enable a change of course in housing policy to salvage their businesses from the tides of regulatory strain and fiscal strain.

In a disheartening revelation, it was reported that Michael Gove's department returned almost £2bn of housing cash to the Treasury, having failed to spend it in the 2022/23 financial year. This move involved returning £255m of affordable housing funding as mentioned above, and also £1.2bn of Help to Buy money. Yes, you read that right, amidst a pressing housing crisis, the government is returning allocated funds instead of investing them in solutions.

With the Help to Buy scheme now closed, the funds cannot be reallocated for use at a later date. In essence, they are lost to the department, exacerbating the situation for SMEs who are struggling to contribute to the housing solution.

It's hardly surprising then, that SMEs are crying out to be heard, their voices echoing in the wilderness of bureaucracy and policy ineptitude. Their message is simple yet profound: Acknowledge us, listen to us, and let us help create the robust, diverse housing sector that our country needs. It is high time we amplify these forgotten voices in the discourse around housing policy. After all, it's these voices that are often closest to the ground, and understand the issues in delivering our housing needs.

The Power of Unity: Peer Group Masterminds

In the midst of these complex challenges, a beacon of hope and innovation emerges: the power of collective unity. Landlords and SME developers alike are discovering the transformative potential of coming together in peer group masterminds at TableNetwork, uniting under a shared mission to navigate the stormy seas of regulatory, fiscal, and market challenges.

These peer groups, or mastermind groups as they are often called, represent an evolution in how landlords and SME developers are adapting to the changing landscape. In essence, these are gatherings of individuals who share similar challenges and goals, enabling them to pool their wisdom, experiences, and strategies. In the face of adversity, these groups fare much better than most, and are a testament to the power of collective wisdom and resilience. I think of it as collective brilliance. 

By participating in these mastermind groups, landlords and SME developers are afforded an environment of mutual support and constructive feedback. Here, they can share their experiences, most importantly they learn from their peers’ failures, and through discussion, collectively generate innovative solutions to the challenges they face. This unified approach presents a stark contrast to the isolation often associated with managing properties or running small housing development enterprises, and it’s much more powerful than courses that focus on excitement, often lacking the real detail. 

Beyond shared knowledge, peer groups foster a sense of empowerment. They give landlords and developers a platform to voice their concerns, knowing they will be heard, but more importantly understood. Round Table meetings embolden them to actively engage with policy debates, collectively advocating for fairer, more balanced regulations that recognise their contributions to the housing market.

Mastermind groups also serve as a catalyst for innovation. As landlords and developers exchange ideas and strategies, they also share their visions for a fair and sustainable housing sector. Through these interactions, new approaches to property management, development strategies, and even advocacy initiatives may arise, driving the evolution of the sector. 

In conclusion, the emergence of peer group masterminds amongst landlords and SME developers symbolises a step towards resilience and innovation. TableNetwork is not the only place to gain peer support, and many of these platforms not only provide an arena for shared wisdom but also represent a united front in tackling the myriad issues they face. As the housing sector evolves, it is this spirit of unity and collective endeavour that will guide us towards a more balanced and equitable landscape.

A Call for Balance and Equity in UK Housing

The landscape of the UK's housing sector is as varied and dynamic as the homes it encompasses. Yet, it's becoming increasingly clear that the current strategies and policies, though possibly well-intentioned, are failing to bring about the desired equity and balance. Landlords, often vilified, face an unlevel playing field. They are taxed heavily and subjected to a relentless tide of increasing regulations. SME developers, despite their vital contributions to the sector, find themselves overlooked and ignored with their hands tied. Both are left battling against policies that favour larger institutions. 

Yet, amid these challenges, we see glimmers of hope and potential for change. Landlords and SME developers, recognising the power of unity, are able to come together in mastermind groups to create value. They are pooling their wisdom, sharing experiences, and developing collaborative solutions. Those that work this way beat the competition hands down, and what’s more, this collective approach has the potential to shape the sector positively, creating a more balanced and equitable housing market.

However, for this potential to be fully realised, a fundamental shift is required. Policymakers must take heed of these realities, recognising the diverse contributions landlords and SME developers make to the sector. The government's actions must align with its rhetoric, championing policies that are fair, balanced and reflect the realities of the market. Actions, after all, speak louder than words. 

It's crucial to recognise that an equitable housing sector can only be achieved when all players - landlords, developers, tenants, and policymakers - have a seat at the table. And the Table needs to speak plain English, not the rubbish you find in the governments usual request for feedback. The need for an inclusive, fair, and balanced approach to housing in the UK has never been more pressing. This should not be a zero-sum game; rather, a place for all parties to thrive. It's time to re-evaluate, rethink, and reshape the future of housing in the UK. Get involved, get in touch about joining a peer group, and together we can make each other stronger.

Ed Fowkes

July 2023