Assetz® News - FTBs pushed out by housing shortage not buy-to-let

FTBs pushed out by housing shortage not buy-to-let

7th February 2007 |

The UK's shortage of affordable housing is to blame for first-time buyers' troubles rather than the growth of the buy-to-let sector, claimed an industry expert at the Association of Residential Letting Agents' annual conference today.

Professor Michael Ball of Reading University Business School said that the only way to counter the trend of rising prices was to tackle supply rather than seek to curb the booming buy-to-let sector.

"[The answer] is to build more houses that people actually want to live in and in places where they want to live," he told delegates.

Early last month, Halifax reported that first-time buyers had reached their lowest levels for 26 years with only 315,000 making the all important leap onto the first rung of the property ladder in 2006.

The main reason for this is affordability: the average price paid for a home by first-time buyers almost doubled in the last five years from £77,914 in 2001 to £151,565 in 2006.

In addition, deposits have grown even faster than property prices, rising by 112 per cent since 2001 from £13,249 to £28,130.

Some commentators in the housing market have claimed that the growth of buy-to-let and the worsening of first-time buyers' affordability problems are directly correlated.

The argument is that both sectors are frequently in competition with each other for houses at the lower end of the housing market and, with the usually higher disposable income and incentive to take investment risks, buy-to-letters are often able to out-bid their novice rivals.

When this happens on a nationwide scale, some accuse landlords of dominating the market, but Professor Ball argued that tenants have also seen the benefits of the rental sector expanding.

"[Renting] enables households to build up their own equity and, although tenants do not share in capital gains directly, they do so through lower rents and lower risk," he said.

"They can do this while living in good standard accommodation, as competition in the rental market is now greater. This appeals to young, mobile people in employment - overwhelmingly these are the client base of the buy-to-let landlord."

He added that renting often shelters households from the full impact of house prices as letting is often a cheaper option in terms of monthly outgoings.

Over the last ten years, buy-to-let has undergone upheavals of cataclysmic proportions. From meagre beginnings in the 1990s, the system now accounts for the housing of five to six per cent of all households and contributes over £30 billion to the UK economy each year.

Annual growth of between 20,000 and 30,000 properties joining the sector are forecast for the next decade.