Landlords are Parasites (Apparently)

Good evening from your resident social parasite. Apparently as a landlord that’s what I am now, according to Rhik Samadder over at the Guardian. I don’t really like to provide a link to what is at best click-bait, but just so you can see what I’m talking about, here you go:

https://www.theguardian.com/commentisfree/2018/apr/16/landlords-social-parasites-last-people-should-be-honouring-buy-to-let

Rhik Samadder, let’s not forget, is the guy who co-presented a Channel 4 documentary about people looking to retire by the age of 40. He badly missed the point on that show and the documentary suffered because of him. It’s a shame really, because he probably put off a lot of people from saving and investing through his lame attempts at humour.

Anyway for some reason he decided to bring out his inner Katie Hopkins for this article, spewing the most disgusting bile I’ve read in a while. He can say what he wants I guess, but I expect better of the editors at the Guardian who let this one through.

Still, judging by the comments on the Guardian article, not even the left-leaning Guardian readers are backing him up on this one. The most recommended comment underneath the article was fairly to the point:

I’m going to call this article out for what it is: a hate piece. Rhik Samadder labels all landlords as rogues. He says they are all going straight to hell. They are social parasites. Vampires. Feudal incubi (I had to look that one up). He even makes a comparison to Stalin, which is ironic really, though I wouldn’t expect him to understand.

The Kulaks

In Russia, after the Russian Revolution of 1917, a class of peasants who had acquired some extra land and/or lifestock were branded as ‘Kulaks’. In August 1918, Lenin issued this order:

“Hang (hang without fail, so the people see) no fewer than one hundred known kulaks, rich men, bloodsuckers. […] Do it in such a way that for hundreds of versts [kilometers] around the people will see, tremble, know, shout: they are strangling and will strangle to death the bloodsucker kulaks.”

The problem is, the distinction between your average peasant and your Kulak peasant wasn’t always easy to define. This is from Wikipedia:

“Both peasants and Soviet officials were often uncertain as to what constituted a kulak. They often used the term to label anyone who had more property than was considered “normal”, according to subjective criteria, and personal rivalries played a part in the classification of enemies.”

You can just imagine some enterprising young Russian at the turn of the century, maybe he’s worked hard and saved his rubles while his mates are out drinking vodka at the weekends. Maybe he wants to build a better life for the future, for his wife and kids. So he saves and he invests in some extra livestock, which in turn brings in more income, and so perhaps he has enough money to buy a little extra land. Over time he starts to become a bit richer, comparatively speaking, a bit wealthier than what is considered ‘normal’.

And then, 10 years later, he is brutally murdered by Lenin’s cronies. Hanged, strangled to death to teach a lesson to anyone else foolish enough to try and build a better life for themselves.

It is estimated that 700,000 people were killed in the Kulak purge. The persecution of Kulaks continued until 1929 when Stalin decided something must be done once and for all. He said:

“Now we have the opportunity to carry out a resolute offensive against the kulaks, break their resistance, eliminate them as a class and replace their production with the production of kolkhozes and sovkhozes”

Basically, Stalin wanted to collectivize all the land and the product of that land. And with a struggling economy it helps to be able to point at a particular group of people and say it’s all their fault.

Cam you guess what happened? There was a great famine. In 1932-33 it is estimated between 6 to 8 million people starved to death. Now, I’m no right-wing capitalist fan boy, but I recognize that Communism is A Bad Thing. An economy needs a mix of publicly run sectors and regulated privately run sectors if it’s to work. There must be incentives for there to be growth, and nothing provides incentives more than a well-oiled capitalist machine.

Mass murder and persecution is all very extreme of course. But how does it happen? How do people get to the point where they’re willing to single out and murder their fellow citizens? Well, it begins with hate piece articles like Rhik Samadder’s. He may have written it half-seriously, half-jokingly, but it will be picked up by people who are more impressionable, perhaps those who have a grudge to bear. Others will run with it, and before you know it there will be a movement denouncing all landlords as morally reprehensible scum. In the current landscape with social media playing such a large role it doesn’t take much.

The most vile, most despicable moment of the Brexit referendum for me came with Nigel Farage’s victory speech in which he claimed the Leave campaign had won ‘without a shot being fired’.

RIP Jo Cox 1974-2016

Am I overreacting?

I don’t know, maybe. It’s just an article in a paper from someone most people recognise as a bit of a douche. And there are far worse articles out there. I think it’s an article in pretty poor taste, and I do wonder what Rhik Samadder really thinks is the alternative. But he’s just one man. Even though a lot of people are unhappy about high property prices and it’s now estimated only a third of young people will ever own a house, I don’t see a big movement against landlords in particular.

The Conservative governments of late have seen the shifting sentiments of the general population and decided to act. The Osborne government made significant tax changes to buy-to-let properties making them far less profitable (especially for high income earners), and he has tilted the balance in favour of first-time buyers by slapping a 3% stamp duty on the purchase of rental properties (and second homes I should add). And the most recent budget from Phillip Hammond removed stamp duty altogether for first time buyers.

None of these bandages fix the underlying problem of rampant house price inflation though. The obvious solution of course is to build more houses, but of course it’s not that simple. Land isn’t always freely available where you’d want it to be. The big house building companies don’t want to build houses if they’re not going to make a profit on them. Which would suggest that the government should somehow subsidise the building of houses but that requires taxpayer money. Taxpayer money that is sorely lacking.

Personally I’d like to see the government encourage businesses away from London, and perhaps also away from the major cities. If major companies set up their headquarters in some of the towns around the country, which are well served by lesser-known airports I might add, then that would relieve some of the pressure on housing in London. Perhaps the government could invest in infrastructure between towns, as opposed to the money sinkhole vanity project that is HS2 (I still don’t get how being able to travel between London and Birmingham a bit quicker is going to be such a boost to the economy).

I’d also like to see a more progressive form of council tax. It can’t be right that a resident of a £200k house pays almost as much council tax as a resident of a £20m house. (And, you know, tax wealth not income, but that’s a subject for another day.)

I also think there should be a massive hike in stamp duty on house purchases from foreign investors, say 15% plus, much like what is being trialed by Vancouver and other cities. It seems unfair to me that rich investors from China and Russia and Qatar can buy up all the new build flats in London with cash before local residents even get a look in.

It’s all them immigrants fault innit mate!

Some of course suggest the problem is immigration. Seems intuitive enough, if there weren’t so many people then there would be less demand for housing and so lower prices. But upon further examination this argument doesn’t hold up in my view. Here are a few counter arguments off the top of my head:

• Immigrants are net contributors, meaning they pay more in tax than they receive in benefits/services (healthcare, education, etc). (In theory the government could use this extra tax to subsidise new house building.)
• In general immigrants work harder than British people and often will do jobs that British people don’t want to do (see fruit pickers).
• Immigrants create extra demand in an economy by consuming goods and services, which in turn boosts growth, creating more jobs.
• Immigrants fill in gaps in the labour market – we have shortages in this country in many areas, doctors, nurses, electricians, plumbers and so on.
• Immigrants do eventually integrate and make a society more vibrant – see the variety of food we can now buy for example. We benefit from new ideas and approaches.
• Immigration is no way near as high as people think it is – when asked, people think that EU immigrants make up 15% of the population, the actual figure is 5%.

 

Are Buy-to-Let mortgages part of the problem?

I ask this question as someone who owns a buy-to-let mortgaged property (currently at about 40% LTV), in addition to the property I live in. It is a question that has given me pause for thought in my pursuit of more wealth and has made me consider prioritising index trackers over housing. And that is perhaps what I will do long term but in the short term I am still thinking of buying one more property.

It does seem undeniable that buy-to-let has played a part in the increase in house prices we’ve seen. There was a huge increase in buy-to-let ownership in the nineties and noughties – the Blair/Brown government did nothing to discourage it.

I think a lot of people are scared or ignorant of the stock market, it’s just numbers shooting up and down and bubbles and crashes and so on. But everyone understands houses. You buy it, you do it up maybe, you rent it out, you sell it on, you make money. To your average man on the street the housing market is a much more relatable and easily understood investment class than stocks and shares.

And perhaps that and property investment generally has fed into increased house prices. Even so, this argument that buy-to-let is the cause of all our housing woes is overstated I think. Here’s a graph showing the trend in occupation types over the last century:

After WWII there was a massive drive to build new houses and subsequently the percentage of owner occupiers increased and the notion of Britain as a nation of home owners was born. In the last decade or so this trend has reversed somewhat but it’s still a long way from where it was. The main reason house prices have increased the way they have is because not enough have been built:

Another significant reason house prices have continued to increase (on average) especially since the Credit Crunch is down to the low interest rates set by the Bank of England and therefore the relative inexpensiveness of mortgages – buy-to-let and residential. (Plus mortgage competition between banks is also a big factor in making mortgages cheaper.)

If people can afford a bigger mortgage because the monthly payment is lower, then they’ll look for a more expensive house, and house prices will edge up as a result. It will be interesting to see what happens if interest rates do ever go back up to where they were.

And of course there’s the increase in foreign buyers in the UK property market, in London especially:

In any case, as mentioned above, the government has recently taken steps to take the spring out of the buy-to-let property market and hopefully let that bubble (if it is a bubble) slowly deflate. It’ll be interesting to see how the buy-to-let market changes – I suspect we’ll see more limited companies setting up to buy them which will avoid the income tax hike. There has already been a reduction in buy-to-let purchases since the tax changes took effect in April 2016:

The thing is, despite the recent tax changes, if you are astute with the property you purchase then the potential gains are just too good to pass up (in my opinion). It’s a risk, sure, the value of my rental property could go down and wipe out a massive chunk of my equity. But I am currently seeing big gains annually, much more than your average index tracker. I’m no financial advisor and I’m not recommending anyone else get into this game, all I’m saying is it has worked for me so far.

You might argue that it is a big risk allowing all this speculation. You can’t take out a mortgage to buy shares in companies after all, and taking out a mortgage to buy a buy-to-let property is potentially a huge risk that could cause big problems for the economy if it was all to head south.

While the subject of risk is interesting I don’t see it as being that relevant to the problem of house price inflation. Buy-to-let investors are taking a risk but they are taking the brunt of that risk on themselves. I suppose if there were to be a house price crash and many buy-to-let investors became bankrupt then the banks would be in trouble and the government would probably have to step in. But that seems unlikely at the present time.

Should we limit or even get rid of landlords altogether?

One of my friends says people shouldn’t be able to own more than two properties. A somewhat extreme view, though perhaps not that extreme. There is something quite objectionable about a couple like the Wilson‘s who’ve acquired hundreds of properties (and don’t rent to ‘coloured’ people but that’s another issue). My friend acknowledges that there needs to be some form of rental market however. After all, where would people live if they couldn’t afford a house, or just wanted somewhere to live temporarily?

Perhaps the government could supply housing until people are ready to buy a place? Well, it’s possible, but then you get into the whole public vs private argument. Generally speaking a well regulated and competitive private market should do a better job of providing housing then the government (though perhaps that is my inner-capitalist talking).

Given the government’s not likely to step in anytime soon then there is a need for a private rental market. Better regulated, sure, but private nonetheless. If you want to help people get onto the housing ladder sooner, then reining house prices in is surely the answer – see my suggestions above.

Some say that housing is a basic necessity of human existence, and therefore shouldn’t be in the private domain. To which I say, sure, but by that logic food and clothing shouldn’t be in the private domain either. Are you really saying all food and clothes should be produced by the government? The reason food and clothing are cheap is because there is so much competitiveness in those industries and the supply is relatively abundant. Increase the supply of houses and you’ll solve that particular problem. And look, at the end of the day people can get housing benefit if they need it – I have done myself in the past.

There should be more done to protect the vulnerable in society. And I’ve no doubt there are many unscrupulous landlords out there treating their tenants badly or not paying the tax they’re supposed to. But the idea that all landlords are rogues is just unhelpful in the extreme. If you try and deter all the good people from becoming landlords then you might get slightly lower house prices but you’ll also find that the landlords who fill the gap are the ones we’d rather weren’t landlords. What are you going to do differently Rhik Samadder? You want to get rid of all landlords? Good luck with that and the ensuing homelessness problem that would result.

Conclusion

You may have spotted that I didn’t really come to a conclusion regarding buy-to-let. Is it right or wrong to invest in a sector so heavily in demand, so important to everyone’s livelihoods? Is it acceptable to borrow against a good like that, to directly compete with our young people trying to get a foot in the door?

I’m still considering that issue but currently I don’t think I’m doing anything wrong really. In my rental property I have five professionals who I get on well with. I sort out all the bills. Their rents are £350-£375 a month and I’m pretty sure they’re all earning at least 4 times that which means they can save towards buying a house of their own. Indeed, I’ve had three tenants move out in the last 5 years to buy themselves a house. They all have big rooms. There is a sociable lounge/kitchen diner set up, and two bathrooms, and cleaners that come in fortnightly. There is a washer, a dryer, and a dishwasher. There are fire/smoke detectors in every room, call points, and emergency lighting, and all the appliances get checked regularly.

I’m not trying to make out like I’m some kind of saint, obviously I’m in it for the money and it does give a good return. And a lot of these services I’m legally required to provide and rightly so. But don’t paint me as some kind of demon, or parasite, or ‘feudal incubi’ (whatever that is). I am not any of those things.

What are your thoughts on the rental market? I’d be interested to hear them.

Thanks for reading,

Wephway