Posted by: Adam Roake | May 5, 2009

PRIVATE RENTAL SECTOR INITIATIVE

The HCA are getting serious about the private rental sector with this new initiative and looking through the invitation for expressions of interest, the proposal seems laudable. But I am still at loss (see below) to see how, when capital growth in the residential property market comes back, the institutional landlords will not simply cash in thereby destroying the dream of a strong institutionally based rental sector.

Or has the credit crunch not just put the brakes on rising house prices in the short term but also somehow put an end to the long term trend increases. After the 1990 property crash, prices were about 15% below the trend line and made that up in about three years with double digit average annual inflation. Of course how you draw the trend line makes a difference and demographic trends over the next few will also have an impact. But if we really do need three million new homes by 2016 to meet demand, which seems increasingly unlikely to happen, then we will have an even worse supply/demand equation and presumably the right market conditions for high house price inflation. Add into this the capital gains tax benefits in home ownership, plus the relatively sophisticated and probably quite cheap mortgage market (when banks etc finally decide they need to make a profit) and the customer base looks tenuous as well.

There will need to be some clever financial engineering to make the modest rental return seem more attractive than cashing in the capital growth which will happen in the medium term.

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