It is hard to escape the endless speculation about the future of buy to let, whether it is the government’s consultation on higher stamp duty, the Bank of England’s deliberations on extending its macroprudential armoury area, or its attempts to assess viability against the possibility of rising interest rates some time in the future.
It is not just real estate developments that will have a bearing on how this plays out. In the light of recent volatility in financial markets, the relative attractions of different asset classes will never be far from the thinking of most investors.
But a recent YouGov survey found that around two-thirds of landlords suggested that they would not take any action in response to the rise in stamp duty land tax that will come into force on 1 April .
However, the RICS Residential Market Survey paints a more nuanced picture of the rise’s impact on the market.
There appears to be near-term momentum for investors to beat the April tax uplift. Some three-quarters of our respondents foresaw an increase in purchase activity prior to this point. This is also being reflected in a firm trend in sales expectations.
But the picture appears more mixed when we asked members how they envisage the buy-to-let market developing over subsequent years. Pretty much half took the view that the more penal environment will lead to an exit of landlords, or at least a scaling back in portfolio size.
Meanwhile, an equal proportion are far from convinced about such an outcome, with an unusually large number saying they “don’t know”.
How is this likely to play out with respect to the medium-term trend in rents? Put another way, will landlords simply try to pass as much of the additional tax burden as possible on to tenants?
As part of our survey, we attempted to track how five-year rent expectations are shifting. The projections for this time horizon are, believe it or not, consistent with rents rising by more than a fifth from current levels.
Less additional (buy-to-let) supply into the sector as a result of government policy may be one part of the story, alongside a potential uplift in demand resulting from the squeeze in the submarket rent tenure.
Could institutional investment bridge the gap? Recent announcements from the likes of L&G and Grainger provide some encouragement – but we have been here before. The market, for the time being, continues to be dominated by the individual rather than the institution, and it will take many more similar sized announcements to change this materially.
Simon Rubinsohn is chief economist at the Royal Institution of Chartered Surveyors
