Why Britain’s buy-to-let boom is over

https://www.economist.com/blogs/economist-explains/2018/01/economist-explains-14

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When yields (生产量) are plummeting below 5%, the new class of homeowners may see its sun setting

Jan 18th 2018by C.W.

THE days of “Downton Abbey” and “Jeeves and Wooster” (《万能管家》) may be over, but in modern Britain a new sort of landed gentry (乡村贵族) has emerged. These days one in 30 adult Britons—and around one in four members of parliament—is a landlord. They have piled into (挤入) the so-called “buy-to-let” (购房出租) market, buying properties and then renting them out to other people. The rental income from buy-to-let properties, which we estimate at £55bn-65bn ($73bn-87bn) a year, is equivalent to some 3% of GDP. Yet the growth of Britain’s buy-to-let market has sharply slowed of late (最近). Evidence from Savills (第一太平戴维斯), a property firm, even suggests that for the first time landlords may be selling up in large numbers. Why is the new landed gentry struggling? 

The business cycle is partly responsible. Britons have invested so heavily in the buy-to-let market in part because loose monetary policy has pushed down returns on savings in their bank accounts. Meanwhile, with Britain’s house prices so high, many parents have bought property in order to hand over something to their children when they grow up, and have rented it out in the meantime. Buy-to-letters, in other words, have increased the demand for properties available for purchase (thus pushing up house prices), while simultaneously increasing the supply of places to rent (thus keeping rents in check [受控制]). So it is no surprise that the yield on such investment has been on a downward trend. It recently fell below 5%, tying its lowest level since records began in 2001. That makes buy-to-let a less attractive proposition. 

Yet the government has also played a role. In 2016 it raised stamp duty (印花税), a tax on homebuyers, by three percentage points for those buying second homes, including buy-to-let properties. It abolished a generous “wear-and-tear” allowance for those letting furnished properties, and in April began tightening the rules on how landlords write off (取消) interest costs (利息成本) against income tax (所得税). These changes are enough to turn healthy annual profits into losses, especially for investors in higher tax brackets and those with large mortgages. London’s house market has been particularly affected by these measures. 

With further tax changes on the way, the future does not look bright for Britain’s modern gentry. Though that may hurt some investors’ incomes, it has its upsides, too. Financial regulators may be relieved; buy-to-let mortgages tend to be riskier than owner-occupied (业主自住的) ones. And Britain’s younger generation, among whom home-ownership rates have fallen sharply in recent years, will hope that fewer buy-to-letters will snap up (抢购) property that they had hoped to buy for themselves. Like the lords and ladies of “Downton Abbey”, the new landed gentry may find their best days are behind them.