Can ordinary people own too many homes?
A story on CNN highlights the ever-expanding market for vacation homes:
A small but growing segment of the market is buying multiple vacation properties for their own recreation, short-term rental income and the promise of long-term appreciation.
Though these properties are bought primarily for personal vacation use, they are also a source of rental income:
The [owners] have been able to rent their newer properties about 100 days a year, said Joe, while their older property rents out 150 to 180 days a year thanks to repeat customers and word-of-mouth recommendations.
An owner who rents a vacation second home is one form of amateur landlord. Another is …
the investor who “buys to let.” Rare in the US, dominated by large professional owners such as REITs, “buy-to-let” is a burgeoning business in the
UK that has its
own trade association which nods toward affordability but:
encourages private investors to take the opportunities given by low, highly competitive, interest rates and the reasonable certainty of sustained capital growth over the coming years.
And positively gushes about buy-to-let’s investment potential:
One of the best ways to make a good deal of money over the long term is by buying property and renting it out - Buy To Let. This kind of investment can provide regular income to help you with the mortgage payments on the house, with the added likelihood that the property will increase in value, giving you capital growth.
That works as long as UK home prices keep skyrocketing:
In
Britain, for example, over the past ten years (1992-2002) the total return from both commercial and residential property (including rental income) has been well over 10%, beating the return on equities or gilts. Over the past three years, British house prices have risen by 55%, whereas share prices are 40% down.
Indeed, many young professionals have sought buy-to-let as a pure investment play:
Stewart Williams, 26 [bought an] open-plan one-bedroom flat in Manchester city centre for £135,000 a year and a half ago and flats like it are now selling for £160,000.
He said: “I am not particularly interested in pensions or investments, but I am very interested in the capital growth and also the profit from the rental income in buy-to-let.”
But what goes up can also come down:
But in London, where the buy to let market is close to saturation, Ginty Jackson found that buying a property to rent does not always make financial sense. “Suddenly, from being a landlord’s market it has become a market for tenants in
London.” Ginty, 35, was forced to sell a flat in
London after she struggled to find tenants.
There’s certainly evidence that the
UK buy-to-let market has been hyperventilating:
In recent times, buying a property off-plan - which means before it is actually built - has been seen as an easy way to get into buy-to-let.
Hassle-free modern properties could be purchased off-plan and by the time they were actually built they would already be showing a healthy paper profit as a result of house price inflation.
But this scenario no longer holds true and buying off-plan can, in some cases, prove a costly error.
Whether up or down, buy-to-let appears here to stay:
“These figures clearly demonstrate that the buy-to-let investor has become a stable fixture of the Private Rental Sector.”
This is partly because the private rental sector (PRS) accounts for only 11% of all British tenures. A fraction that small inhibits labor mobility, as compared with the incredibly mobile US population that uses rental for roughly 32% of US tenures — three times as much as Britain — and of this, more than three-quarters is pure market rental.
Though homeownership is a major symbolic part of the American Dream — and has numerous ancillary benefits, including wealth creation — in fact our rates (68% in 2004) are well below most other industrialized nations, and even many fusion countries (Page 44 on the link has a fascinating chart with highly counterintuitive results).
So homeownership is essential — but can a nation have too much homeownership?
Can rental really be essential too?
Or do we need further to distinguish market rental from social rental (what the
US calls ‘public housing’)?
