There is a popular story going around that rental growth has slowed because of rising numbers of “accidental landlords”. These are people who brought a new house to move into – but haven’t been able to sell the old house, and so have become landlords.
Now, given that we are supposedly in a position of housing “under-supply” this argument holds little water with me.
Think of it this way – say the housing stock is fixed (which it pretty much is at the moment). When someone buys a new house they are buying a house, cool. Now the other house would normally be sold – but it isn’t it is rented. As a result, we know that the “supply” of rented houses goes up – that seems to be the argument for the rent story.
However, the housing stock is fixed – implying that there is now one less “owned home” out there. As a result, there should be another household looking to rent, increasing demand for rental property, as testified by Emerald Property Management Company.
Given this I can’t see how more people becoming landlords with a fixed housing stock actually influences the level of rents. Off the top of my head four theories of what is going on are:
- Accidental landlords are less interested in maximising profit – and so put downward pressure on the rental price,
- Lower interest rates have lowered the cost to property owners. As property owners follow a “markup” rule of thumb this has reduced the rents they charge,
- Rents are set on house prices (rule of thumb) which are falling,
- The value of keeping a tenant during a recession is higher – leading to lower rents being charged.
Only the first theory supports the “accidental landlord” argument – and I find it one of the least convincing …
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