The Revival of Private Residential Landlordism in Britain through the Prism of Changing Returns

Unlike many other countries Britain had a weak private rented sector (PRS) for most of the twentieth century. After long term decline for almost a century private landlordism in Britain began a revival from the turn of the millennium. This recovery has still not arguably established a mature sector and this paper examines the steps in its progress by reference to changing returns over time. The platform for this rebirth was the removal of regulation of the sector and the arrival of buy to let (BTL) mortgages that enabled private individuals to invest in property to let, without being penalised by high (previous) interest rates. The number of BTL landlords expanded dramatically in the property boom of the noughties, supported by high debt gearing and a favourable tax position. The downturn in the economy/housing market following the global finance crisis had important consequences for the still fragile BTL sector. The subsequent experience of the sector has seen its growth stabilise and it has seen increased taxation. The financial attractiveness of BTL appears severely diminished and raises questions about the viability of the sector. It also begs the question as to whether if these tax changes were in place from 1996 whether the BTL boom could have happened at all. The paper assesses these questions by a series of financial simulations that examines changing returns through the boom, bust, and recovery from the global financial crisis. In doing so this research technique offers insights into the changing economics of BTL. The research, in particular, considers the role of different levels of gearing through this cycle. It also explores to what extent outright acquisitions would have yielded significantly different returns. It considers the return differentials across eleven regions in Britain and examines the implications of recent tax changes on returns.