We shouldn’t bail out buy-to-let developers

Last year I spent a week in Manchester filming a property programme. The producers put me up in a ‘luxury’ two bedroom flat on the edge of Manchester.

It was absolutely hideous. The flat was tiny – pre buy-to-let, its floor space would have made it more a studio than a two-bedder. It came with tiny furniture – presumably to make its own tininess less obvious – and had no storage space at all. It was a pretty dismal place to be.

But worse than the flat itself was its environment. It was in a block in the middle of lots of other blocks. They were all new or a few years old and they were all weathering badly. They offered no outside space to their prospective owners, and they didn’t compensate for this with anything in the way of community spaces. There were no pedestrian squares, no coffee shops, no shops of any other kind, and no sign of any patches of green. It was a true buy-to-let wasteland. And an empty and lonely one at that.

I remember saying at the time how odd it was that private developers seemed to have learnt so few of the lessons taught by the failure of high-rise council estates: instead, they had repeated them, just with less floor space.

The many bears gathering for the programme I was on agreed that there was no way this lot would find private buyers: in the end, the state would step in and buy them, and yet more unfortunate council tenants would find themselves stuck in horrible houses.

I don’t know if this is yet happening in Manchester, but I see it is soon to begin in Edinburgh. The council has announced that it is to borrow £55m to buy up around 600 uncompleted flats from the hordes of struggling city developers. The idea apparently is twofold: to help out the construction sector and to tackle the lack of affordable housing (there are apparently an average of 130 families after every council house in Edinburgh).

Edinburgh’s property developers will be thrilled: they are mostly in desperate need of an exit strategy of some kind, given their financing problems and the national lack of buyers. Anyone in any doubt need only flick through the property section of the Scotsman where you will see that in their time of need they have even begun to ‘revise’ their prices a little. But I wonder just how thrilled tax-payers should be.

It is absolutely true that there is a shortage of social housing, but is this really the way to solve that? If the flats in question are to be genuinely cheap, and of the sort that families need, then perhaps. But it is hard to imagine this is the case.

600 into £55m suggests a purchase price of around £90,000 each. That doesn’t seem particularly cheap, given the location of most of the flats in question and the fact that the vast majority of them are likely to be exactly the sort of high-rise two-bed flats those 130 families really don’t want to live in.

The full details on this aren’t clear yet, so it could yet turn into a brilliant plan. But so far it doesn’t look that good a deal for anyone except the developers. If I were the council and I seriously thought these flats might make good social housing – and if I cared more about that than I did about bailing out developers – I think I’d wait a bit before buying. The developers can only get more desperate and the prices can only get lower.

  • Edd, Manchester

    There’s tons of these high rise developments here in Manchester, many sitting empty and unsold – and yet still they keep on building!

    Occasionally you get a really nice block put up, where the architectural design is cutting edge and the space really livable.

    Mostly though these are just square boxes with a bit of uninspired timber cladding, perhaps some different colour bricks, a fake balcony, or metal panels to hide the steel framework beneath. Most of the time these flats don’t have adequate parking or adequate storage space for modern living. It’s a massive oversight by the council or whoever signed off the planning.

    One of the worst examples here must be the monstrosity built next to Sainsbury’s on the edge of Salford. It’s the size of an ocean liner but looks like a brick prison. There’s nowhere to go in the evening (Sainsbury’s shuts at 10), no sense of community plus a view of an undeveloped wasteland from your ‘luxury flat’ window.

    cont . . . . .

  • Edd, Manchester

    There’s also a complex called the ‘Green Quarter’, but there’s hardly a park (or tree for that matter) in sight.

    It’s such a crime that these developers hve not been made to create something more unique and timeless – something that would be an asset and a real draw for the city and make it stand out from countless other cities.

    Mark my words, when the paint starts to fade, these are all the slums of the future – particularly if they get bought for social housing since many of the tenants will then just trash the places leaving those young professionals who own their flats to pick up the pieces.

    If I owned one of these flats (which thank god I don’t) then I would be trying to sell up pretty quickly – even if that meant making a big loss on the purchase price.

    . . . . . . oh but wait a minute, who would be silly enough to buy it from me?

  • UnaPlanner

    Looks like Edinburgh is actually proposing to become a BTL landlord as the proposal is to let at ‘mid-market rents’ (which will be higher than Council rents) and sell off after 10 years.

  • Bob Roberts

    MSW – the sad thing is that it will happen sooner or later.

    Printing to bail out the banks will now be replicated. Oh, what joy – the builders will be happy, the BTLers will be happy and local Councils will be happy. You can’t fire people from a cushy Council job if they are over-seeing such a purchase and the Councillors will see votes in getting people into homes.

    The blunt reality is that we now live in a Society where the prudent saver is punished and the feckless borrowers are rewarded. Anyone with savings will now see inflation erode them so you either buy a house, as MSW appears to have done, or you gamble on shares, gold, etc, etc.

    It is the elderly and sick who depend upon savings that I am worried about. The state will suck these people dry through inflation before they get a penny in benefits.

  • MichaelL

    @Bob
    “The blunt reality is that we now live in a Society where the prudent saver is punished and the feckless borrowers are rewarded. Anyone with savings will now see inflation erode them so you either buy a house, as MSW appears to have done, or you gamble on shares, gold, etc, etc.”

    Or simply leave the country. Working about my 3 month notice period – I can’t wait. No more extortionate tax rates.

    Best of all – today I cancelled my TV licence (another government tax) and ordered a Slingbox (te he) that I’ll install in my folks home.

    Every BBC programme I will watch from overseas I will at least chuckle at the cost of making it…

  • Jo B

    Merryn Somerset Webb

    Could you please directly contact the council and suggest a more reasonable price that they could pay?

    If a decent journalist like yourself gets in contact and saves the taxpayer tens of millions upfront and millions in interest rate bills each year there will be more money for vital council services like social care and education.
    There are many blocks of flats in Glasgow that have been knocked down as they have become worthless and expensive to run.

    Builders as well as the council should be made to focused on decent family sized homes that were built from now on. It seems every where they need to build more good homes.

    Maybe your site can begin a campaign to get decent homes built for workers just like they used to.

  • Supermarine Blues

    Jo’s (slightly odd) post has hit on one fact – developers were more or less forced to build such cramped monstrosities, by the previous Politburo and their apparatchiks, the Planning Authorities. Reputable developers would usually prefer to build a more sensible mix of housing, including proper family homes. The resulting glut of flats has helped no-one long term. Of course, the banks attempting to rape the developers has created a fire-sale situation.

    Hopefully the new regime might permit better, with their somewhat bizarre bottom-up planning proposals.

    Again, we have an article which adopts a rather lower-sixth tone, without exploring the causes of the situation.

    Whether the glut of cheap flats policy was a deliberate ploy to create cheap council housing by the previous bunch is moot…

  • Supermarine Blues

    Sorry – that should be thread, not just the article which adopts the lower-sixth tone!

  • Dylan

    Better taxpayer value would be achieved by letting the developers go bust and buying up the stock at auction.

  • Supermarine Blues

    True Dylan; that would be the free market at work.

    Unpopular here and unpopular with the Gov’t, since it will tend to unnerve the market generally.

    Remember what happened last time? The building societies committted mass insurance fraud by getting the mortgagee to buy a policy to pay out the mortgagor upon default and the insurer pursued the mortagee who’d paid for the damn’ thing.

    The result was a glut of repos, bankruptcies et al. The Gov’t has virtually banned repos this time, in order to try to achieve a ‘controlled collapse’, one must presume.

    There is one other oddity; private flats do (or at least did) not have to comply to the same minimum room size standards as council ones – could swerving this rule have been part of the motivation behind the original market-flooding policy?

  • Kerome

    It makes me wonder, have we learnt nothing from the 60’s? Huge tower blocks of small flats in out-of-the-way places are social poison, they house lots of people with nowhere to go and nothing to do, which just drains the energy and initiative out of those who live there. If the planning authorities were driving that, they have seriously failed in their duty.

    @ Dylan: agreed. And I’m sure the same developers would rise again in rebadged firms in no time at all, so we’re not even talking about an appreciable loss of employers.

  • Matt

    Well said Kerome. Alas we have history repeating itself once again.

  • Jeanette

    I am one of those people living on my savings since my husband finally retired at 67 and asked me being younger to take early retirement before I get my state pension. So we are living off his pension of less than £7,000 a year and my personal pension of £3,000. We sold our UK house and invested the money to live on and moved abroad into an apartment we owned. We have done really well even though we are paying tax in our new country and tax in the UK because of our investments and pensions. I love my country and really miss it, at the moment I cannot afford to live in the UK because the cost of living is so expensive. Why can’t our government realise people like us would like to live in a place in the UK if only they would think!!!

  • Elvis Presley

    The only people who can pay for this mess are those who have savings and have run their finances well over the years. The BoE is going to engineer it so that the debtors are saved by the savers, however unfair that may seem. Prepare to be taken to the cleaners.

Merryn

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