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

Developers of buy-to-let flats have repeated the mistakes of sixties town planners. And now nobody wants to buy their poky flats. But the answer isn't for public authorities to buy them up for social housing.

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 theirprospective 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.

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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 thatit is to borrow £55mto 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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.