While investors & the government may finally be realising buy-to-let’s limitations, for a generation of tenants its drawbacks have been evident for years.
Buy-to-let is dead, done, finished.
First came the end of mortgage tax relief. Then came the rise in stamp duty for buy-to-let investments and second homes. In 2016, many investors finally conceded that the investment class that’s been a favourite for 20 years is finally reaching the end of its life cycle.
But the truth is that investors and the UK government came to this conclusion long after it had dawned on the people that matter most – tenants.
Lifestyles have evolved. Tenants have a new mind-set when it comes to ownership and subscription; a mind-set which has naturally transcended into the property market.
And buy-to-let has failed to keep up.
The problem is two-fold:
1. Generation Y rents because it wants to
As outlined in the previous post in this series, lifestyles have evolved. Generation Y are getting married much later in life than their parents, having children further down the line and are significantly more mobile when it comes to work than previous generations ever were.
But there’s more. As a society, we’re becoming less obsessed with ownership and are instead prioritising having amazing experiences over owning the latest material goods.
To understand this clearly, simply take a look at the recently published 2016 CoolBrands List. It compiles the most desirable brands among consumers today, and this year it didn’t make for good reading for luxury high-end fashion labels. For example, Ray-Ban fell 18 places over 2015’s rankings, while Chanel fell nine places in just 12 months.
Instead the top places were littered with brands such as Netflix, Spotify and even legendary music festival Glastonbury.
Experience-led brands that make living easy. Generation Y no longer buys music, it ‘Spotify’s’ it. Netflix fees are about to overtake Hollywood Box Office figures for the first time. Young Britons are even paying to use BMWs and Minis on a ‘per-minute basis’ rather than owning one themselves.
Ownership has been replaced with subscriptions and service. It fits best with ever more transient lifestyles and the demand for a great experience.
For many young people in Britain, they will always share the same ideology as their parents and view owning property as the number one life-goal, an investment in the future. But for many others, they’re now viewing their property as something which enables them to pursue the things that are important to them. As long as they pay for a service that gives them everything they need and require, the don’t care that they’ll never own it.
This is why more are actively choosing to rent their homes. And this is exactly why buy-to-let, the preeminent rental product, no longer works.
2. Buy-to-let was a stop-gap for a previous generation
It’s important to remember that most traditional buy-to-let homes started out in life as owner-occupier homes, before they started to be moved into the private rented sector by landlords in the mid-1990s onwards.
Their design and locations were never intended for tenants. But to begin with, this was ok. 20 years ago tenants were of a previous generation. The vast majority still harboured traditional values, namely that homeownership was the true symbol of success, a top priority. They rented to fill the gap en-route to homeownership. So for them, while living in residential streets of mixed demographics and in homes of antiquated design was never necessarily ideal, they were qualities that were easier to live with when renting was just a short-term solution.
But these tenants have since moved out. In their places has come Generation Y, and buy-to-let homes have been unable to evolve sufficiently.
They’re still in secondary locations and dated in design – and the people that now live in them aren’t prepared to make-do when renting has become their primary accommodation choice.
Just as Netflix provides a seamless service that makes living easy, can a buy-to-let home managed by an amateur landlord often based off-site provide a similarly painless service? Can a buy-to-let home promise an amazing experience when tenants live on the outskirts of town, surrounded by older owner-occupier neighbours?
Generation Y will happily pay a premium for city centre locations, modern design and exclusive amenities such as on-site gyms. They’ll actively seek out a management service delivered by the leading people pleasers in the industry if they can guarantee the best quality, highest standards of service and the best living experience.
They’re aware that they cannot rely on buy-to-let to provide this and, by introducing higher rates of stamp duty and ending mortgage tax relief, so is the government.
Buy-to-let has been failing an entire generation of tenants. The market has changed very little in 20 years, but the people that actually use it have changed significantly.
Generation Y are actively choosing rental accommodation. But just as their music and film providers have revolutionised their respective industries, todays tenants are now looking for a product to revolutionise the property market, too.
In the next in the series, we’ll look at why build-to-rent property is the future of rented living in the UK.