Abstract
The role of Buy-to-Let (BTL) in the contemporary UK housing market is disputed. Promoters see it stimulating private rental and promoting the consumption of riskier sites for regeneration activity. Detractors cite damage to communities where BTL stock remains empty, bringing environmental decline, or inflating prices and excluding First Time Buyers from ownership. But these may not be the most significant effects. The investment market in housing, including BTL, has skewed new supply to its own needs. This paper uses nationally available statistics to identify the extent of BTL activity and to propose that the impact of this is to disconnect the current UK housing market from household consumption, a connection that is assumed in many discussions and models informing policy. The main indicators of this are the volume of BTL lending and investment activity, the cost of housing in relation to household income, and the consequently changed nature of new housing supply.
Highlights
On 11 May 2006 Mervyn King, Governor of the Bank of England, said: House prices are high relative to the measures that help to put them into context average earnings and incomes
This paper presents evidence from nationally available data sources that illustrates this disconnection of prices from incomes and demonstrates that evidence of this has been available for some time despite contrary claims from supporters of the investment market in residential property (Ball 2006, Bradford and Bingley 2007)
In his report undertaken for the Association of Residential Letting Agents (ARLA) and others, Michael Ball (2006) maintains that while BTL is a phenomenon that has helped to stimulate the private rental sector (PRS) into renewed life, it has not had a major impact on the house sales market overall
Summary
On 11 May 2006 Mervyn King, Governor of the Bank of England, said: House prices are high relative to the measures that help to put them into context average earnings and incomes. By some measures they are remarkably high. This paper presents evidence from nationally available data sources that illustrates this disconnection of prices from incomes and demonstrates that evidence of this has been available for some time despite contrary claims from supporters of the investment market in residential property (Ball 2006, Bradford and Bingley 2007). Evidence will be presented on the impact of this investment activity on new housing supply
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