In the spirit of community fostered by the Queen's Jubilee, I'm handing the microphone over to readers this week. Many of you have written to me to express your views, or to share a personal story. I always enjoy hearing your experiences, so please do keep them coming.
The "confiscatory socialism" of mansion taxes
A couple of subjects particularly galvanised readers. One was property tax reform. My post-Budget suggestion that capital gains on primary homes should be taxed proved particularly controversial (Bring on the mansion tax, 27 Mar 2012).
"Where would the cash come from to pay a mansion tax? The house you live in does not normally generate income; instead it consumes cash. When Swedish pensioners complained to their socialist government that they had no cash with which to pay their high property taxes they were told to go to the bank and take out a mortgage. Probably a good idea for the banks - but not for the socialists, who lost the next election and the property taxes were abolished."
- Lars Evander
"Those of us near retirement have spent our lives building equity in our homes using (often highly taxed) earned income, encouraged by many governments. Once retired, we will become asset rich and cash poor(er). Taxing us on our illiquid wealth, having previously adopted another approach of taxing our earned income, would be very unfair."
- Nigel Fordham
"I much enjoyed your article. It's amazing that the issue of capital gains tax (CGT) on primary residences never seems to make it into the press. Closing this loophole and charging CGT on all property transactions would certainly put an end to flipping of homes, and once established would be seen to be fair. Possibly it would also have helped to prevent the housing crisis by stopping aspirational moving and the constant spiralling of property prices above RPI."
- Andrew Bishop
They don't make 'em like they used to
Another subject that generated much interest was housebuilding, following my columns on why institutional investors don't own residential portfolios (Why there’s no housing in the City, 7 Mar 2012) and why landlords avoid newbuilds (Buy to let can’t solve the housing crisis, 16 May 2012).
"I once did a feasibility study for a German housebuilder that wanted to break into the UK housing market. On the face of it there was great scope: the German builder used modern methods, preparing the service infrastructure on a site, then digging cellars and constructing four-storey houses from prefabricated concrete walls and floors, with all the necessary wiring and piping pre-installed.
Even manufacturing in Germany, shipping over by lorry and using German labour they had a viable price advantage over UK housing developers with their 'artisanal' (on a good day) labour practices and 'traditional' (old-fashioned) designs. And the quality was awesome - forget hearing your kids' music or your guests flushing the loo.
Sadly it never happened. German reunification and then the war in Bosnia provided easier opportunities for profit. But a 'German revolution' might be just the thing for an institution in this country wanting to create a buy-to-let portfolio. There are too many vested interests in UK housing. No one wants to innovate - they just keep playing the land speculation game with the planners."
- Andrew Phillips
"Most new builds are built in minuscule plots. The rooms are too small, the walls are plaster board and they are powered by ridiculous combination boilers that constantly go wrong. If you buy an Edwardian house, whatever state it is in, they are built to last. I have bought seven since the 1990s and sold three at a handsome profit. Gut them and you have a really good house - my tenants never leave. Until the government stops listening to the bleating of the construction industry and insists on a minimum room size and sound construction, no one in their right mind would buy one. We private landlords are not mugs."
- Hugh Cutler
Is a 6 per cent yield good enough?
I also asked readers what they thought an acceptable buy-to-let yield was. Simon Wilson from Teddington shared his thoughts, which may strike a chord with many private investors in the south-east.
"I find this a bit of a conundrum. I was a buy-to-let investor in the 1990s, but sold out in the early 2000s and have been considering re-entry for the past decade.
The issue is even more difficult today because we do not have any 'risk-free' interest-rate benchmark. Government bonds are being kept artificially low, yielding negative real rates, and there's the prospect of future inflation (and potential interest rate hikes) to consider.
I have looked to the corporate bond market, where reasonably risked yields are available around the 6 per cent mark, which is also roughly the dividend yield paying out on some property companies. But using this benchmark has not permitted me to re-enter buy-to-let, since it is far less risky and less costly, in my view, to sit at home and buy a corporate bond than go to the trouble of investing in property.
So the message the market gives me is that buy-to-let must be viable at better than 6 per cent – and indeed that was the case for my property back in the 1980s and 1990s, which yielded around 7 per cent. Yields in my local area are at the 3-3.8 per cent level at best - a return I cannot justify in 'opportunity' investment terms unless I am reasonably sure to obtain a capital gain. But should a buy-to-let investor expect a capital gain in the current climate?"