What is the Extent of Buy to Leave Empty in England? - University of Reading
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CLG Housing Markets and Planning Expert Panel
What is the Extent of Buy to Leave Empty
in England?
A Report to CLG v2.0
By
Chris Cobbold
Director of Residential Research
DTZ
Greyfriars Gate
5 Greyfriars Road
Reading
Berkshire
RG1 1NU
Tel: 0118 967 2025
Fax: 0118 9503759
Email: chris.cobbold@dtz.comSummary
This report examines the phenomenon of Buy to Leave Empty, a phrase coined to describe cases
where investors buy residential property and these are deliberately left empty rather than being let
to tenants.
The indications are that Buy to Leave Empty is a genuine issue, but not on the scale that some
have suggested in the recent past. The evidence, based on discussions with key informants,
suggests that:
• it is a feature of city centre markets, but not of other inner city or suburban markets, though
some Housing Market Renewal areas report similar speculative buying
• it is associated with large investors (those buying multiple properties at the same time not
small investors (those owning less than 5 properties;
• it is typically associated with those bulk buying off plan in large flatted developments, with
possibly significant representation of overseas investors
• it is particularly associated with the large northern cities – Leeds, Manchester, Liverpool,
Sheffield, with some evidence in Bristol and in the past in Newcastle/Gateshead; but not in
London, or Edinburgh and Glasgow.
Quantitative evidence is scant, but work in Leeds suggests that the maximum number of properties
that one might be talking about is around 475 city centre flats. To put this in context the number of
completions of new dwellings in Leeds in 2005-06 was approaching 3,800 in the last year. The
overall dwelling stock of the City of Leeds is greater than 322,000 homes. Buy to Leave Empty is
therefore very unlikely to be having a significant effect on the housing market even locally, let alone
nationally.
The most likely explanation for the Buy to Leave Empty phenomenon is that investors hold property
empty in order to maximise their return on capital growth. There are a number of reasons why
keeping the property empty rather than letting it helps to maximise capital return or de-risks the
investment. Such investors are likely to sell in the short to medium term to other investors or
owners, so the phenomenon may be short lived, though this depends on expectations of future
capital growth.
Leaving property empty may also reflect rational economic behaviour in a markets which are
cooling and take up rates are declining. It will not be easy to distinguish in a changing market
environment between properties being held empty for capital gain, and properties that are not
actively marketed because of a shortage of ‘good’ tenants. In situations of excess supply there is
likely to be downward inflexibility in rents since landlords will not wish to cannibalise their existing
rental returns.
On balance the issue of Buy to Leave Empty is not deemed to present a major policy issue, being
confined to particular local markets, and even in those local markets not being hugely significant in
the context of the overall market. In terms of limiting supply to those seeking a home, which would
be their principal residence, it is probably less significant nationally than the proportion of flatted
dwellings being bought for second homes or corporate uses, given the significance of such
purchases in London and other city centre locations.
The report recommends the following actions:
• encouraging local authorities to monitor the issue: this can be supported by preparation of
a best practice note on how to use Council Tax records to monitor the occupational
characteristics of new properties
• primary research could be commissioned to identify Buy to Leave Empty investors in
specific case study areas and follow up research to understand their investment strategies
and associated behaviour, though it is debatable if such research would yield significant
new insights that would lead to clear proposals for intervention
• to give consideration to publishing this report so as to inform the debate on Buy to Leave
Empty, and to elicit further information from particularly investors and their advisors.
1About this Report
1. This report examines the phenomenon of Buy to Leave Empty, a phrase coined to
describe cases where investors buy residential property and these are deliberately
left empty rather than being let to tenants.
2. The key questions considered in this short report are:
• What evidence is there of a problem? That is, how many properties and in
what sort of locations/developments are properties being kept empty on
purpose?
• Why would investors decide to forgo the income associated with renting?
The report identifies a number of possible answers.
• Is this a significant issue? This depends in part on the scale of the problem,
and also its expected duration.
• What action could be taken to address the issue and what action should
be taken?
3. The report has been prepared by Chris Cobbold, Director of Residential Research at
DTZ, and a member of the Housing Markets and Planning Expert Panel established
by the Department of Communities and Local Government (CLG).
4. The work undertaken has entailed consultations primarily with DTZ personnel active
in the residential markets around the UK and a number of external consultees. A list
of those consulted is contained in Appendix 1. There is no substantial research into
this issue, but a review has been undertaken of a range of related literature, listed at
Appendix 2.
What evidence is there of a problem?
5. Discussions with DTZ Residential personnel and others across the UK suggest that
the phenomenon of Buy to Leave Empty exists, but that it is confined to certain
locations and types of property. Thus:
• Discussions with DTZ Residential staff indicate that the phenomenon appears
to exist in the city centres of Leeds, Manchester, Liverpool and to a lesser
extent in Bristol and Sheffield. It is reported to have been evident in Newcastle-
Gateshead city centre, but is no longer thought to be significant since there are
now limited immediate prospects for significant capital appreciation.
• The indications are that this form of behaviour is particularly associated with the
development of new city centre apartments, and with larger developments
rather than smaller developments. It is not apparently a feature of out of centre
developments, or purchases by investors of existing housing except in HMR
Pathfinder areas (see below).
• While there is emerging evidence, and research is being commissioned in a
number of northern cities into the issue, it does not seem to be a phenomenon
of all cities. Discussions with DTZ Residential teams covering Edinburgh and
Glasgow do not suggest it is an issue, and it is not thought to be significant in
Cardiff. As noted above it is not regarded as currently being a significant issue
in Newcastle-Gateshead.
2• Likewise it does not appear that smaller centres with less active city centre
apartment markets experience this phenomenon, though awareness of the
issue in such centres is less. However DTZ has undertaken specific work in
Bradford and there is no comparable problem to that in Leeds.
• Discussions with London DTZ colleagues indicate that this is not a
phenomenon associated with the London market, though the scale of the
market in London, could mean that properties left empty in London are less
easy to identify. However the study for the GLA ‘Who Buys Market Homes In
London’ by London Development Research (GLA 2006) found that there was
little evidence of empty homes in new developments (see extract in Appendix
3).
• A separate issue identified is that some of the Housing Market Renewal Areas
also experience investors buying for short term gain, with no intent to occupy or
let property. This sort of activity is not the focus of this report and it is
mentioned merely since it was raised by one or two consultees. A number of
the HMR Pathfinders have examined the issue. A paper by Spigings, Nevin and
Leather (2006) presents a valuable commentary on the phenomenon in HMR
Pathfinder areas.
6. At this stage the comments made are based on the informed perspective of
individuals active in particular markets. There has been very little hard research into
the issue, or research on related topics. However some work has been undertaken
in different parts of the country, or is being commissioned:
• DTZ has undertaken studies of city centre residential markets in Leeds,
Sheffield and Bradford. Comments on these markets are derived from
consultations with investors, developers and agents in these markets.
References to these studies are given in Appendix 2.
• Leeds City Council undertake annual analysis of occupancy and vacancy
patterns derived from the Council Tax Register of City Centre residential
development (Leeds City Council, 2007) – see commentary below.
• The Manchester Salford Housing Market Renewal Partnership has
commissioned a suite of studies into the Manchester/Salford City Centre
market, that it is understood will include consideration of the Buy to Leave
Empty phenomenon. These are due to report in November 2007.
• On the different issue of people buying to leave empty in Housing Market
Renewal areas, it is worth noting that the HMR Pathfinder Bridging
NewcastleGateshead are commissioning a survey of agents, and this is one of
the specific issues to be investigated. The report is due in October 2007.
• On related topics the National Housing and Planning Advisory Unit are
commissioning Rapid Evidence Assessment of research literature on the Buy to
Let housing market sector, and the purchase of second homes including
consideration if such activities impact on the ability of owner occupiers to
access the housing market. (NHPAU, 2007)
7. The evidence base is likely therefore to improve over the next 6 months. The one
significant source of evidence available at the moment is the analysis of the Council
Tax Register undertaken by Leeds City Council in November 2006. The City Council
has identified all those housing schemes completed from the beginning of 1997 in the
City Centre, a total of 5,625 properties. Accommodation built specifically for students
is excluded from the analysis. Data on occupation is available on around 4,700
dwellings in the city centre.
38. Table 1 shows the occupational status of the properties in November 2006 and
November 2005. The table shows that, according to Council Tax records, at
November 2006 71% of all the new properties in Leeds built since 1997 were
occupied by persons normally resident in the City Centre, including students; and
another 11% are in use but not as a main residence.
9. The interest for this study is the 871 properties that are vacant or void, that account
for 18.5% of all the new dwellings in the city centre. The following points can be
made about the unoccupied dwellings:
• The City Council note that probably around half of all void properties1 (say 200
dwellings) are in fact occupied, since new occupants are slow in advising the
Council that they have taken up occupation, while those leaving properties
inform the council promptly.
• Within a stock of dwellings in an area there will always be a turnover of
dwellings – and arguably this will be higher in areas with a large rented sector.
This is the normal frictional void rate, and is not indication that properties are
being withheld from the market.
• Within the stock of dwellings there will be some element of new stock.
Development of apartments is lumpy compared to the development of houses –
all the flats come to market simultaneously rather than being built out over a
period of time. Such properties will account for a significant proportion of voids.
Voids may also include some new properties being held empty as investment.
• The likelihood is that the maximum number of Buy to Leave Empty properties in
Leeds City Centre is therefore 475 properties comprising the two categories of
exempt properties2 (empty for up to 6 months) and longer term vacants,
comprising properties left empty for more than 6 months.
• Many of these will not be Buy to Leave Empty properties, but then some of Buy
to Leave Empty properties maybe recorded as voids; and some might be
recorded as properties which are not anyone’s main residence.
• However assuming that the maximum number of Buy to Leave Empty
properties is around 475, then this represents about 10% of the stock of
dwellings built in Leeds since 1997, about 13% of all completions in 2006
(c3,762 dwellings), and around 0.15% of the total stock of dwellings in the
administrative area of Leeds City, (322,400 at the end of 2006).
10. In practice this 475 properties is very much a maximum since the same paper
indicates that vacancy rates are higher in the oldest developments (see Table 2);
some of these are likely to be exempt and longer term vacants. The paper identifies
that around two thirds of the vacant properties (180 dwellings) are associated with
two particularly schemes which are completely vacant for particular reasons, not
because they are being withheld from the market. Some of are likely to be included
in the numbers of exempt and long term vacant properties.
11. The estimated vacancy rate for dwellings built from January 1997 to September 2006
excluding the two blocks, which are wholly vacant, is estimated at 9%, a higher rate
than found in the dwellings built between October 2000 and September 2003, though
lower than the vacancy rate of new properties. This could be indicative of a process
1
Void properties are defined as those where the previous Council Tax Residence status has been terminated but the new
status has yet to be established. In addition new properties that have not yet been banded are automatically classified as void.
2
Exempt properties are those properties that are exempt from Council Tax. Exemption is allowed for a period of up to 6
months while a dwelling changes hands, and also applies to properties under repair, in probate or subject to a stature
preventing occupation. Longer term vacant properties are those properties still vacant after the period of exemption has
expired.
4whereby new development cannibalises the market for older flatted developments. A
number of commentators report how there is a section of the city centre market that
is very mobile and simply moves into the newest development on offer. Older
developments may have become tired and worn and may therefore struggle to
maintain the same level of occupancy.
10. Table 2 also indicates that void rates tend to fall as the developments mature, so that
the November 2006 void rates are highest in those developments completed
between October 2005 and September 2006. This is consistent with the fact that it
takes time for the market to absorb new flatted developments. But to the extent that
these vacant figures include buy to leave empty properties they suggest that buy to
leave empty is a short term investment strategy (since void rates in properties built 5
years ago are much lower) or it is a very new phenomenon.
Table 1: Occupational Status of City Centre Residential Properties in Leeds
built since Jan 2007
Source: City Centre Housing – Patterns of Occupation, Leeds City Council Development Dept, January 2007
Table 2: Vacancy Rates in Leeds City Centre by Date Development Completed
Source: City Centre Housing – Patterns of Occupation, Leeds City Council Development Dept, January 2007
11. The results of the consultations lead to two broad conclusions.
• First, if as appears to be the case, this phenomenon is confined to the city
centre apartment market of some, but not all, of the larger cities in England and
Great Britain, then this is more of a local issue than a national issue, and the
overall number of properties that are being deliberately left empty is likely to be
very modest in terms of the overall volume of new completions nationally.
• Second, even in those locations where the view is that there are buy to leave
empty properties, it is not the huge issue that some press comment would
5suggest. On the evidence from Leeds, it is modest in terms of the overall size
of the local housing market and the annual level of completions. Moreover
there are indications that these properties will be brought to market – probably
sold – within a relatively short time scale (2-3 years)
12. At times this may seem at odds with the observed lack of life in city centre apartment
blocks. So it is important to make it clear that there are other plausible reasons why
city centre apartment blocks may not appear to have many permanent residents.
• Apartments may be vacant, but are being marketed for sale or letting. For city
centre flats there is often no physical evidence associated with the flat that it is
being marketed since marketing will all be through the web, agents or print
media. Unlike houses or low level flats, there will be no agents’ boards to be
seen. It is perfectly possible that flats may be empty but being marketed for a
period of time, particularly in markets which are currently oversupplied with
properties for sale or rent. The volume of new supply of flats in locations such
as Leeds, Manchester and Liverpool has been such that the view is that it will
take time to fill the available properties. Generally one would expect these
properties to be unfurnished, but this may not always be the case.
• Properties may actually be occupied but because of the nature of the use
occupier’s lifestyle, it appears to a casual observer that no one seems to live
there. This maybe because the property is a second home or the occupier
travels a great deal. Table 1 above indicates that around 10% of all recently
completed dwellings in Leeds City Centre are not used as a main residence,
and Table 2 shows that in blocks built in particular periods the figure goes as
high as 17.6%. It is known that in central London in particular large numbers of
properties are bought as second homes, often by overseas purchasers and
may be lived in for only part of the year3. Such dwellings would be furnished.
• There is also a separate issue that city centre apartments lend themselves to
being let for holiday apartments or on very short (daily) lets, to either corporate
organisations or to individuals as an alternative to hotels. Likewise properties
let or owned by corporate entities for use by their staff or visitors are not being
left empty, even though the use of such properties may be quite sporadic, and
so appear to be empty. These dwellings would be furnished.
• Likewise the apparent lack of life in city centre apartment blocks may also
simply reflect that residents keep unconventional hours so they are often out,
even overnight, visiting or staying with friends and relatives or travelling. Such
properties will be furnished. The study City People: City Centre Living in the UK
(Nathan and Unwin, 2006) highlights that the profile and lifestyle of those living
in City Centres is very distinctive from that of the population of many urban
areas, many of whom live a very social lifestyle. Significant proportions are
students, who by definition may not be year round residents.
13. This brief discussion highlights that if one is to establish that a property has been
bought to leave empty the key indicator is that the dwelling is unfurnished; and then
one would have to check that it is not being actively marketed. It does not seem to
be that much (if any) systematic survey work has yet been undertaken by reference
to these two criteria, and hence the actual numbers of genuine buy to leave empty
properties is unknown, but indications are that the numbers are much more modest
that some recent press reports would suggest (eg the Inside Housing article,
December 15th 2006.)
3
Data from Westminster City Council Planning Department on West End Quay, the first phase of the redevelopment of the
Paddington Basin, involving development of 468 residential units indicate that 61% of all purchases were for investment
purposes. In addition, over 11% of units were to be occupied on a part time basis either as a London ‘pad’ or as a second
home. Only 5% of original purchasers intended to live full time at West End Quay. The purchaser profile records also indicate
that nearly 20% of sales took place in Hong Kong and Singapore.
6Why do investors decide to forgo the income associated with renting?
14. This question was put to all consultees, without initially suggesting any possible
reasons. The majority of consultees said that they regarded it as very perverse
behaviour by investors since in the markets in which this activity seems to be going
on, investors could expect a rental yield of 3-5%, and indeed the view that this was a
perverse behaviour meant that many consultees doubted that the buy to leave empty
phenomenon could be occurring on any significant scale across the country.
15. Those few who offered an unprompted response gave in essence one of two
answers:
• There are a group of investors who are solely concerned with capital growth,
and provided they are able to receive their target rate of return from capital
growth do not wish to be bothered with having tenants. That is, as investors
they are satisfiers, rather than maximisers. It was suggested that there may be
specific tax reasons why particular investors want to take their return in the
form of capital growth and not bother with an income return.
• Two or three consultees suggested that such behaviour might be associated
with those engaged in money laundering. Property is seen as a safe haven and
those engaged in such activities would not be concerned with normal returns
and would not want anything that would bring their activities to the notice of the
authorities. Rental income needs to be declared as taxable income by
individuals or companies. If this is a reason for buy to leave empty, then by its
very nature it will be very hard to substantiate and owners will be unlikely to
participate in research.
16. In order to stimulate discussion a set of hypotheses were put to consultees to explore
how plausible they might be as explanations of what is happening. We set out the
responses to these hypotheses and related contextual information below.
17. One particular hypothesis was discounted by all those consulted and it is helpful to
highlight this first, since it identifies more clearly what type of investors might be
engaging in such activity.
Hypothesis 1: The development of the Buy-to-Let phenomenon has drawn in a
large number of small investors, who have bought one or two properties and
who have no experience of acting as landlords. Some such unsophisticated
investors may balk at the challenge of either letting properties themselves or
appointing managing agents, and simply by default leave properties empty, not
so much because they would not welcome the rental income, but because of
inertia or lack of expertise.
18. There was universal agreement that the issue of buy to leave empty was something
associated with the more sophisticated investors, not the small retail investor. The
small buy to let landlord is regarded as wanting, indeed needing to, secure the rental
income associated with their investment. The task of appointing a managing agent is
hardly arduous and the survey work undertaken by ARLA (ARLA 2007) and research
by Ball (Ball, 2006) does not indicate that BTL investors are generally an
unsophisticated group of purchasers,
19. It is possible though that as time goes on, progressively less sophisticated investors
are being drawn into the market, and that these investors are less likely to respond to
surveys. Particular concern was expressed by one or two interviewees about the
activities of some of the property clubs that run training courses for potential buy-to-
let investors and then draw participants into investing in properties that the
7organisation has already bought at a discount, and sells on at a profit (but still at a
discount to anticipated sale price) to smaller investors. But the rental return is always
part of the sales pitch to these investors – even if they in practice find it difficult to
achieve due to market conditions.
20. It is also important to also bear in mind that the majority of Buy to Let investors buy
existing properties rather than new. The evidence is also that the majority of Buy to
Let investors are investing for the long term, not the short term; and that in general
investors are not financially exposed, given the average mortgage to asset value
ratios (see Ball 2006 and ARLA 2007).
Hypothesis 2: There are a group of investors that anticipate significant returns
from capital growth over the short term and therefore are unconcerned about
rental income, and indeed wish to be able to sell property ‘as new’, and
potentially to drip feed a portfolio into the market.
21. Most consultees regarded this as the most plausible explanation for the existence of
the Buy to Leave Empty phenomenon. The view was that in particular Buy to Leave
Empty is associated with larger investors who will bulk buy apartments off plan at up
to 25% discounts. They may buy 20, 30, 40 units in the same development in order
to achieve the maximum discounts from the developer. They plan to hold for a
relatively short term and then realise the capital gains on sale two to three years after
completion.
22. These investors are very likely to comprise high net worth individuals acting
individually or through some collective vehicle, or private companies. There are
indications that many such investors are foreign nationals – with particular mention
being made of the influence of Irish investors in Manchester, Liverpool and
Sunderland. They are not seeking to be landlords, and are investing in residential
property because it currently offers a better return than investment in other assets
23. This is not as perverse behaviour as might first appear. Capital growth on residential
investment assets has been very strong in recent years. The IPD Residential Index
of Returns shows that across the UK, residential investments have delivered
significant capital returns across the country as a whole, and residential investment
as a whole (both capital and income elements) has outperformed investment in
equities and bonds in both 2006 and over the past 6 years (see Figure 1).
Figure 1: Investment Returns by Asset Class
Source: IPD 2007
824. Figure 2 however shows that by not letting properties investors would appear to be
forgoing a net return of around 3-4% on capital invested. However for bulk investors
investing for the short term, there may be disadvantages in letting out properties:
• Some investors might be concerned to maximise their ability to trade. So it is
important to be able to call the top of the market and to sell with vacant
possession. Letting out properties could affect their ability to sell property at
the optimal point of time – since at minimum they would have to make the
property fit for sale, and at worst it could take some months to secure vacant
position. This could be the difference between the ability to sell at a substantial
gain or a loss. Thus the property is kept empty to allow speed and ease of
disposal to maximise capital gains. The calculation of the pure investor is that
the upside of this flexibility of action means that the capital gains to be realised
outweigh the combined return from rental income and capital gain where the
timing of the sale is constrained. Put another way, letting property out
increases the risk of the investment, by reducing liquidity.
• Other investors may be looking at selling their entire portfolio to another
investor; ARLA surveys suggest that there is evidence of significant trading in
residential investment properties, with one investor selling property onto other
investors. A portfolio of properties with vacant possession will be more
valuable than a fully tenanted portfolio, even where all tenants are on Assured
Shorthold Tenancies (ASTs). Figure 3 shows the value discount that applies
to tenanted property compared to vacant possession value. Across the country
a tenanted property or portfolio will be valued on average at 7% less than its
vacant possession value. On a large portfolio the loss of flexibility in the timing
of sale and the ability to sell with vacant possession may imply a significant
difference in the capital gain realised. It is worthy of note that the discounts
applied on valuations of rented property are higher in the north than London
and the South East, so the benefits of keeping property vacant are greater in
the north than the south.
• Lastly the calculation of the investor may be that by not letting their property,
they can still command a premium in the market by selling the property ‘as new,
never been occupied’ even though the apartment block in which the flat is
located has been in existence a few years. The analogy here is how a new car
loses significant value as soon as it is driven off the dealer’s forecourt. It is
known that there is a well defined premium of new property over second hand
property on a like for like basis in terms of space. It is not known if the premium
paid by a first time occupier of a flat is preserved when the block itself has been
in existence for some time. It seems quite possible that tastes may change,
though the investor may still achieve a premium even if it is not what it would be
if they are selling a new flat in a new block.
9Figure 2: Total Return on Residential Property 2006, Income and Capital
Components
Source: IPD 2007
Figure 3: Percentage Valuation Discounts applied to Vacant Possession Value
by Region
Source: IPD 2007
10Hypothesis 3: Leaving properties empty may be a strategy to maximise overall
rental and capital returns in markets that are cooling and where absorbtion
(take up) rates are declining.
25. It is a particular feature of the markets where the Buy to Leave Empty phenomenon
is reported that there has been a large expansion in the supply of one particular type
of product – one or two bed apartments in a city centre location; and in locations like
Leeds, Manchester and Liverpool there is considerable scope for further new supply
in terms of extant planning permissions.
26. Yet the evidence is that the market for the city centre apartment is not infinitely
expandable, in those markets (such as Leeds, Manchester and Liverpool) where,
unlike London and the South East, there are relatively affordable alternative types of
properties – terraced houses, suburban flats etc. There are signs in Leeds and
Manchester that capital appreciation in the city centre market is slowing, and the
rental market has cooled and is now in balance.
27. The interesting comment was made by Scottish consultees in relation to the Glasgow
apartment market, that it was only when the market went into oversupply relative to
demand in 2003, that a number of apparently vacant properties not being marketed
was apparent. The individual consulted on the Newcastle-Gateshead market
commented that Buy to Leave Empty seemed to no longer be significant because the
prospects for significant short term capital growth have largely disappeared from the
city centre apartment market.
28. It is interesting to note findings presented by Jim Cunningham, Senior Economist at
the Council for Mortgage Lenders in May 2007, (CML 2007) that house prices have
grown by 25% for all properties over the period 2003-2007, but new properties have
only appreciated in value by 10%, the lowest level of growth of any of the age bands.
Similarly flats and maisonettes have shown no appreciation in value, while the value
of all other property types have appreciated significantly. This is national data, and
not specific to city centre markets, but is indicative of how supply growth may have
eroded prospects for capital growth in the new and flatted sectors of the market.
29. In a slowing market there are potentially a number of reasons why investors may
leave properties empty, rather than not let them out, particularly if they are not
servicing loans on the property concerned.
• Where an investor owns a portfolio of properties in the same block and is
looking to rent them out, they may nonetheless only market two or three
properties actively to avoid giving the impression of there being a glut of
property. If more good tenants come along then other properties in the portfolio
can be let even though they have not been advertised as being to let.
• Investors or their agents will be keen to secure good tenants that provide good
covenants. They may well take the view that it is better to leave a property
empty than attract a tenant that will default on their payments and be a bad
neighbour; such tenants merely make it less easy to let other properties, and
could give the development a bad name affecting potential capital returns.
• In a slowing market investors may be reluctant to reduce rents to achieve
lettings since this will cannibalise their existing rental income, with current
tenants looking for rent reductions or threatening to move. There may also be
concern that reducing rents will attract the ‘wrong sort’ of tenant, who will give
the development a bad reputation.
• New investors may have invested on the basis that they would get a certain
rental return, and hence be very reluctant to reduce asking rents, since that
11may well imply accepting that their mortgage payments will be greater than
their rental returns, or they will not achieve the overall return that they had
anticipated. It may take time for investors to adjust their expectations of what
they are likely to receive in terms of rental income.
• Smart investors will have a care to the tenant mix of the development, though
ultimately only those with large portfolios of properties in any one development
can seek to control this. It may be better in terms of overall returns, if the
development is left empty but retains premium values, than if the property is let
at discounted rents, attracts the wrong sort of tenant, and becomes an
undesirable place to live, and hence capital values suffer
30. The focus above has been on investors who in principle wish to derive a rental
income from their properties. However, in a similar way if an investor is looking to
sell their properties, they may well seek to maximize values by drip feeding the
properties into the market. Suddenly dumping a large number of properties on the
market could lead to a loss of confidence and falling values. They may also wish
simply to ride out a slowing market, and to keep their properties in pristine condition
so they can take advantage of recovery or rising values in the future.
31. The very fact that in general the returns to investment in residential property have in
the past been associated more with capital growth than rental return, means that
investors with deep pockets, will be more interested in protecting long term capital
growth, than in seeking to maximise short term returns, particularly if in any way
renting properties out threatens or introduces enhanced risk to the possibility of long
term capital returns.
Hypothesis 4: There are a group of high net worth investors who regard
property as a useful store of value, akin to works or art or gold, that they wish
to hold purely for potential long term capital growth and expect no income
return.
32. It is certainly the case that property has come to be regarded by many as a useful
store of value. This is part of the explanation of the growth in the rise in second and
holiday homes and the investment/purchase of ‘trophy’ homes, and of course the
number of people who have become small landlords through Buy to Let. It seems
improbable, given that the same benefits can be derived from buying a property from
which the buyer derives some occupation benefits (a second, or third or holiday
home), that such investors would buy properties solely to leave them empty on a long
term basis.
33. None of the consultees thought that this was a likely to account for the phenomenon
of Buy to Leave Empty. However it could lead to increasing numbers of properties
that are only occupied for a small part of the year. Areas traditionally associated with
high levels of holiday and second homes, in which there have been significant large
new developments, might in particular attract such investors/purchasers.
34. Thus coastal towns might be particularly susceptible to such patterns, being deemed
suitable for large scale residential development, unlike rural areas, but also attractive
places in which to live for some of the year. London of course is particularly likely to
attract both UK and overseas purchasers who only live in properties for part of the
year or part of the week, and the same phenomenon was reported in Edinburgh. The
LDR Study ‘Who buys new market homes in London’ (GLA, 2006) identifies that 46%
of all investors in the London market are overseas purchasers; and that investors as
a group account for 70% of all new home purchases in London.
1235. The role of foreign investors can also introduce unusual behaviour including Buy to
Leave Empty. The LDR study commenting on the London market states that ‘in the
past, some nationalities seeking a currency hedge have left flats empty – they are
making so much money (in their own currency) just through exchange rate adjusted
capital growth, that rental seems too much bother. However such instances are
isolated and we found no one with recent experience of investment homes staying
empty for anything other than short periods’. (GLA, 2006)
Hypothesis 5: it is possible that investment properties are being used as asset
against which to borrow. As shown in Figure 3 the value of a tenanted
property is less than that of a vacant possession property, so it might be
argued that for investors wanting to borrow using property as a security there
is an advantage in leaving property empty.
36. This hypothesis seems inherently implausible since, if the property were let it would
be generating an income that could be used to help fund other investment or reduce
borrowing requirements. However there could be particular investors who, by reason
of the financial structure or taxation status, to whom this might be a consideration. It
seems more plausible that, if this is a consideration, it would apply in conjunction with
one of the other hypotheses.
Hypothesis 6: Property is purchased and held empty as part of money
laundering arrangements.
37. As noted above, a number of consultees are of the view that property is one of the
assets in which those who have made money from illegal activities seek to find a safe
investment that will not be subject to or easy for investigating authorities to
investigate. By definition it is impossible to know the scale of such activities, but the
openness of the UK property market to overseas investment and the scale of past
capital growth in UK residential property makes it an attractive store of wealth. It is
easy to hypothesise that those engaged in such activity will not want to let our
property since this will be taxable income, and hence require some level of
engagement with the UK tax authorities.
Is Buy to Leave Empty a significant issue?
38. There is a shortage of hard evidence, but the indications are that, to the extent that
Buy to Leave Empty is an issue, it is localised and associated with certain types of
property, specifically city centre apartment blocks, notably in the larger northern
cities. It is not a national issue, and the indications from the Leeds data are in that in
terms of the volume of properties involved it is not even particularly significant at the
local level.
39. Moreover the likelihood is that the phenomenon is of short term duration. The most
likely explanation of the Buy to Leave phenomenon is that it is the product of
investment by larger investors looking solely for capital growth. The indications are
that these investors will hold property for a short term before realising their gains,
after which the properties will find their way either into the rental market, being
bought by other investors, or being sold to owner occupiers.
40. Probably the bigger issue particularly in northern cities is the slowing of the city
centre apartment markets, while there is still a considerable pipeline of new supply.
Slowing sales rates and rising vacancy rates within the existing stock will for a period
slow investor and developer interest. This could present opportunities for
13Communities England to take a stake in current or prospective developments to
produce housing for a different target market.
41. For the avoidance of doubt suggestions that Buy to Leave Empty is having a material
impact on property prices and first time buyers is implausible. The city centre
apartment markets are not in general attracting first time buyers, and prices would
have to fall considerably to attract first time buyers to the properties being offered.
Developers would be unwilling to build at those prices. Moreover city centre markets
account for a relatively small proportion of the total market in major urban centres.
42. The fact that Buy to Leave Empty appears to be happening in a part of the country
subject to fewer supply constraints than London in the South East also means that
there are likely to be few, long term adverse effects on the housing market.
43. The issue of Buy to Leave Empty is probably much less important in terms of its
impact on the housing market than the proportion of dwellings in major urban centres
and rural areas being used as second or holiday homes for part of the year
occupation, and corporate lettings. While these uses of property are perfectly
acceptable within a free property market, the long term nature of these uses and the
number of such properties will have some material impact on overall housing
requirements, since they are not available to other households as their principal
place of residence.
44. However it is important to realise that investors as a whole – including even Buy to
Leave Empty investors – have played an important role in enabling the development
of city centre apartment markets. Off plan sales are an important part of the
development funding package put together by housebuilders for apartment
developments, and play an important role in reducing exposure to risk. Thus
investors as a whole have played an important role, and probably critical to the
continued health of city centre housing markets, giving developers the confidence to
bring forward new supply (see Ball 2006 and GLA 2006 for a more detailed
discussion).
What action could be taken to address the issue and what action should be
taken?
45. If the assessment in this paper is correct, the Buy to Leave Empty phenomenon is
only a tiny part of the much larger investment market for residential property. The
investment market is crucial at the present time in maintaining the high level of
completions, with probably in excess of 50% of all flatted developments being sold to
investors in the British cities (70% in London). Any action taken by the government
to address Buy to Leave Empty issue would have to take extreme care not to deter
investors who plan to let from continuing to invest in city centre markets.
46. There is clearly nothing illegal about Buy to Leave Empty. Owners are entirely within
their right to leave property empty. It does not contravene any planning regulation. It
would be a major departure of government policy and practice of past centuries to in
any way to seek to restrict open market sales of any property including residential
dwellings. Currently it is a private individual’s or corporation’s right to sell property to
whoever wishes to buy for whatever purpose, though the purchaser is subject to the
controls on use imposed through the planning process.
47. The analysis in this paper suggests that investors that Buy to Leave Empty will not be
amenable to proposals that the local authority or a housing association lease
portfolios of properties from the investors and let them, either at market rents or a
below market rents to targeted groups. If these investors wanted the properties to be
14occupied they are well able to organise this for themselves. They would almost
certainly rather do this themselves and set their own criteria for tenant selection than
delegate this to a third party.
48. In view of this if anything were to be done by government, then government would
need either:
• To incentivise investors that are Buying to Leave Empty to let properties –
probably by taxing the property (ie charging full or multiple council tax). It is
hard to envisage these investors being amenable to relatively minor financial
disincentives to holding property empty, when they are willing for forgo rental
returns of 3-4%. They would more likely simply pay up or develop a strategy
for avoidance eg furnishing the flat and making very occasional use of it by staff
or family members.
• To coerce investors into letting the property. Local authorities technically have
the powers to bring long term empty properties back into use, but these have
only ever been applied to existing properties. It is hard to conceive that local
authorities would prioritise staff and financial resources to taking enforcement
action against owners holding new flats, that present other occupiers with no
problem.
49. The issue of Buy to Leave Empty may in any case disappear, since the opportunities
for significant capital growth in those locations where it has been in evidence, look
likely to much less in the immediate future than in the past. This of course does not
preclude the possibility that the investment market may identify other locations or
opportunities where there is scope for capital growth. The financing of new and what
are initially risky investments is one of the advantages of a free capital market and of
private investment capital.
50. On balance the government the only sensible actions that the government could take
at this moment in the time, though the benefit of them would need careful
consideration in terms of impact and value for money, are:
• To investigate further the phenomenon and in particular commission work to
speak to investors about why they hold property empty.
• To encourage local authorities in areas where this is thought to be an issue to
establish effective monitoring systems.
• To consider if any obligations should be placed upon vendors of new
developments in areas where Buy to Leave Empty is thought to be an issue to
provide information on purchasers.
51. Where government land or funding is involved there may be scope to limit purchase
by investors (with the aim of ensuring a mixed and balanced community), and make it
a condition of sale that the dwelling should be occupied for a certain number of
months in the year or shown to be actively marketed. It is important to appreciate
that this will however restrict sales volumes and potentially values.
52. Some might argue that similar conditions could be incorporated into planning
permissions to ensure that large developments are not dominated by private renting,
and into the bargain deter Buy to Leave Empty, on the grounds of the desirability of
creating mixed tenure dwellings. There is no guarantee, in any case, that this would
limit Buy to Leave Empty investors, unless one were to try to place an obligation on
investors to let their property – which would then have to be monitored and enforced.
Such action would be a serious restraint on the free market in property and have
potentially adverse impacts on the market. It is not to be recommended.
1553. In particular restraints on the free sale of residential property to anyone who wishes
to buy, targeted at reducing sales to investors, could seriously impact the volume of
flats brought forward for development. In the majority of areas probably more than
50% of new flats are currently being sold to investors. Moreover banks often make it
a condition of their funding of major developments that construction costs are
covered by off plan sales. Off plan sales to investors are a key part of the financing
of flatted developments. Moreover experience in Ireland of trying to tax or otherwise
deter investors shows that such measures tend to distort the housing market to such
an extent that restrictive legislation tends to be short lived (see Ball, 2005)
54. This brief study suggests that a more important issue than Buy to Leave Empty in
terms of impact on the number of properties available for the occupiers’ principal
residence is the number of properties being bought for non-permanent residential
use or second homes. The National Housing and Planning Advice Unit is
commissioning initial work on this topic to report in October 2007. However the
significant possibility must be considered that reducing demand from those wishing to
purchase for a second home or non-permanent residential use would adversely
affect overall housing supply though its impact on the saleability of new
developments.
55. Second homes and properties bought for non-permanent residential use may also
have implications in terms of creating mixed and balanced communities. However,
this is less likely to be the case in city centre markets where the way people live their
lives means that they are living very social lives but not seeking or expecting to
develop a network of relationships within the blocks of privately owned flats in which
they live (see Nathan and Unwin, 2006). This is much more likely to be an issue in
rural areas and smaller communities.
Next Steps
56. It might be valuable to produce a best practice note for local authorities on how they
can monitor Buy to Leave Empty; this will revolve around the use of Council Tax
data. The note would help encourage a consistent approach, and advice on
interpretation of data, and the related issue of how different approaches to applying
Council tax discounts may affect the accuracy of the data.
57. Ultimately it will only be possible to get at the true reasons for Buy to Leave Empty by
identifying investors engaged in this activity (probably using Land Registry records
for particular blocks of flats) and having discussions with those investors. Financial
structures and tax (UK and in country of origin) are likely to be important
considerations. Identifying such investors and securing their participation in research
is likely to be difficult and therefore the research may be quite expensive. If CLG
believes there needs to be further detailed investigation, despite the initial
assessment made in this paper that the issue of Buy to Leave Empty not being a
significant issue, this would be the way forward.
58. The DCLG should consider if there is value in publishing this note, in order to inform
debate and discussion. The publication of the note might encourage further evidence
to be brought forward, and allow the analysis to be updated.
Chris Cobbold
Director Residential Research
DTZ
July 2007
chris.Cobbold@dtz.com
0118 967 2025
16Appendix 1: Consultees
Cameron Blackie, DTZ, Residential, Edinburgh and Glasgow
Sarah Bull, Associate Director, DTZ, Development Consulting Leeds
Gareth Carter, Director, DTZ, Residential Cardiff
Jenny Cropper, Senior Consultant, DTZ, Residential Leeds
James Donagh, Associate Director, DTZ, Development Consulting Manchester
Malcolm Harrison, Association of Residential Letting Agents
Nick Hooper, Bristol City Council
Duncan Melville, Director, DTZ, Development Consulting Leeds
Daniel McCarthy, Westminster City Council, Housing Strategy Manager
Derek Nisbitt, Director DTZ, Residential, Manchester and Manchester Salford Pathfinder
Board member
Andrew Palmer, Director, DTZ, Residential London
William Rogers, Director, DTZ, Residential London
Richard Shield, Director, DTZ, Residential, Newcastle upon Tyne
John Socha, Chairman, National Landlords Association
Moira Tooke, Associate Director, DTZ Residential, Birmingham
17Appendix 2: References
In general there is little documentation on the phenomenon of Buy to Leave Empty; however
the following documents have some bearing on the discussion or have been referred to in
the report.
Association of Residential Letting Agents (2007) The ARLA History of Buy to Let Investment
2001 to 2007, ARLA
Ball M (2005), RICS European Housing Review, London, 2005
Ball, M. (2006) Buy to Let: the Revolution –10 Years on. Association of Residential Letting
Agents
Bridging Newcastle Gateshead (2007). 3rd Estate and Letting Agents Survey. Invitation to
Tender, June 2007
Cunningham, J (2007), Is the Phenomenal Growth of Buy to Let Sustainable. Presentation
to day conference on Buy to Let, 15th May 2007, Council of Mortgage Lenders
DTZ Consulting and Research (2006) Sheffield City Centre Residential Market Study, Leeds,
DTZ, Bradford Study Creating a Balanced City Centre Housing Market in Bradford -
September 2005
DTZ (forthcoming) Leeds study – City Centre Residential Market Report - 2007
Investment Property Databank (2007) The IPD UK Residential Investment Index 2006,
Market Performance. Presentation at Haberdashers Hall, 17th April 2007, IPD.
Leeds City Council Development Department (2007) City Centre Housing – Patterns of
Occupation: Evidence from the Council Tax Register November 2006
London Development Research (2006) Who buys new market homes in London. GLA
Nathan M and Urwin C (2006) City People: City Centre Living in the UK. London, IPPR
Centre for Cities
National Housing and Planning Advisory Unit (2007): Rapid Evidence Assessment of the
Research Literature on the Buy-to-Let housing market sector: Specification of
Requirements, July 2007
National Housing and Planning Advisory Unit (2007): Rapid Evidence Assessment of the
Research Literature on the purchase and use of second homes: Specification of
Requirements, July 2007
Springings N, Nevin B. and Leather P. (2006) Semi-Detached Housing Market Theory for
Sale: Suit First Time Buyer or Investor. The Housing Studies Association Conference, April
2006
18Appendix 3: Extract from Who buys new market homes in London. London
Development Research (2006) for GLA
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