"Show me the incentive and I will show you the outcome." - Charlie Munger
The quote pertains to the behaviour that can be driven around flood defence tax credits or similar - solutions are there, but will they be adopted in time? Find out in the Deep Dive.
As we charge headlong through the biggest change in housing law in 38 years, our next Property Business Workshop is live and tickets are already selling. This is about due diligence - and REAL due diligence - performed on you by lenders and prospective investors, as well as what you should be doing on potential business partners and - most importantly - property deals. Book in on the next Property Business Workshop with myself and Rod Turner - Wednesday 1st July - Central London - https://tinyurl.com/pbweleven
Welcome back to Trumpwatch. If last week was the agonizing realization of our new transatlantic reality, this week delivered the institutional pivot that will define the rest of the decade. The past seven days have proven exactly how US domestic politics and the White House's battle for control over monetary policy directly dictate the plumbing of the UK economy.
Let’s start with the trade war, which remains on a knife-edge. The threat of a "big tariff" over the UK's Digital Services Tax continues to hang over Downing Street. Trump has made it explicitly clear that he views the 2% tax on US tech giants as discriminatory, and the threat of severe retaliatory tariffs - on top of the 10% baseline tariffs already affecting UK exports - is once again paralyzing forward planning for UK businesses. Starmer's Treasury is caught in a trap: scrap a lucrative revenue stream or face an export wipeout. We are officially collateral damage in America's protectionist pivot. As I’ve said before - grow a pair (unlikely, given the growing body of evidence to the contrary) and be STRONG here - if you do business in the UK, you pay your share of taxes - if you find your way around our system, then we change our system. Unapologetically. Get on with it, whoever is in charge going forwards.
We need to give some airtime to the truly critical developments this week from the Federal Reserve. The changing of the guard is officially complete. On Friday, May 22nd, Kevin Warsh was sworn in as the 17th Chair of the Federal Reserve in a highly unusual White House ceremony. Trump has his man in the seat. During the swearing-in, Trump bizarrely told Warsh to "just do your own thing" and be "totally independent," right after stating that the Fed had "lost its way in recent years" under Jerome Powell (who remains on the board as a governor until 2028). One more jibe on the way out, of course.
Warsh pledged to lead a "reform-oriented" Fed. The translation for the capital allocator? He is taking over an institution that is under unprecedented political pressure to slash borrowing costs to fuel a "pro-growth" agenda.
The problem is, Warsh is walking straight into a macroeconomic brick wall. US inflation remains incredibly sticky, and the ongoing war involving Iran is pumping imported energy inflation directly into the system. Fed Governor Chris Waller came out on Friday explicitly stating the central bank should drop its inclination toward cutting rates entirely. Warsh faces an impossible dilemma: if he cuts rates to appease the Oval Office and cushion the economy against energy shocks, he risks letting inflation run completely out of control.
The US bond market vigilantes threw a tantrum this week over exactly this tension. Yields spiked on the 10-year Treasury because institutional investors are pricing in the risk of a politicized Fed artificially suppressing the base rate. Trump is hanging on to a fantasy world where cutting rates at this point in time would lead to cheaper mortgages - whereas in reality, the opposite would happen because beyond 3-month dated Treasury Bills, the market sets the price, not the Fed. Let’s not forget he already fired a $200bn “bullet” with long-dated bond purchases months back, and the impact on the market lasted about a week before the yields got back to exactly where they were before this bullet was fired.
Why does all this matter to your portfolio in Birmingham or Leeds? Because contagion in the bond markets is instantaneous. When US Treasuries spike, UK Gilts are dragged upwards in their wake.
We saw the exact mechanics of this play out over the last few days. As the drama around Warsh's confirmation and the prospect of sticky inflation unfolded, UK 5-year SONIA swap rates - the continual bedrock of your fixed-rate mortgage costs - pushed higher once again. Look at the lender emails hitting your inbox; the sub-5.5% five-year fixes are quietly being withdrawn and repriced upwards, even if you are willing to pay the whacking fees associated with products that are that “cheap”.
The takeaway for us is stark: The US is exporting its political volatility directly into our debt markets. If Warsh tries to force the Fed into a politically motivated rate cut, he risks untethering inflation expectations, which will only drive global borrowing costs higher in the long run. Any lingering 'hopium' you had that UK mortgage rates were going to soften nicely in time for your summer remortgages needs to be entirely abandoned. Stress-test your LTVs, accept the new cost of capital, and understand that right now, the Oval Office and the new Fed Chair are dictating the price of your leverage. Inflation targeting is the worst system for the central bank apart from all the others……losing its credibility is as bad as changing it at Governmental level, which - again - if that’s what the administration wants, they need to have the stones to do it. Making the central bank look “non-independent” is a damaging move that Trump simply doesn’t understand the potential consequences of - this is a clear-cut case of the wrong methodology.
Back at the ranch, the chief is also busy staying close to the tech bros by postponing an executive order on AI safety - his logic will be that the US needs to keep up with China (most objective analysis shows that they are ahead in the race, but that shouldn’t really be a surprise given that they are spending more than 10 times as much as China is) - and on this one he might not be wrong - although the consequences of “win this race at all costs” could be quite lively, to say the least.
Phew - stepping away from the transatlantic macro-storm, let’s get back to the brutal reality of the real-time UK property market…
As is customary, Chris Watkin has been relentlessly crunching the portal numbers and then publishing them at Property Industry Eye. His analysis for Week 19 of 2026 is where it is at, as always. If you want to know how the macroeconomic gridlock translates to the local high street, and the REAL property market on the ground, look no further.
Let’s start with the supply side, which has come roaring back after the Bank Holiday dip. 41,800 new properties came to the market in Week 19 (a massive jump up from 34,600 last week). The Year-to-Date (YTD) supply pipeline now sits at an enormous 713,000 listings. That is 1% ahead of 2025, but a staggering 16.6% higher than the pre-COVID 2017 - 2019 norm. My year-plus long adage of “10% more stock than a normal market” ready reckoner is entirely broken at this point; being 16% to 17% overstocked is simply the new reality right now.
Homeowners and exiting landlords are exceptionally eager to sell. But are they actually selling? That’s the £64k question I’m asking every week at the moment, both here and in my businesses day to day. You could reframe it as “Just how motivated are they to compromise on the price they sell for?”, for example.
On the demand side, Gross Sales (Subject to Contract) bounced straight back from the Bank Holiday lull, jumping to 27,000 for the week - up significantly from 22,500 last week. It’s an interesting market, from a geeky economist perspective, because Supply and Demand move about as independently as I can visualise in any market of size - there’s some relation of course, but not that much. What does this mean, by the way, from a textbook perspective? Remember your Economics GCSEs and A Levels? The market isn’t particularly efficient. Particularly at the one-property level - which is exactly why you can get deals, folks, much more easily than picking stocks or crypto and without the volatility. It’s still not easy - to be clear - it takes time, effort and skill - but it’s far more accessible, and that’s part of the massive attraction of residential property as an asset class. If you fancy a revision session on this, a recent podcast I was on asked the age-old question “Property vs Stocks” and you can find the episode here if you fancy it over the Bank Holiday weekend: https://youtu.be/90f1zOjtb7s
YTD, we’ve seen 471,000 gross sales. That is 11.3% above pre-Covid norms. People are still moving. Transaction volumes are performing significantly better than the depressed levels of 2023 and 2024. The underlying demographic drivers - the classic 'Five Ds' of death, debt, divorce, downsizing, and diddy ones - plug away week in, week out, entirely indifferent to the geopolitical drama and whatever Kevin Warsh is saying at the Fed. Net sales are also playing ball, printing at a very healthy 21,800 for the week.
However, the friction between these willing sellers and eager buyers is immense, and it’s captured perfectly in two glaring metrics: the pricing gap and the withdrawal rate.
Sellers are coming to the market mainlining on that 'hopium' factor, facilitated by desperate estate agents who are buying instructions with overinflated valuations. The gap between the average listing price (£471k) and the average sale agreed price (£378k) currently sits at a massive 24.7%. Yes, it has narrowed slightly from the intergalactic 27.4% we saw a fortnight ago, but the long-term historical average is 16% to 17%. We are miles away from equilibrium. Why, when they’ve already got so much stock on the market, do agents overvalue? It just DOESN’T make sense. Frankly - because the corporates are one-dimensional and the staff are already trained, and so be it. This 25% or so has been preserved for the past few weeks. One explanation is that cheaper stock is selling well, whereas more expensive stock is struggling. A two-tier market, if you will, for what are surely the last few months (but yes, that long) of Starmer’s Premiership.
Chris highlights this exact toxicity again this week, noting that a staggering 46.1% of homes that left UK estate agents' books in April were withdrawn unsold. Almost half the market is failing. I keep quoting this stat weekly at the moment because I just can’t believe it - one week soon it will go in! Agents are locking vendors into draconian 20-plus week sole agency contracts based on fantasy valuations. As Chris rightly points out in his commentary: a long contract doesn't protect the seller; it simply protects the agent while they spend months chipping away at an unrealistic asking price with "salami style" reductions - the Chinese water torture of the dripping tap on the forehead. Chris himself prefers to call for a restriction to contracts being no longer than 8 weeks - it certainly would be one way to change behaviour from the listers.
The mechanism resolving this friction, as always, is price reductions. There were 27,500 price reductions in Week 19 alone - a massive spike from last week again (although remember, last week reported on was a short week with a Bank Holiday in).
Indeed, 13.1% of all UK residential homes for sale had their price reduced in April.
We are also seeing some of the macroeconomic tension bleeding into the pipeline. Fall-throughs sat at 5,908 this week, and the fall-through rate held firm at 22.0%. Still, a mammoth pipeline of 461,000 homes Sold STC represents a huge amount of friction waiting to happen as swap rates twitch and mortgage lenders reprice upwards on the back of sticky US inflation and rising gilt yields. 22% is still a “good” result compared to the historical average, but we do tend to get fewer fall-throughs earlier in the year.
The Takeaway: As Chris concludes, buyers have choice, and when buyers have choice, pricing gets exposed quickly. The market is functioning well, but power remains firmly with the buyer. As an investor, that massive 24.7% listing-to-sale price gap is your hunting ground. Do not overpay. Let the delusional sellers withdraw, and focus your capital on the motivated vendors who understand that the 2026 market demands strict, brutal realism. If you are selling - go on at the right price and don’t waste those first 2-4 weeks - they are critical. Don’t just read this, make SURE you action it if you are selling a property at this time!
One piece of bonus content from Chris this week is a look at the house price data measured in pounds per square foot (£/sq.ft). April 2026 agreed sales averaged £345.18 per sq.ft. That is 1.8% higher than 12 months ago and 11.3% higher than five years ago. Why does this matter? Because the £/sq.ft at sale agreed historically matches the HM Land Registry Index with 98% accuracy, a full 5 months in advance. It's the absolute canary in the coal mine for where the official indices are heading.
Stock levels sat at 731,000 homes on the market on the 1st of May '26. As you can see - demand isn’t the logjam, even in spite of the geopolitical events and the resultant changes to the interest rate. Everyone is keeping calm, and carrying on. As I’ve said - demand is fine, but supply is far too enthusiastic for pricing to rise much - regardless of what inflation does over the coming months.
And let's touch briefly on the PRS data Chris shared. Average rents in Week 19 hit an astonishing £1,817 pcm, pushing the wider May average to £1,778. The structural supply deficit is feeding straight into sustained rental inflation, proving once again that if you constrain supply while demand remains completely inelastic, the tenant ultimately pays the absolute maximum the market can bear - the only constraint is affordability, in the real world.
Chris - this is my weekly appreciation paragraph. Thanks for what you do! If you want some help positioning yourself as a local market expert - as an estate agent or any form of property professional - give Chris a shout! Either way give his channel www.youtube.com/@christopherwatkin a follow and some love, please!
Stop - Macro time. This is “no choice” week. Unemployment (and the labour market report). Inflation. Timely and “surprising” (although we knew what was coming). The PMIs with a strange but unsurprising reading when we get into it. Then - you know it - the gilts and swaps, as we had a better week (but it’s all relative, folks).
Let’s press on with the labour market report from the ONS, and the usual qualifiers about how unreliable this survey data currently is.
If you just read the headline, you might think the economy is healing. The headline UK unemployment rate actually dropped to 5.0% for the January to March 2026 quarter, down 0.2 percentage points from the previous quarter. But before anyone starts celebrating, we need to look at the actual plumbing. We were back up from 4.9% (which was mostly from people going from unemployed to inactive, which is the wrong direction) to 5%, although the consensus expectation was staying at 4.9%.
The administrative PAYE data from HMRC tells us a completely different, and far more brutal, story. The number of payrolled employees fell by 104,000 over the year to March 2026, dropping 28,000 between February and March alone. Worse still, the early flash estimate for April 2026 shows a horrifying drop of 100,000 jobs in a single month, pushing the annual loss to a staggering 210,000. As I’ve said for 18 months, when you hike the cost of employment with aggressive National Insurance changes and minimum wage bumps, businesses simply shed staff. The real-time data is screaming that the jobs market is bleeding out. Let’s hope that flash estimate is as far off as it normally is, but 100k is some mountain to climb.
Those who have 'been here before' with me on a labour market report know that I prefer the whole picture. The employment rate for 16 to 64-year-olds sits at 75.0%, which is up 0.1 percentage points on the latest quarter. The economic inactivity rate for that same age bracket ticked up 0.1 percentage points on the quarter to 20.9%. And yes, if you add the 75.0% employed, the 20.9% inactive, and the 5.0% unemployed, it doesn’t add up to 100% - because, as always, the unemployment figure includes anyone aged 16 and over, while the others are capped at 64. The fact that inactivity has ticked up again is the real structural problem we continue to fail to solve.
Vacancies also give you a snapshot picture of employer confidence, and that snapshot continues to show a looser labour market. The estimated number of vacancies dropped by 28,000 in the latest quarter to 705,000. To put that into perspective, this is the lowest level of open jobs we have seen since the dark days of February to April 2021. The hiring freeze is very, very real.
Earnings also fall out of this data set, and the Bank of England will be watching them closely. Annual growth in regular earnings (excluding bonuses) has cooled to 3.4%, and real wage rises are in “real” danger of going backwards within a few months. That’s never good. But the structural divide I frequently highlight is still glaringly obvious: public sector regular earnings grew at a robust 4.8%, while the private sector regular earnings have slumped to just 3.0% growth. The private sector is tapped out. When you adjust regular pay for CPIH inflation, real-term growth is practically flatlining at a microscopic 0.1% and that’s BEFORE this new wave of inflation kicks in. Your purchasing power is going nowhere. Where do we want this figure to be in a healthy economy (that, as an aside, has a chance of creating some “feelgood factor”) - 1% to 2%, realistically.
Finally, 23,000 working days were lost because of labour disputes across the UK in March 2026. Always sickening to see days lost, but far (FAR) lower than the peak strike days we've suffered in recent years. What we aren’t doing is moving the economy in the right direction from an employment perspective - and the Government remain silent on the matter, because they have a serious void of ideas from this perspective (and, many would argue, they just don’t understand business, incentives, and unintended consequences) - they are watching, and whilst it isn’t “fiddling whilst Rome burns”, it is more like sitting and praying for rain. A sad indictment as to the ability of this Government where this approach is actually likely to be the least worst.
Next up in the macro dashboard: the ONS Consumer Price Inflation report for April 2026. If you want to see exactly how statistical anomalies and political spin can mask the underlying reality of the economy, this is the perfect case study.
Let's start with the headline numbers, which Westminster will undoubtedly be plastering all over their campaign leaflets. The Consumer Prices Index (CPI) dropped to 2.8% in the 12 months to April, down from 3.3% in March. We were told this was going to be 2% at the time of the 2025 budget - but Iran put paid to any dreams of that (I was sceptical even before Iran, but that’s another, well-documented, story). The forecasters as a whole thought we were getting a 3% inflation print, so this was a win as far as the Bond markets were concerned.
The more comprehensive CPIH (which includes owner-occupiers' housing costs) also cooled to 3.0%, down from 3.4%. Even the core CPI metric - stripping out volatile food and energy - fell to 2.5%, its lowest level since July 2021. NO energy price cap included in that! We are even tracking lower than Germany (2.9%) for the first time since December 2024 (I doubt it will persist!).
On paper, the inflation monster is retreating. But you’ve read enough Supplements by now (and if you haven’t - welcome!), we don't trade on paper; we trade on the plumbing. Let's look under the hood.
First, the primary downward driver: Housing and household services. This was almost entirely driven by the Ofgem energy price cap reduction in April, which saw electricity prices fall by 8.4% and gas by 4.4% year-on-year. But remember the context: the assessment period for that cap was calculated before the current geopolitical conflict in the Middle East exploded. It is a backwards-looking metric that does not reflect the current volatility of wholesale energy markets. We’ve got news on the July cap next week and we aren’t looking forward to it!
Second, beware the "Easter effect" mirage. The ONS explicitly notes that recreation and culture, alongside airfares, dragged the index down simply because index day in April 2026 fell over a week after Easter. Last year, it fell right before Easter during the peak holiday booking surge. As a result, airfares miraculously "fell" by 3.3% year-on-year. That isn't structural deflation; it's a calendar glitch. The - quite literally - moveable feast that is Easter causes these anomalies in April data.
Where is the real structural reality? Look at transport, specifically motor fuels. This is where the transatlantic chaos and the Strait of Hormuz blockades are bleeding directly into the UK economy. Motor fuel prices surged by an eye-watering 23.0% in the 12 months to April - the highest annual increase since September 2022. The average price of petrol hit 156.8p per litre, a level we haven't seen since the depths of the energy shock in November 2022. Diesel is sitting at a bruising 190.0p per litre. That’s automatically based into the figures for the next 12 months until the prices break back.
This is imported energy inflation, and it is the exact reason why the Bank of England cannot simply declare victory and aggressively slash the base rate. They are terrified of a secondary inflation spike driven by global supply chains, exactly as Kevin Warsh is currently battling at the Fed. It’s pointless putting rates up to deal with this specific problem, but the Bank does understand this very well. This is why it is the wages they will be watching (and listening to their Decision Maker Panel) on. My gut feel is that this time round, businesses are saying “sorry, but we are all feeling this - we are all in it together, there can’t be Iran-linked pay increases”. Which seems reasonable to me, but of course there’s a conflict of interest there too!
What about the property metrics buried in the report? Owner Occupiers' Housing (OOH) costs - the metric that tracks the cost of owning and maintaining a home - remained stubbornly sticky, rising 3.6% annually (unchanged from March). Actual rentals for housing also saw an upward nudge, printing a 0.7% monthly rise in April. Renters’ Rights Inspired (or Rent Cap Chat Inspired, perhaps more accurately) - I’d think so.
The Takeaway: Do not consume the political 'hopium' that inflation is permanently cured. Yes, the headline rate of 2.8% provides a nice optical relief. But with petrol spiking to multi-year highs and the Ofgem cap masking underlying energy volatility, the cost-of-living squeeze on the UK consumer is far from over. This simply reinforces what we saw in the cratering retail sales data: your tenants are tapped out. The Bank of England will look at the underlying fuel pressures and the US rate environment, and they will hold the line. "Higher for longer" remains the base case. Stress-test your portfolios and proceed with brutal realism. Just wait and see what inflation we have in store this year - 4% is on the cards, but Iran plays a big part in where we end up - back over 3% in quick succession is a banker, folks.
Next up, my darling forward-looking metrics: the flash PMIs for May 2026. As I noted in my initial drafts for this week's Supplement, this is a strange but entirely unsurprising reading when we get into the actual plumbing of it. In many ways these are the ones I’ve been waiting for - not from a positive perspective, I’m afraid. If you want a real-time, unvarnished insight into an economy that has just slammed on the brakes, S&P Global has delivered it.
Let's start with the headline bloodbath. Business activity at UK private sector firms decreased in May, ending a 12-month period of expansion. The Flash UK Composite Output Index crashed to 48.5, down significantly from 52.6 in April. This is a 13-month low, dragging the UK economy firmly below the magic 50.0 no-change mark and into contraction territory.
Who is the culprit? Services. The absolute behemoth engine of the UK economy has fallen off a cliff. The Flash Services PMI Business Activity Index plunged to 47.9. Let that sink in. That is a 64-month low (and yes, that’s the “usually omitted” Covid figures when it comes to comparisons).
Why? Survey respondents are widely reporting subdued sales pipelines and incredibly fragile client confidence in the wake of the Middle East war. The geopolitical shockwaves and energy price terrors we've been tracking for months have finally frozen the service sector's order books.
But here is where the reading gets strange. While Services is cratering, Manufacturing is not just keeping its head above water, but smashing it (in recent context). Perhaps unsurprising on a war footing, to an extent, but of course we are not actively involved. The Flash Manufacturing Output Index actually ticked up to 52.4, a 3-month high, and the headline Manufacturing PMI held completely steady at 53.7 (unchanged from April). However, as I discussed last month, do not mistake this for a genuine industrial boom. This is heavily driven by supply chain panic, with firms stockpiling and front-loading orders because they are terrified of the Strait of Hormuz blockades and the transatlantic tariff reality.
And then we get, of course, to the inflation and jobs plumbing. The report highlights that input cost inflation continues to plague the private sector. What happens when service firms face rising fuel and wage bills but collapsing client demand? They shed staff. This PMI data shows a renewed downturn in the service economy, which perfectly validates that horrifying ONS labour market flash estimate we just dissected, showing 100,000 PAYE jobs vanishing in a single month.
The takeaway for the ruthless capital allocator? We are staring down the barrel of classic stagflation. The private sector is contracting, the service economy is freezing up, but input costs remain sticky. This is a thoroughly miserable dataset for the Bank of England. It proves once again that the economy is structurally weak, but because of imported inflation, the MPC cannot easily intervene with cheap money. Any lingering "hopium" for immediate base rate cuts needs to remain firmly in the bin. The only positive is this lower-than-expected inflation print, which is somewhat false based on the reallocation of the electricity levy announced last year.
Gilty, or not Gilty? A crash in relative recent terms, 4.702% became 4.468% on the yields in a triumph of a week - 23+ bps to in our favour. It would appear that the limiting factor/top end resistance at the moment is between 4.5% and 4.75% or so for the 5-year gilt - but in situations like this, the facts can change quickly of course.
The 12-month comparison sees us 33bps higher on 5-year gilts than last year. It still hurts, but it is valuable context - a third of one percent is hardly dramatically dangerous territory, it is just us moving in the wrong direction from the volume borrowers’ perspective. The 30s stuck above 5.5%, but in a week that started at 5.854% and ended at 5.58% their nearly-28bp cut is even better than the 5s. Still a good investment, but the great 5.85% I highlighted is gone as quickly as it came along, of course.
Swaps? Similarly, a big adjustment from those prints a couple of weeks back at 4.4% down to 4.23% on the 5-year swaps - unfavourable compared to the 4.07% of one month ago and 3.85% 12 months ago, but very much most certainly in the same ballpark. Meltdown territory has abated, and we can get the mortgage forecasts back to 6% or so on the very most competitive limited company buy to let products in 6 months time (with the knowledge that there’s a lot of variance based on what could happen over the coming 6 months!).
You know where we are at the moment? Keep Calm and Carry On territory, very much so. Why so confident? I’m not - yields could continue to take a walk, which is harder for all of us. However - the chances of a really major economic event - that dozens of the commentators out there are predicting, but (from what I can see) - more from a “if I get this right, I’ll be famous, if I get it wrong, everyone will forget about it” perspective (let’s call that the Kiyosake principle, for want of a better phrase - a man who has predicted 29 of the last 0 recessions, including his perennial “Global Meltdown” prediction when the pandemic had already started and his call for a global “everything crash” was at the bottom of the market) - those predictions would most likely lead to a DRAMATIC drop in interest rates, but they only occur if there are major issues that need a large amount of stimulus or government support - including mass unemployment, for example - so be careful what you wish for! $200 a barrel oil would be another such scenario - with people not being able to afford to get to work and pay rent and increased heating bills, for example. These are 10% scenarios, or perhaps 15%, in aggregate - not likely, but not as low a probability as we would like for things that are so damaging.
OK. Here endeth the lesson on current rates - here comes the Deep Dive. Where are we at? There’s a report that attracted my attention on LinkedIn that mentions “supernormal profits for Landlords”. It’s a very geeky economics term but it’s been presented as “data-based fact” by some fairly vocal left-wing sympathetic economists. Let’s check it out after last week’s onslaught of papers and reports about rent controls. Then we look at the Manchester Social Housing Commission’s final report on social rents calling for a revolution - will the potential next PM be reading this report? Savills produced something on Build-to-rent viability which is relevant to anyone looking at what the institutions are doing (I certainly do!). Then there’s one more report about flood risk - sorry to keep hammering on about it, but it does look massive, particularly for England, over the coming decades if you are playing the long game like I am! Onwards - starting with the supernormal profit claims:
Theme 1: The Myth of the Unprofitable Landlord
The Summary: The implementation of the Renters' Rights Act in May 2026 has brought landlord profitability into sharp focus. Despite frequent claims from representative groups that increased costs and regulatory burdens will force landlords to sell up, data published by the Autonomy Institute reveals a remarkably profitable sector. Using data from the English Private Landlord Survey, the report shows that post-tax total returns were positive for 99.8% of landlords in both 2018 and 2021. Even during the economic squeeze of 2024, returns remained positive for 98.8% of the cohort. Furthermore, a significant majority of landlords consistently exceeded a standard lower risk benchmark, which was modelled as a portfolio of 60% equities and 40% UK gilts. In 2024, 66% of landlords saw returns beating this 5.0% lower risk benchmark.
The Propenomix Perspective: This is data mining and cherry-picking at a level of insanity. Why are we highlighting 2018 and 2021? Or comparing to specific years where stocks haven’t performed? This data fixes the narrative but what it wants to say is what any serious market participant already knows: residential property remains an exceptionally resilient asset class. Yes, the regulatory landscape is shifting - and shifting fast with the new Act - but the prevailing narrative of a mass exodus driven by outright financial ruin is simply not supported by the numbers (more reallocation from small to larger landlords, as I’ve been saying). If almost 99% of landlords are still in the black after tax, the structural fundamentals of UK property are doing exactly what they are designed to do. The ones who are stuck seem to me to be stuck in pre-2016 and comparing what they earn today to what they used to learn (when they really did make supernormal profits). Beating a theoretical 60/40 equity-gilt portfolio is one thing; navigating real-world liquidity constraints is another. Then put some allowance in for effort or value the time of the landlord (and the “human cost” in terms of the negative events that can occur) - that changes the debate completely. The academic index says landlords are sitting pretty on paper, but I suspect that for many smaller investors, the lack of cash in the bank makes these "supernormal" returns feel like cold comfort and I know many will balk at this idea. We shouldn’t compare stocks to property for reasons already outlined in the podcast I mentioned above!
Theme 2: The Capital Gains Engine
The Summary: The Autonomy Institute report makes it clear that strong returns for private landlords are overwhelmingly driven by capital gains rather than rental yields. Property price appreciation accounted for approximately 69% of mean total post-tax returns in 2018 and 2021, before falling slightly to 58% in 2024. The data highlights that even when landlords record negative rental income in a specific year, they typically remain in profit overall once capital gains are factored into the equation. To smooth out short-term market volatility and better reflect landlord expectations, the researchers imputed these capital gains using an eight-year annualised growth rate from the ONS House Price Index. Post-tax rental income returns remained broadly stable between 2021 and 2024, confirming that the recent drop in overall returns was driven primarily by a cooling in capital appreciation.
The Propenomix Perspective: Yield is vanity, capital is sanity - but you still need cashflow to survive. The reliance on house price inflation as the primary engine of wealth generation is the defining feature of the UK property market. It is fascinating to see the report use an eight-year rolling average to model these gains. Academically, it makes perfect sense to smooth out the noise of market cycles. Practically, however, you cannot pay a tax bill or a tradesman with unrealised equity. When 58% of your return is locked up in the bricks, you are operating a capital accumulation vehicle, not an income-generating business. This dynamic explains exactly why landlords feel poorer today despite the underlying wealth metrics holding up. When price growth stalls - as we saw leading into 2024 - the structural fragility of relying on the housing market to do the heavy lifting is exposed for all to see. We should also note an incredible swerve of the 2023 market where prices went down in both nominal and real terms, and the complete lack of inflation benchmarking in the analysis thus far…..but of course, that wouldn’t fit the narrative. Cleverly sliding in a 40% bond allocation in the years when the interest rate normalized, which crushed bond market returns, isn’t lost on me even if the Autonomy Institute hoped that it would be on their audience.
Theme 3: The Leverage Lottery and Interest Rate Exposure
The Summary: Mortgage status and financing structures make a substantial difference to a landlord's bottom line. In 2024, higher policy rates sharply compressed returns for variable-rate landlords, making them the group with the weakest outcomes. Around 19% of variable-rate landlords recorded negative rental returns that year, driven directly by the Bank of England's rate rises. Conversely, fixed-rate landlords were partially insulated by legacy low-rate deals, although they previously faced the most stress in 2018 and 2021. Meanwhile, unencumbered landlords - those without a mortgage - remained incredibly resilient, recording zero losses in any of the survey years. Ultimately, where losses on the rental income side do occur, they are heavily concentrated among a minority of mortgaged landlords and tightly linked to financing structure rather than ownership type.
The Propenomix Perspective: Here is the leverage double-edged sword in all its glory. For years, the market cheered as debt-fuelled expansion created incredible returns on equity. Now, the tide has gone out, and we can clearly see who is swimming naked. The variable-rate cohort getting absolutely battered in 2024 is the inevitable result of rising swap rates colliding with stagnant yields. A 19% loss rate in that specific segment is severe - and frankly, it is a failure of risk management by the individuals involved. Meanwhile, the unencumbered cash buyers are sitting comfortably on the sidelines, entirely insulated from the Bank of England's machinations. The fixed-rate landlords who look secure today are merely delaying the pain; their day of reckoning is coming as those legacy products mature. This isn't a property crisis - it is a debt crisis disguised as a property crisis. Plus - people who own unencumbered property didn’t lose money - shock horror! How dare they not lose money?
Theme 4: The North-South Reversal
The Summary: Regional return profiles shifted dramatically across England between 2018 and 2024, completely inverting the established geographical hierarchy. In 2018, London and the South East dominated the market, delivering mean post-tax returns of 9% and 7.2% respectively, while northern regions significantly lagged. By 2024, this pattern had reversed entirely. Returns in London and the South East were comparatively weak, while regions like the North West, West Midlands, and Yorkshire retained relatively stronger returns and higher shares of landlords operating above normal financial benchmarks. The report notes that this reversal is consistent with broader evidence that the pandemic accelerated housing demand away from London, thereby depressing capital gains in the capital while supporting values in more affordable regions.
The Propenomix Perspective: Investors have spent the last five years chasing yield up the M1, and the data finally shows the macro-level result of that migration. London has hit a definitive affordability ceiling. When an asset becomes so expensive that the local workforce can no longer service the rents required to cover the landlord's borrowing costs, the capital growth engine inevitably stalls. The North West and Yorkshire offering superior returns is not a blip - it is a fundamental rebalancing of the English property landscape. However, amateur investors looking at this data should be careful. High percentage returns in lower-value regional markets look fantastic on a spreadsheet, but they often come with higher tenant turnover and increased operational friction. You cannot simply buy a terrace in the Midlands from a laptop in Surrey and expect the market to hand you an easy profit. The geography of opportunity has changed - and your strategy must change with it. I’ve been saying this for a long time. The skilful avoidance of the driver of this being the interest rate - which doesn’t suit the narrative of course - is evident in this report. As is the understanding (or not) of the fact that what people already own versus what they are buying today are two very different things……
Next up - Social Homes for Manchester and their most recent efforts analysed.
Theme 1: The £100 Billion Social Rent Shortfall
The Summary: The Manchester Social Housing Commission details a severe historical decline in social housing, noting a 26.5% drop in Manchester's stock since 1979 alongside a 35% increase in the city's household population. To counter the national crisis, the government recently announced a 10-year, £39 billion Social and Affordable Housing Programme. However, the report highlights that this will only deliver 18,000 new social rent homes annually. This equates to just 20% of the 90,000 net additional homes required each year to effectively address demand. To reach that 90,000 target, the Commission estimates over £100 billion in additional capital funding is needed. Furthermore, local authorities are burdened by an unsustainable £17 billion in Housing Revenue Account (HRA) debt, which heavily stifles their ability to build.
The Propenomix Perspective: The £39 billion headline sounds lovely for a press release, but it is a drop in the ocean when you look at the fundamental arithmetic. If you are building 18,000 homes a year while losing up to 10,000 to Right to Buy and another 3,000 to demolition, your net gain is a rounding error. I look at this and see a complete failure to understand supply-side economics. We cannot simply mandate local authorities to build when their Housing Revenue Accounts are drowning in £17 billion of debt. If the government genuinely wants 90,000 net additional homes a year, they need to inject £100 billion of real capital. Until gilt yields stabilise and the cost of public borrowing comes down, this grand vision is nothing more than political theatre masking a structural deficit.
Theme 2: Planning, Hope Value, and Developer Contributions
The Summary: The Commission scrutinises the planning system's impact on land viability for social housing. A major barrier is the concept of "hope value" in compulsory purchase scenarios, which can inflate land costs by an average of 275 times. While the Levelling-up and Regeneration Act 2023 allowed local authorities to remove hope value for public interest developments, ambiguity around the definition of "public interest" has deterred councils from using these powers due to the threat of costly legal disputes. Consequently, the report advocates for stricter national requirements on developer contributions to ensure a non-negotiable minimum target for social rent. It also calls for legislation explicitly allowing public land to be sold below market value to subsidise delivery without restrictive caps.
The Propenomix Perspective: Ah, the eternal battle over land value capture. The notion that councils are suddenly going to start compulsory purchasing sites at existing use value without paying hope value is frankly laughable. Yes, the 2023 Act gave them the theoretical power, but local authorities are terrified of litigation - and rightly so. You try explaining to a landowner that their prime site is suddenly worth 275 times less because the state deems it "in the public interest". Developers are already squeezing margins due to elevated build costs and higher financing rates. If you push non-negotiable social rent targets too high without making the land cheaper upfront, the private sector will simply down tools. You cannot tax a development into existence. Unless the state takes on the upfront land risk, expecting the private sector to cross-subsidise this utopia is naive.
Theme 3: The Decent Homes Dilemma and Retrofit Realities
The Summary: Poor housing conditions are a central focus of the report, with 21% of private rented sector properties officially classified as non-decent. The government plans to roll out a modernised Decent Homes Standard to all rental housing by 2035. However, the Commission expresses concern that 2035 is far too late for households currently living in hazardous conditions. Achieving these standards, alongside necessary climate retrofits, carries significant financial weight. Government modelling suggests a mean cost of £5,937 per home to meet the new decency standards, totalling £11.3 billion across the sector. The Commission argues that without substantial grants or public funding - particularly for social landlords already facing HRA deficits - these mandates could inadvertently lead to widespread demolitions or a reduction in the output of new homes.
The Propenomix Perspective: Here is where the rubber meets the road. Policymakers love drawing up sweeping mandates for EPC upgrades and Decent Homes Standards, but they routinely forget to ask who is paying the bill. A £5,937 mean cost per home might not sound fatal , but multiply that across millions of units and you are looking at an £11.3 billion black hole. Social landlords do not have this cash lying around, especially with their accounts already in the red - as highlighted a couple of weeks ago, given debt service cover of only 87%, the business model for growth simply isn’t there. As an investor, I see the immediate secondary effect: if you force expensive retrofits onto landlords without providing capital, they will either hike rents to cover the debt servicing or exit the market entirely (and bear in mind the formal mechanisms around this in the sector!). We are already seeing social providers scaling back new developments just to patch up their existing leaky stock. You cannot command and control your way to a decarbonised housing sector without breaking the balance sheet.
Theme 4: Centralisation vs Community-Led Development
The Summary: The report champions community-led housing models, such as Community Land Trusts and cooperatives, highlighting their immunity to Right to Buy policies. These models are proposed as a secure way to retain social assets permanently for local populations. Yet, the Commission points out a stark contradiction in current policy. Despite some positive funding allocations, such as a £20 million injection into a Community Developers Fund , broader government actions reflect a deregulatory and centralising agenda. The proposed National Planning Policy Framework reforms and the Planning and Infrastructure Act 2025 are cited as stripping away local community participation, moving towards the automatic delegation of planning decisions to officers, and removing funded support for neighbourhood planning.
The Propenomix Perspective: This is the classic disconnect between Whitehall theory and local reality. The report rightly praises Community Land Trusts as a brilliant mechanism to lock in value and dodge the Right to Buy drain. But look at what the government is actually doing. They are throwing a paltry £20 million at community developers while simultaneously bulldozing local participation rights through the new Planning and Infrastructure Act. The state wants to centralise power to speed up major developments and delegate decisions to officers. You cannot have it both ways. You cannot foster grass-roots, community-led regeneration while castrating the local planning committees. As a strategist, I look at this and see pure institutional inertia. Whitehall does not trust communities to build at scale, so they centralise. But by doing so, they kill the very local buy-in required to make these dense, urban social housing projects viable in the long term.
Next up - build-to-rent, prime office and viability according to Savills most recent Build: Perspective release;
Theme 1: Geopolitical Friction and Surging Build Costs
The Summary: Geopolitical tensions, particularly the conflict in the Middle East, are casting a long shadow over the UK construction sector. The Savills Build: Perspective index, which slipped into negative territory in late 2025, has experienced a sharp reversal, jumping to a score of 36 in early 2026. This indicates widespread expectations of increased build costs and extended programme timelines across most sectors. Materials suppliers are already passing on cost increases for inputs tied to fossil fuels. Consequently, 2026 tender price inflation in the UK construction sector has been revised upward to 3.0%, driven predominantly by persistent materials and compliance pressures rather than a demand-led recovery. While contractors might absorb some costs to secure work, the near-term outlook remains highly uncertain.
The Propenomix Perspective: I have to laugh when I read about indices jumping to a score of 36 as if this is some shocking revelation. Anyone who has looked at a site appraisal in the last six months knows we are in the thick of it. The Savills data highlights a 3.0% tender price inflation , but let us be honest - that feels optimistic when you look at the real-world mechanics of securing steel or concrete today. The narrative that contractors might just absorb these price hikes to win work is a dangerous fantasy. Margins are already razor-thin, and insolvency risk is glaring at us. We are not seeing a demand-led recovery; we are seeing a structural cost plateau. You cannot value-engineer your way out of global energy shocks, and until the base cost of materials normalises, development viability will remain largely theoretical for most sites.
Theme 2: The Bifurcation of Office Space and the Flight to Quality
The Summary: The office market is experiencing a profound divergence, with occupier demand heavily concentrated on best-in-class, highly amenitised, and ESG-compliant spaces. In Central London, Grade A space accounted for a record 93% of take-up in 2025. This fierce competition for a shrinking pool of premium assets has driven the City benchmark rent to £145 per square foot. Similarly, in the regional markets, vacancy rates for prime buildings sit at an incredibly tight 1.9%, compared to 10.5% for the wider market. With development pipelines constrained - 46% of the 2026 to 2030 Central London pipeline has yet to start construction - occupiers are increasingly reliant on refurbished schemes to meet their high-quality space requirements.
The Propenomix Perspective: This is the classic tale of two cities - or rather, two entirely different asset classes masquerading as one. Headline vacancy rates mean absolutely nothing when Grade A space is effectively sold out before the paint is dry. That 1.9% prime regional vacancy rate is the only number that matters. We are seeing a massive obsolescence risk for anything that is not prime. The idea that tenants will just happily drift to secondary locations or accept sub-par stock because of tight pipelines is nonsense. Instead, they are paying £145 per square foot in the City. The reality here is that secondary offices are becoming stranded assets. If you are sitting on Grade B stock and hoping the rising tide will lift your boat, I suggest you grab a lifejacket. The capital expenditure required to bring these assets up to occupier and ESG standards will completely wipe out your yield.
Theme 3: The Retrofit Revolution and ESG Premiums
The Summary: Across multiple commercial sectors, the economic case for refurbishing older assets is strengthening, driven by a combination of new build viability challenges and evolving environmental regulations. In the Industrial and Logistics sector, space under construction has plummeted by more than two-thirds from its peak to just 6.5 million square feet in early 2026. This supply constraint, alongside strict ESG requirements from prime occupiers, is making retrofitting highly attractive. Savills research analysing 673 leasehold deals reveals that buildings achieving an EPC rating of A+ or A command an average rental premium of 55% nationally over those rated C or lower. Consequently, upgrading legacy stock is no longer just about compliance, but is a fundamental driver of asset value and obsolescence avoidance.
The Propenomix Perspective: A 55% rental premium for an EPC A+ rating? That is not a premium - that is a survival tax for the rest of the market. Let us cut through the greenwashing. Landlords are not retrofitting because they suddenly care deeply about net-zero targets; they are doing it because the development maths for new builds is completely broken. When logistics pipelines shrink by two-thirds, you have to make do with what you have. But here is the rub - upgrading a legacy shed to EPC A+ is incredibly capital intensive. Yes, the tenant demand is there, and yes, the rents look fantastic on paper. However, when you factor in the borrowing costs at current SONIA rates, the actual return on that retrofit capital expenditure is heavily squeezed. It is a necessary defensive move, but do not mistake it for easy money.
Theme 4: The Viability Crisis in the Living Sector
The Summary: The UK Living sector, particularly Build to Rent, is facing severe viability pressures despite robust investor appetite. The challenges are multifaceted: construction costs have surged by 36% since early 2020, and the cost of finance has increased significantly, with SONIA approximately 300 basis points higher. Additionally, regulatory hurdles, including the Building Safety Levy and complex Building Regulations, are extending programme timelines. These combined factors have severely eroded developer profitability, resulting in only 6,200 Build to Rent homes commencing construction in the 12 months to March 2026 - a 79% drop from the 2022 peak. To adapt, developers are exploring alternative strategies, such as reducing building heights or pivoting to Co-Living models to improve land use and affordability.
The Propenomix Perspective: This is the most damning part of the entire report. A 79% collapse in Build to Rent starts since the peak is a catastrophic market failure, plain and simple. We have a massive housing undersupply in the UK , yet the people ready to build are being suffocated by a lethal cocktail of 36% cost inflation and a 300-basis-point jump in borrowing costs. The industry's response? Build shorter buildings or pivot to Co-Living. That is not innovation; that is a desperate retreat. We are shrinking our ambitions to fit a broken appraisal model. Until the government steps in with actual regulatory stability and policy reform, rather than piling on more levies, the viability gap will remain a chasm. You cannot squeeze blood from a stone, and right now, the Living sector development model is bone dry.
Then last but not least, a paper where lessons won’t be learnt but they should be - about building resilience BEFORE the storms rather than being reactive on flood defences - this is from the Pension Insurance Corporation:
Theme 1: The Viability Gap and the Environment Agency's Grip
The Summary: The Environment Agency directs development away from high and medium flood risk areas, which covers approximately 10% of the land in England. Unfortunately, this segment includes some of the nation's most economically productive regions. Institutional investors like Pension Insurance Corporation evaluate long-term exposure and regularly reject housing and infrastructure projects in these zones if mitigation costs are excessive or regulatory paths are unclear. This creates a severe "viability gap" where projects fail to meet required return thresholds due to anticipated flooding risks and planning hurdles. The existing Sequential Test in planning explicitly forces developers to seek alternate low risk sites. Consequently, vital land is left underdeveloped, a dynamic that the report warns will systematically constrain future Gross Domestic Product growth and exacerbate regional inequalities.
The Propenomix Perspective: I have been banging this drum for years - the current regulatory framework is actively throttling supply where we need it most. The Environment Agency is essentially acting as a shadow planning authority, drawing red lines over a tenth of the country. When an institutional heavy hitter like PIC walks away from a fully approved multi-family rental scheme simply because the adjacent land might get soggy in twenty-five years, we have a profound market failure. We are supposedly trying to hit a target of 1.5 million homes this Parliament. You cannot do that if capital is terrified of the Sequential Test. Developers are looking at gilt yields and SONIA swap rates, calculating their margins, and rightly deciding that fighting the Environment Agency is not worth the risk premium. We need a proactive, Dutch-style infrastructure approach, not a managed retreat.
Theme 2: The 2039 Flood Re Cliff Edge and Insurance Chaos
The Summary: Flood Re, the joint initiative ensuring affordable flood insurance for properties built before 2009, is currently scheduled to end in 2039. The transition plan confirms this exit date is not conditional on any specific criteria being met. The Bank of England has explicitly highlighted the financial stability risks of areas becoming uninsurable, which could lead to collapsed property values, tightened mortgage availability, and widespread bank losses on residential lending. To address this, the report proposes making the Flood Re levy permanent and repurposing its surplus to fund physical resilience upgrades for existing buildings. Without intervention, the expiration of Flood Re could render high risk towns unviable as funding for defences fails cost-benefit tests and standard insurance cover vanishes.
The Propenomix Perspective: Welcome to the 2039 cliff edge. If you are holding a portfolio of older stock in a designated flood zone, the clock is ticking - loudly. The fact that Flood Re is set to evaporate with no actual safety net is quintessential short-termism. The Bank of England understands the systemic risk here. If insurers walk away, mortgage lenders walk away next. Try refinancing your Buy-to-Let portfolio when the bank values the asset at zero because it cannot be insured. The proposal to turn Flood Re from a mere subsidy into a permanent capital expenditure fund for physical resilience makes perfect macroeconomic sense. However, it requires a Government willing to look beyond a five-year cycle. Until then, institutional capital will simply redline these areas, leading to trapped legacy homeowners and widening regional wealth destruction. Will they listen? Not yet I suspect, but the Government needs to be made continually aware of these risks until they take action in a timely fashion.
Theme 3: Flooding Resilience Zones and Tax Incentives
The Summary: The report advocates for a radical shift in funding flood defences by crowding in private capital. It suggests redesignating high and medium flood risk areas as Flooding Resilience Zones. To incentivise development within these zones, policymakers could introduce tax increment financing, capturing land value uplift to pay for ongoing flood management. Additionally, the report proposes a Flooding Resilience Enterprise Engine Credit, loosely modelled on the United States low-income housing tax credit system. This mechanism would allow developers to sell tax credits to financial institutions for upfront equity, frontloading crucial infrastructure investments. Furthermore, abolishing VAT on flood remediation and repair work is recommended to remove current disincentives for property owners improving their building resilience.
The Propenomix Perspective: Now we are talking about actual mechanics rather than just wishful thinking. A land value uplift capture in these new zones is sensible - if public or private defence work suddenly makes a piece of land viable, slicing off a piece of that margin to fund the wall itself is basic economics. But the real meat is the proposed tax credit system. Borrowing the US low-income housing tax credit model to frontload equity for flood infrastructure is exactly the sort of financial engineering we need. When developers are battling supply constraints, high material costs, and expensive debt, dangling a tradeable tax credit could finally make the maths work. And abolishing VAT on remediation?. It is an absolute no-brainer. Taxing homeowners 20% for trying to stop their living rooms turning into a swimming pool is absurd policy. Full marks for those who have put the paper together, proposing a solution that would get PIC (amongst others) fully back to the table to play their part in the crucial housing supply marketplace.
As we get towards the end for this week - I can’t wait for our next workshop in London on 1st July. The VIP dinner afterwards, last time out, set new standards afterwards in terms of its length, breadth and depth of conversation. Don’t miss the next one! Due diligence is the topic, and this is broader than how you are being measured by others, just as how you should measure others; we include deal due diligence - deals, partners, companies and counterparties including lenders and borrowers. The full gamut. The live DD exercise - how I do it, no stone unturned - is always very popular and adds value (and has even had predictive value in terms of just which smoke-sellers one should avoid, in past workshops…..)
We always have real life case studies about our own experiences, and close with our “no-holds-barred” Q+A. The VIP dinner for this one will sell out once again, without doubt. Get access to Rod and myself afterwards to discuss your individual and unique circumstances over dinner. Book your tickets for Wednesday 1st July, Central London at: www.tinyurl.com/pbweleven
Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On. There will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. Capital growth looks set to remain slow(ish) at the moment, although if you are in the right part of the UK, you will be well looked after by the combination of that plus increasing inflation, the big bull run needs some runway first (although let’s see what the FCA and PRA do around continued easing of lending requirements) - now it’s time to deal with the consequences, both intended and unintended, of the Renters’ Rights Act. The fundamentals haven’t changed - there’s a shortage of 2-3 bed terraces and semis, there was 15 years ago and it has only got worse since then. “Investing in property” is not a guaranteed win. Investing in undervalued areas, sexy on the spreadsheet, strong yields - that’s as close to a guarantee as you will get in any game, which will also ensure you keep pace and indeed stay ahead of inflation. KCCO!