Attacking buy-to-let sector will worsen housing crisis
03-16-2016
Telegraph
We must not pretend there is a false choice between supporting rented housing on one hand, and home ownership on the other
The UK needs one million new rental properties by 2021 to meet demand, according to Savills, while PwC says that by 2025 a quarter of households will be in the private rented sector.
Faced with rising demand, the Government should be supporting investment in the sector and not, through the recent tax changes relating to buy-to-let, actively discouraging it?
Between 1996 sand 2013, 83pc of all new dwellings created in England were in the private rented sector, the majority of which were created by investment from individual landlords. As the Commons’ Communities and Local Government Committee rightly concluded in 2012: “The sector is, and will continue to be, dominated by small companies and individual landlords.”
Yet over the last year the Treasury has embarked on a fiscal attack on those small companies and individual landlords, in the name of levelling the playing field with home owners. The reasoning is that landlords are occupying or buying up too many homes and so restricting access to affordable stock for would-be home owners and that buy-to-let investors, unlike owner-occupiers, enjoy the full tax-deductibility of interest on mortgage finance costs.
As a party, the Conservatives have rightly championed home ownership and those of us privileged to live in a home we can call our own should do all we can to support those aspiring to do likewise.
What we must not do is to pretend there is a false choice to be made between supporting rented housing on one hand, and home ownership on the other. There is little, if any, evidence to demonstrate that home owners and buy-to-let investors are chasing after the same properties.
To the extent the tax changes are based on the notion that rental housing is taxed more favourably than any other housing tenure, this a myth. As the Institute for Fiscal Studies has made clear, buy-to-let is already taxed more heavily than owner-occupied and social rented housing.
Owner-occupiers have the tax benefit of capital gains free of capital gains tax and no tax liability on the rental value of their occupation. Smaller landlords are good at buying up and refurbishing older properties which are less sought after by owner-occupiers. The danger is that the increase in taxes recently imposed will dissuade smaller landlords from investing in such properties, leaving them to stand empty, and bringing back housing blight to some areas.
As the Treasury select committee and others have noted, changes to mortgage interest relief and stamp duty for rental housing will also lead, inevitably, to increased rents, as landlords seek to recoup the extra costs imposed on them.
In areas of housing shortage, a fall-off in investment by landlords would worsen this problem. It is difficult to see how this helps those already struggling to raise the funds for a deposit for a home of their own. If George Osborne achieves what he appears to want, and buy-to-let landlords seek to sell to owner-occupiers, they will, of course, also need to evict their tenants first.
This could lead to homelessness problems as tenants with no ability to buy their own property are put on the streets. Figures from the Association of Residential Letting Agents already show that those renting for the first time today will pay an average total of £64,400 in rent before buying their first home.
At a time when the cost of a deposit is also increasing – with the average required for a first-time buyer being just under £33,000, according to the Halifax – the Chancellor’s tax moves are counter-productive.
The best 10 postcodes for buy-to-let
The Treasury select committee has also pointed out that access to private rented housing has been key to supporting mobility in the labour market. The risk of choking off the supply of rented properties would, in the words of the committee, “come at a cost to the wider economy”.
It will be less easy for jobseekers to find somewhere affordable to live. So what needs to be done? Firstly, the Chancellor needs to stop the fiscal attack on buy-to-let, smaller-scale landlords.
Many smaller-scale landlords, renting out a handful of properties, hit by the additional taxes, are the very people we as Conservatives should be supporting, those investing to provide homes while also seeking to provide financial security for themselves in old age. Secondly, the tax system needs to do more to encourage landlords to invest in new homes.
An RLA survey found that two thirds of landlords would be more likely to sell a property to a first-time buyer if capital gains tax rollover relief was allowed, where the proceeds of sale are reinvested in new homes. It’s also time to free up the small plots of unused land which corporate developers are not interested in, but which smaller-scale landlords could develop quickly.
The same RLA survey found that 46pc of landlords would be interested in developing smaller plots of land for up to four units of private rented housing if these were made available for development.
Finally, there needs to be a focus on supply, supporting not just large institutions, but all landlords. The concept of recycling property from tenanted to owner-occupier delivers no net housing gains.
What is wanted are radical increases in the volume of available tenanted and owner-occupier properties. The Government needs to demonstrate that it is on the side of tenants as well as home buyers.
Lord Howard Flight is a Conservative peer and a former shadow chief secretary to the Treasury