To solve the housing crisis, the UK needs to build one million more rental properties by 2021, according to Savills. Simultaneously, PwC forecast a quarter of households to be in the private rented sector by 2025.
Challenged by the rising demand, the Government should rather support investment in the sector instead of actively paralising it through tax changes.
In the years from 1996 and 2013, 83% of all new homes built in England were in the private rented sector, of which the majority was created by investment from individual landlords.
Back in 2012, the Commons’ Communities and Local Government Committee concluded: “The sector is, and will continue to be, dominated by small companies and individual landlords.”
Nevertheless has the Treasury decided to embark on a fiscal attack on those small companies and individual landlords, all in the name of equalising the property playing field with home owners.
Their reasoning behind this is that landlords are occupying or buying up too many homes and are therefore restricting access to affordable houses for possible homeowners. Furthermore, buy-to-let investors, compared to owner-occupiers, enjoy a full tax-deductibility of interest in on mortgage finance costs.
As a party, the Conservatives have always championed home ownership and everyone who is privileged enough to live in a home they call their own, should do all they can to support those aspiring to achieve the same.
What shouldn’t be done, is creating a false choice between supporting rented housing and home ownership. There basically is hardly any evidence that those two group go for the same property.
The myth, that the recent tax changes are based on the notion that rental housing is taxed more favourably than any other housing tenure, is really only that: a myth.
In fact, a study by the Institute for Fiscal Studies revealed that buy-to-let is already taxed more heavily than owner-occupier and social rented housing.
The tax benefit for owner-occupiers lies in free capital gains of capital gains tax and no tax liability on the rental value of their occupation.
Historically, smaller landlords are the ones buying up and refurbishing flats, which are usually less sought-after by owner-occupiers. The increase in tax puts this process at risk, as it might make it less profitable for smaller landlords. The result is empty properties and the return of housing blight to some areas.
The Treasury select committee as well as others have noted that changes to mortgage interest relief and stamp duty for rental housing will also lead to increased rents, which in inevitable as landlords try to recoup their loss.
In areas where a housing shortage is already present, a drop in investment by landlords will make the situation worse. This makes it quite hard to see how the developments are supposed to make it easier for someone to save up for a deposit.
If the Chancellor achieves his goal and get buy-to-let landlords to sell to owner-occupiers, the original tenants would obviously have to move out first.
A problem resulting from this could be homelessness, putting people with no ability to own property on the street.
And at a time, where the cost of a deposit is also in the rise, the average now required for a first-time buyer is just under £33,000, Osborne’s tax changes are more than counter productive.
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”.
Finding somewhere affordable to live will become less easy for jobseekers.
So what needs to happen?
First of all, the Chancellor needs to stop attacking buy-to-let and smaller-scale investors.
The ones that will be hit the hardest by those changes are small-scale investors, renting out a handful of properties.
Furthermore it’s time to free up small plots of unused land, the size corporate developers will show no interest in, but which smaller-scale landlords could develop quickly.
Finally, the focus needs to shift on supply, not only supporting large institutions, but all landlords. The simple concept of recycling property from tenanted to owner-occupier delivers no net housing gains.
Source: The Telegraph