Why solving the country’s housing crisis means backing – not battering – landlords
Politics is a strange world, and the year’s events (Trump, Brexit and elsewhere in Europe) are topsy-turvy. But I still find it strange that Britain’s best and most effective form of housing provision, the private rented sector, is coming under such consistent attack.
Policies such as changes to the way landlords are taxed, the stamp duty levy on the purchase of homes to rent, the decision to end letting agent fees paid by tenants and criminal sanctions around the right to rent checks have created an atmosphere of uncertainty for the sector.
As we look ahead to 2017 we need to re-focus on the core objective of boosting the supply of homes to rent alongside all other tenures which ministers have rightly called for and which should be reflected in the government’s forthcoming housing White Paper. The Royal Institution for Chartered Surveyors predicts that 1.8m new homes to rent will be needed by 2025.
As a start, policy needs to recognise that corporate investment in the rental market will only go so far. Large blocks of flats require a significant amount of time to get off the ground and tend to be only in cities. As the House of Lords Economic Affairs Committee so vividly put it last year: “efforts to bring large institutional investors into the sector have so far achieved little”.
Any route towards boosting the supply of homes to rent cannot therefore be viable without supporting the vast majority of landlords who are individuals. The majority of these enjoy good relationships with their tenants and provide good and decent accommodation. What’s more, the Council of Mortgage Lenders has noted that over half of landlords have loan-to-value ratios on buy-to-let mortgages of below 60 per cent, far more conservative than lending for owner occupied properties.
While the RLA will continue to call for the changes to mortgage interest relief to apply only to new borrowing, it will seek for some of the extra tax raised from this and the 3 per cent stamp duty levy on the purchase of additional homes, to be used to encourage the kind of behaviour the government is looking for. These measures are expected to net the Treasury £3.1bn by 2021.
First, it could help finance a policy of not applying the levy where a landlord is prepared to invest in a home to rent which adds to the net supply of dwellings. This could be a new build property, converting commercial units into housing or bringing one of the over 600,000 empty homes back into use.
Second, to develop the new homes we need for rent, more work is needed to free up small plots of unused land which can often become magnets for anti-social behaviour. These are of no interest to big developers but individual landlords could swiftly develop a few properties on them. The Local Government Information Unit and the Federation of Master Builders reported recently: “we will not build the homes we need in the UK on large sites alone”.
Local authorities and public bodies such as the Ministry of Defence and the NHS should be encouraged to identify small plots (suitable for up to five new homes) of unused public sector land for development by the private rented sector, and there could be various models for land transfer that would benefit councils, tenants and landlords.
Third, in the 2016 Budget the government announced that capital gains tax would be cut from 28 per cent to 20 per cent from April 2016. It noted at the time that it would not apply to residential property in order to incentivise investment in companies over property. Given the extent of the housing crisis we need to incentivise investment in property just as much as companies. That is why, with protections in place to prevent abuse, we believe that the lower rate of capital gains tax should apply where a landlord is prepared to sell a property to a sitting tenant.
As landlords look ahead to 2017, they will do so with a sense of weariness and concern having felt bruised during 2016. Ministers are right to talk about needing more homes of every tenure. The year ahead will provide an opportunity to make good on this promise and support the country’s landlords to develop the homes we need to rent.