David Jones is a former Welsh Secretary and is MP for Clwyd West.
For all the Government’s laudable ambitions to support home ownership, the country still needs a lot more homes for private rent. Savills has predicted that a million new rental homes will be needed by 2021. The Treasury Select Committee, too, has argued that ministers need to do more to boost the supply of homes to rent, alongside efforts to increase owner-occupied properties. Rented housing is also critical to supporting a flexible labour market.
To ensure the extra supply of rented accommodation, the Chancellor should now reassess the campaign he is pursuing against landlords. To see rented housing as the enemy of owner occupation is misplaced and counterproductive to addressing the country’s housing needs.
Contrary to popular myth, landlords are not taxed more favourably than home owners. As the Institute for Fiscal Studies has noted: “The tax system is not, and was not, even before the recent changes, more generous to people buying to let.”
No evidence has been produced by the Treasury to support its argument that landlords are competing for the same properties as first-time buyers and are therefore denying opportunities for home ownership. Professor Michael Ball of Reading University has noted that many properties bought to rent, such as houses in multiple occupation, are often unappealing to first time buyers.
As a party, we should ask ourselves why we clobbering a group of people who, having been hit by Gordon Brown’s pension credit reforms, decided to invest in property as a way of providing financial security for themselves and their families.
The assaults on landlords through the tax system, including restricting mortgage interest relief to the basic rate of income tax and a three per cent point levy on stamp duty for the purchase of homes to rent, will both deter investment and drive up rents. Landlords will seek, not unreasonably, to recoup these extra costs. The Treasury Select Committee argued that if the stamp duty levy did not result in higher rents “it could not be claimed to support home ownership.”
It is little wonder that, following the Budget in March, a survey by the Residential Landlords Association (RLA) found that 78 per cent of landlords felt that the tax changes would deter them from investing in more rented properties, so making it more difficult and expensive for tenants to find the accommodation they need.
Ministers have argued that they are encouraging corporate landlords through various schemes such as the build to rent fund. That is to be welcomed. However, it should not come at the expense of discouraging the private individuals who make up the vast majority of the country’s landlords.
Corporate investors are good at building to scale. However, given the size of new housing developments and associated infrastructure, they cannot deliver new homes quickly enough. Nor do corporate landlords always provide new housing where people want to live, concentrating, as they do, on prime sites in town centres. We need new homes to rent now, not at some ill-defined point in the future. We also need more rented accommodation in small towns, suburbs and rural areas, where private landlords predominate.
By far the best option would be for the Government to row back from its unhelpful reforms. They will hurt both tenants and landlords, and serve only to make the housing crisis worse. The Finance Bill, awaiting detailed scrutiny in the Commons, provides the best opportunity to make the changes needed.
First, to support tenants into home ownership, the new 20 per cent Capital Gains Tax (CGT) rate should be applied to landlords prepared to sell their property to an occupying tenant. RLA research has found that 77 per cent of private landlords would consider selling their property to tenants under such circumstances. The policy is supported also by the Royal Institution of Chartered Surveyors.
Second, there should be an exemption for landlords from the extra Stamp Duty levy where they invest in property that adds to the net supply of housing. This would be attractive to 39 per cent of landlords who have reported that they would be more likely to invest in new build rented housing if this was the case.
Third, the Government needs to address the unfairness in its mortgage interest changes. In a survey of almost 1,200 landlords, of those currently paying the basic rate of income tax, over 60 per cent said that the changes would push them into a higher rate of tax, despite their having no increase in their income. This is because tax will now be applied to turnover, rather than profit. Ministers still have time to reverse this profoundly un-Conservative measure, the basis for which remains unclear.
None of these changes would detract from the Government’s ambitions for wider home ownership; in fact, through the suggested CGT change and reduced costs, they would positively help tenants get on to the housing ladder. Margaret Thatcher showed that there need not be a trade-off between home ownership and boosting the supply of private rented housing. That truth remains today.