Alan Ward is Chairman of the Residential Landlords Association.
The Conservative Party conference marked a welcome shift in the Government’s approach to housing accepting that we need more homes across all tenures, not just home ownership.
This recognises the reality that we need more homes for rent, to house those who are having to rent for longer as they save for the ever larger deposits required to buy. And those for whom buying is either never likely to be a realistic option or who to prefer to rent.
To achieve the 1.8 million new homes to rent we need by 2025, according to RICS, we need to back the largest supplier of new homes over recent years: private landlords. The previous administration saw private landlords as part of the problem instead of part of the solution.
To put it simply, it alleged buy-to-let landlords are taking advantage of huge tax breaks to buy up all the houses on the market, creating a dangerous lending bubble in the process.
To tackle these in order. Thanks to changes introduced by George Osborne, landlords are now the only business that pays tax on its income instead of its profit. Over 60 per cent of landlords in a survey said that the change would push them into a higher rate of tax despite their income not having increased.
Commenting on this and other tax increases, the Institute for Fiscal Studies noted that: “the tax system is not, and was not, even before the recent changes, more generous to people buying to let.”
The impact, according to an RLA survey of almost 3,000 landlords, is that two-thirds said they would increase rents to cope with the extra tax, making it more difficult for tenants to save for a home of their own.
To deter landlords buying more homes, the former Chancellor slapped a three percentage point levy on stamp duty for properties being bought to rent.
Research by the London School of Economics reported that “only a minority” of house sales to landlords involve bids from both them and potential home buyers. In June, Baroness Williams, then a DCLG minister, noted that “the types and locations of properties that they [private landlords] prefer will not always be identical to owner occupiers.”
It is important to distinguish between anecdotal evidence of landlords bidding on property also being bid on by first time buyers or even being the majority buyer in some developments and evidence of actual competition between the two groups as a general effect. The evidence for the second of these simply does not exist.
The result is that two-thirds of landlords do not plan on purchasing any additional properties for their portfolio despite the need for more homes to rent.
Lastly, the Treasury asked the Bank of England to be prepared to step in to restrict the financing of buy-to-let purchases because of a perceived bubble developing. The reality is that on average, landlords are not saddling themselves with anywhere the near the debts being amassed by home owners.
As the Council of Mortgage Lenders has noted: “the leveraging profile of buy-to-let borrowers looks particularly conservative when viewed alongside first-time buyers.” It reported that on average, a homeowner borrowed 78 per cent of the value of a property, compared to 70 per cent for buy-to-let borrowers.
Neither does the solution lie with institutional investors as ministers had thought. Corporate money has not flooded into the rental market anything like as quickly or at a scale that had been hoped, as the House of Lords Economic Affairs Committee noted in its report on housing in July: “efforts to bring large institutional investors into the sector have so far achieved little.”
Instead, if we are to develop the homes to rent that we need then we have to get behind the majority of good, individual landlords and encourage them to get building. We need to end the tax on investment in new housing.
The Autumn Statement should announce that the three percent stamp duty levy on the purchase of homes to rent out will not apply where a landlord invests in property adding to the overall supply of homes.
The 20 per cent rate of Capital Gains Tax should be applied where a landlord is prepared to sell a property to a sitting tenant.
Measures are needed to prevent landlords from being moved into higher rates of income tax where their income has not actually increased. Crucially the mortgage interest changes, when they begin to be rolled out from 2017, should also apply only to new borrowing, and avoid the precedent of retrospective taxation.
It is also time to end the anomaly that means VAT can be reclaimed on goods and services for the construction of a new dwelling where it is for owner occupation but not on homes developed to rent.
The challenge for the Government is to turn the rhetoric about providing new homes into reality. Private landlords have an outstanding track record of creating new homes, and are still ready and able to make a positive contribution.
All that is needed is a more positive policy framework which provides the right environment for investment.