Robert Colvile is the Director of the Centre for Policy Studies.
Nothing is as powerful as an idea whose time has come. But it’s sometimes possible to hope they had come a little later.
Last week, reading ConservativeHome, I found myself choking on my cornflakes at the proposal by Will Tanner, director of Onward, that owners of second homes should be incentivised via Capital Gains Tax rebates to sell them to their tenants. Not because I didn’t think it was a good idea. I did. Such a good idea, in fact, that we at the Centre for Policy Studies were shortly due to publish our own paper, proposing… that owners of second homes should be incentivised via Capital Gains Tax rebates to sell them to their tenants.
Like the simultaneous discovery of calculus, or oxygen, or evolution, this is clearly a case of great minds thinking alike. It also shows that it is an idea whose time has come: those who we have consulted on this proposal over recent weeks and months, both inside and outside government, have been near-unanimous in their enthusiasm.
The basic case is simple. Britain faces, as I have repeatedly pointed out (see here, for example), not just a housing crisis but a home ownership crisis. This is arguably the single greatest domestic policy challenge for the Government – and the single greatest political challenge for the Conservatives, given that (as Matt Singh has shown ) 77 per cent of the swing towards Labour at the last election can be explained by the increasing number of young renters and the falling number of young owners.
To solve this crisis, building more houses is necessary – but it is not sufficient. We also need to address the fact that a combination of ill-advised reforms under the Blair and Brown governments, and the impact of the financial crisis, sparked a boom in buy-to-let at the expense of first-time buyers. In total, our research shows that there has been a shift in incentives worth £220 billion, as elderly savers were pushed to seek a safe harbour for their assets in the property market – at the expense of those who, a generation ago, would have been buying their first homes. (As recently as 1995-6, two thirds of average earners in their twenties owned their own homes. Today, it is just a quarter.)
Much of the rhetoric in this area involves attacking landlords. But we at the CPS do not believe that people should be punished for having made sound investment decisions – often to provide for their retirement. Indeed, most landlords have meagre property portfolios and are making limited returns. That is why they should be offered carrots rather than sticks to persuade them to sell up – although the prospect of Jeremy Corbyn’s rent controls and tax rises is a pretty big stick in and of itself.
Selling, however, is only half of the equation. We need to ensure that those properties that are being sold end up being owner-occupied rather than rented – because a society based on mass ownership is one that is more prosperous, more content and more secure. It is also one in which people have greater control of their lives and their futures – a key theme of all the policies the CPS has been working on.
What we propose, therefore, is that the Government should make every buy-to-let landlord in the country a time-limited offer. For one year, if they sell up, they will get a CGT rebate worth 33 per cent of the tax they would have paid, plus (in the case of those with only one property) a cash bonus of £3,000. The buyer will get the remainder of the rebate, as the core of a deposit – up to 6.66 per cent of the value of the property, with them having to put in the remainder. (This is, emblematically, similar to the discount on the original Right to Buy.)
The landlord will have to give first refusal to the current tenant, at the date the scheme is announced (to prevent fast practice involving the installation of friends or family members). The landlord will also be offered the option of investing the proceeds of the sale in a shared ownership scheme with reliable returns, to ensure they have a revenue stream to replace that which was lost.
There are, of course, potential objections. Is it fair that a tenant in London or the South-East whose landlord has owned for decades will receive a bonanza, while her neighbour in an identical house might only get a few hundred pounds? What about parts of the country where – shocking as it may seem to those inside the M25 – house prices have actually fallen? How can we be sure that house prices will have risen by enough to fund the scheme? And isn’t this just a giveaway to feckless young people?
We at the CPS are fortunate, then, to have had Alex Morton working on this. Alex, who is well-known to readers of this site as one of its columnists, has worked in housing for eight years, including in Number 10 under David Cameron, and is a key centre-right thinker in this area.
Alex and the rest of our research team have spent weeks crunching the numbers to ensure that they stack up – showing that this can be done with no actual loss to the Treasury, due to the fall in housing benefit as people transition from renting to owning, and the fact that we propose capping the amount of relief that a tenant or landlord can receive on an individual property at a highly generous £35,000.
They have also shown that this cap, plus a system of cross-subsidy, can ensure that even those tenants whose properties have not appreciate in price, or who do not like their current property, or cannot afford to buy all of it, or whose landlords do not want to take part in the scheme, can benefit – in short, that this is a genuine mass home ownership offer rather than a lottery in which a lucky few benefit, to the fury of others.
We would also make sure that the properties remained in owner-occupation for at least a decade: this is about giving tenants a long-term hand up on to the housing ladder, not a short-term quick buck. This is also why we would require people to contribute towards their own deposit: this is about a hand up, not a handout.
The challenge that Alex and I set ourselves, when we joined the Centre for Policy Studies a year ago, was to return the think tank to its roots – as the engine room of practical, radical, free-market thinking, a place that would redress the burning injustices in our society by adapting the philosophy of Margaret Thatcher and Keith Joseph to the challenges of today. There could be no better expression of that ambition than working to promote home ownership, which is the bedrock of a prosperous and decent society.
This report is just a sample of the work we have been doing, which will be fully unveiled in the coming weeks and months. But we hope, and believe, that it is a policy which both the Government and the wider conservative movement can and should embrace.