Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
Thirty years ago, Nigel Lawson delivered a budget which extended the Business Expansion Scheme to companies specialising in the letting of residential property, in order to stimulate growth in the private rented sector. This came from a government which also, rightly, put supporting home ownership at the heart of its philosophy of a property owning democracy. Taken together, the two approaches teach us a valuable lesson that the rental and home owner markets are not in competition with one another. The biggest domestic issue of our times is the high cost of housing in the UK both pricing the younger generation out of home ownership and driving up rental costs.
Yet, since 2015, the private rental market has faced an onslaught of tax hikes, restricting mortgage interest relief to the basic rate of income tax, putting a premium stamp duty levy on the purchase of new homes to rent; not extending the 20 per cent rate of capital gains tax to residential property and taxing a landlord’s turnover rather than profit, unlike any other business sector. The rationale for this assault on largely individual landlords was to shrink the private rented sector and so expect to increase the supply of homes available for potential home owners. It is, however, a nonsense to blame private landlords for the housing crisis – rather the large increase in private rented properties over the last decade has alleviated the shortage of residential accommodation.
Between 1988 and 2006, the proportion of households which were owner-occupied and privately rented increased in tandem, and the Government has produced no evidence to support the argument that buy-to-let landlords squeeze out first time buyers. A report by the London School of Economics has argued that the very limited research that does exist into competition between investors and owner-occupiers has found that “nationwide only a minority of sales to landlords involved bids from both types of buyer.” Mostly these are two segregated markets.
So, we need a strong and growing private rental market alongside a growing homeowner sector.
We need the private rental market to support a flexible labour market and to help house the 1 million plus people on waiting lists for social housing.
We need the market to house aspiring home buyers who take longer to save for a deposit. We need to cater for the increasing number of not just young people, but families, older people and benefit claimants, who rely on rental or choose renting over owner occupation.
Because of the importance of the buy-to-let sector it is worrying that, according to research by the Residential Landlords Association, 69 per cent of landlords are not making further investment in rental property, largely as a result of the punitive stamp duty levy they now face.
Ministers are encouraging corporate investment in large build-to-rent schemes, but this will nowhere near provide the needed scale of homes to rent. According to the British Property Federation there are 105,214 build-to-rent units either completed or planned across the UK. Knight Frank estimate that five million households are in the private rented sector. This means build-to-rent housing makes up just 2.1 per cent of all private rented households in the UK.
The vast majority of landlords are, and will continue to be, individuals and small businesses. They are the people who expand housing provision, giving work to local, SME builders, through renovating run-down properties, turning large homes into several smaller units, converting former offices or unused space above shops into housing and building new homes. The last activity could be further stimulated by selling off to landlords small plots of unused public sector land that often become eye sores in the community and which are not wanted by larger developers.
Instead of treating the private rented sector as part of the problem, the Government should recognise the important part it must play in solving the housing crisis. This means, at the very least, dropping the stamp duty levy where landlords invest in property adding to the net supply of housing. Otherwise we are effectively taxing the growth in the supply of housing.
We should also look seriously at tax incentives for landlords prepared to offer longer-term tenancies. It is somewhat illogical for the tax system, as it currently does, to make it more attractive for a landlord to switch properties to short term holiday lets than to continue providing homes for long term rental.
Ministers could also consider providing landlords with Capital Gains Tax relief where they sell a property to a sitting tenant to become a home owner.
It is time that the Conservative Party went back to Nigel Lawson’s more positive housing policies towards the private rented sector.