Building more homes is vital to stop rising rents pushing workers out of cities
If you happened to have glanced at any London property portal recently you will be lucky to find a reasonably priced home to rent for under £900 per month, per person, in and around central London.
Of course, if you travel further afield the cost will fall, but even the relative distance of Woolwich will likely start by setting you back an uncomfortable £700 a month before one even thinks about turning the heating on.
This has been more quantifiably supported by the ONS who noted that there has been a 4.2 per cent increase in rents over the last 12 months up to December 2022 (although less than inflation).
The government can start with a review of how the sector is taxed and remove the stamp duty levy
But why is this the case? In its simplest terms this comes down to a case of supply and demand. In December 2022 Zoopla reported that tenant demand is 46 per cent above the five-year average, while total supply is 38 per cent lower, describing it as a “chronic imbalance”. This is a pattern that is consistently being found across real estate companies and serves only to make life more unaffordable for renters. Not only are they struggling to find the housing they need, but the prospect of future home-ownership becomes ever more distant as more and more of their income is sucked up into the rental abyss.
So where have all the houses gone? The lack of supply is in large part a direct consequence of the government’s efforts to discourage investment in the sector. With a curious understanding of the phrase to “level the playing field”, George Osborne claimed to do just that back in 2015 by restricting mortgage interest relief for private landlords to the basic rate of income tax. In March 2016 Paul Johnson, director of the Institute for Fiscal Studies, told the House of Lords Economic Affairs Committee: “If you buy to let, you pay income tax on the return and capital gains on what comes out when you sell it at the end, which is not the case for owner-occupiers. The current system is clearly more tax favourable towards buyers and owner-occupiers than it is towards buy-to-let landlords and renters. The tax system is not, and was not, even before the recent changes, more generous to people buying to let.” It is about as level as the South Downs.
These restrictions on mortgage interest relief and the imposition of a stamp duty levy on the purchase of homes to rent out have indeed made life more costly for landlords. Landlords are seeing the cost of their mortgages going up and it quickly becomes a far more financially prudent decision to sell their homes rather than deal with the burdensome and indeed confusing job of managing a buy-to-let. Marry this to the uncertainty surrounding the government’s plans for the sector, whether in energy efficiency requirements or the ending of Section 21 repossessions, and you do not exactly have an attractive market.
Any suggestions of rent controls as a solution to these problems should be firmly resisted – one only needs to look at the shambles of the energy sector to see the dangers of pursuing a rent freeze policy. Outside of artificial price controls, it is quite clear that the best way to support renters is, as you may not be surprised to hear, to increase the supply.
The government can start with a review of how the sector is taxed and remove the stamp duty levy. According to research by Capital Economics, ending the stamp duty levy on the purchase of homes to rent out would see almost 900,000 new private rented homes made available across the UK over the next decade. This would lead to a £10bn boost to government revenue through increased tax receipts. Alongside unfreezing housing benefit rates - as it makes little sense to have housing cost support linked to rents as they were three years ago rather than as they are today - this would go some way to luring landlords back into the market. There is perhaps a myth that the rental sector is dominated by property tycoons; in fact, individual private landlords make up 94 per cent of the market share with half letting just one property. Landlords cannot simply shoulder the rising costs.
The government must also swiftly and clearly articulate in law the rights of the landlord and the tenants with regards to repossession. This will help facilitate and encourage builders and landlords to alleviate the pressure for renters and, once the costs start falling, it may ultimately increase homeownership as more of people’s income can be put towards buying their own home.
Andrew Lewer, Conservative MP for Northampton South.
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