The lost generation
What has been the effect? The Royal Institution of Chartered Surveyors’ latest data points to “a further decline in fresh rental stock coming to the market”, while “tenant demand continues to rise firmly”.
The government’s own statistics point to 46,000 private rented homes having been lost in England in 2016 to 2017 and an analysis of survey data by the RLA’s Research Exchange, Pearl, suggests a potential loss of more than 130,000 private rented homes over the next year, attributable to the tax changes.
A generation of young people are now facing a housing market where the supply of homes for private rent is falling, they are unable to afford a home of their own and more than 1m households are on the waiting list for council housing. If we are to prevent people being left with no option other than moving back in with their parents, we need to look more positively on the private rented sector, and that begins with taxation.
A new deal?
First, let us consider supply. It is absurd that landlords wanting to invest in new rental stock are being penalised by the stamp duty levy. At the very least the levy should not be applied where landlords invest in property adding to the net supply of housing. This could include bringing empty homes back into use, converting larger homes into smaller, more affordable units, or developing new property on small plots.
The government should also revoke its decision to restrict mortgage interest relief for landlords to the basic rate of income tax.
In Ireland, a similar policy has been overturned, with full mortgage interest being reintroduced from next year, two years earlier than originally planned, because of concerns about the supply of rented homes drying up. Second, let us look at security for tenants. Landlords are not averse to longer tenancies. Indeed, as with tenants, many prefer the stability. What is not needed is legislation to impose longer tenancies.
It is vital that we are able to retain the flexibility the sector provides to enable people to quickly access new work and educational opportunities.
With the government’s own consultation arguing that financial incentives could see longer tenancies come about far quicker than via legislation, we are calling for tax relief on rental income that could increase each year a tenancy continues, up to a maximum of five years if the tenancy is renewed.
Third, there should be support for sales to tenants. There are clearly many reasons why landlords might sell property and we welcome the think-tank Onward responding positively to the RLA’s calls for smarter taxation of the sector.
While Onward has called for the use of capital gains tax relief, split between the landlord and tenant as a way of encouraging the sale of rental property to tenants, we believe such a model would be complex to administer and open to being gamed.
