Onward Conservative Think Tank Ideas on Private Rented Sector Deeply Flawed
Onward Conservative Think Tank Ideas on Private Rented Sector Deeply Flawed
Regular readers of my columns will recall one Conservative MP, a certain Neil O’Brien, who was previously an adviser to landlord nemesis, George Osborne in the Treasury.
In 2017, I wrote about how he was calling for curbs in the market for second homes that would extend to buy to let. The idea, reported in The Times on 4th November 2017 and other places, was getting traction in a government running scared of Jeremy Corbyn.
Part of his plan involved getting the Bank of England to make buy to let home loans even harder to get by tightening eligibility criteria and hiking interest rates.
Mr. O’Brien also called for more “tax breaks for young families” partly to be paid for, it seems, by hiking capital gains tax on landlords even further and whacking them with even higher taxes on rental income and stamp duty land tax.
The link to my original piece is here:
Well, it seems, you cannot shut up Mr O Brien, as he’s been at it again.
A new report from the new Conservative think tank, the catchily named, “Onward”, recommends ending or severely curtailing tax breaks for buy-to-let and private landlords, a stronger role for local councils and major reform of the planning system to allow communities rather than developers to lead the process.
The report, was written by guess who? Yep Mr. O’Brien again.
In it he says, “We need to change the balance between the rented sector and home ownership. We should discourage more people from investing in rental property, because the buy-to-let boom has bid up prices and reduced homeownership among younger people”
As we know, the Cameron governments have already acted to curb tax relief on mortgage repayments, but the think tank says it is still a privileged form of investment that reduces the number of homes available for owner-occupiers while reducing the amount of capital available for more productive investment.
The report went down well with the likes of the Guardian: https://www.theguardian.com/society/2018/jun/25/home-ownership-out-of-reach-for-2-million-uk-families-says-thinktank
Onward Ideas on Private Rented Sector Deeply Flawed
But the report has been savaged elsewhere for its errors and inaccuracies and misleading use of data.
The Residential Landlords Association had this to say:
“Onward, claims that at the end of 2017 buy-to-let lending was above the 2007 peak.
In fact new buy-to-let lending for house purchases has fallen from over 183,000 loans in 2007 to just 74,900 in 2017, a fall of nearly 60 per cent, according to figures from UK Finance, what was the Council for Mortgage Lenders.
The total number of buy-to-let mortgages, including re-mortgages, also fell from 339,000 in 2007 to 227,000 in 2017, a drop of a third.
The private rented sector is actually shrinking, with the Government’s own statistics showing that the number of private rented dwellings in England fell by 46,000 in the year to March 2017.
The report argues that landlords are taxed more advantageously than homeowners.
This is not the case according to the respected Institute for Fiscal Studies which said following tax rises imposed on the private rented sector in 2015: “The tax system is not, and was not, even before the recent changes, more generous to people buying to let.”
On the back of its false assertion, Onward calls for further tax increases to reduce investment in new homes for private rent.
It argues that if the country had kept the ratio of privately-rented to privately-owned homes the same between 2000 and 2015, it would have ended up with 2.2 million more homes in owner-occupation.
This ignores the question of whether all of these households would have been able to afford a home of their own, especially as house prices rose by 154% over that period.”
With another report today saying that it now takes a single, first time buyer an average of ten and half years to save for a 15% deposit for their first home, the RLA argues this is leading to increasing demand on the private rented sector and to take action now that would further reduce supply would just make finding somewhere to live more difficult and more expensive.
David Smith, Policy Director for the Residential Landlords Association, said: “Today’s report is riddled with errors and fails to address the fundamental point that we need more homes to rent, not less.
“Rather than coming out with ideological assaults on the private rented sector, we need to reform tax so that it encourages the development of new homes to rent and longer tenancies so that the sector can adequately provide the pathway for tenants to go from renting to home ownership.”
Kate Falkner of the respected PropertyChecklists.co.uk company also added some thoughts of her own.
Onward Thinking Deeply Flawed
“First, many of the new homes bought by investors were new build city centre flats – not family properties.
Second, many of these city centre flats are now worth a lot less than they were 10 years ago; up to 50% in some cases. To blindly believe that home ownership is better than renting is plain wrong.
Third, other properties that many investors are buying wouldn’t be suitable for families e.g. HMOs in student areas, which according to NUS data are cheaper to rent than institutional, bespoke student accommodation.
I do think that in some cases, buy to let has impacted on ownership, but not in the way described by Onward. First it has stopped stock coming onto the market as people – many of them families – have traded up and been wealthy enough to hang onto their original home and buy a new one. If this has stopped people buying a home, then successive governments should have recognised the problem a lot earlier and increased the number of homes built or introduced a policy that prevented this from happening – but governments of all parties chose not to.
Secondly many of the new build city centre flats were easier to sell to investors than FTBs, so that was a choice by the developer and lenders supported it. However, bearing in mind that many of the city centre flats were sold at a price way above what they were worth, selling them to investors has, in my view, saved a generation of 20 somethings from being in negative equity.
Finally, when are MPs going to realise it’s their own policies – of all parties – that have caused the rise in the PRS? They created the demand through:
- Increasing the need for student accommodation by encouraging more to go to university;
- Failing to build the social housing required; instead paying housing benefits to private landlords to save the taxpayer money (accounts for 20-30% of the PRS);
- Relocation has shifted from a ‘sale’ model to a ‘lettings’ model instead;
- Introducing a pay cap on government workers of 1% a year when prices in London, the South and East increased at double digits a year, preventing their own staff from getting on the ladder.
Worse still, I think Onward and many others have forgotten that we had a recession which led to 50% of people pulling out of buying a home for up to five years – and they couldn’t get the money to buy even if they tried.
There was a huge growth in the PRS from 2007 onwards because the demand for rental increased – and because BTL investors could buy with cash. Buy to let investors respond to demand, they don’t create it.
In addition, it’s not only government workers who have suffered from pay caps. Private companies have failed to increase wages at the same rate as property prices for some staff, whereas in actual fact, the cost of renting has risen (on average) at below the general cost of living. That comes from ONS stats – the government’s own department which MPs appear to completely ignore.”
The main question that MPs and others don’t seem to be addressing is where do you put the people that want and need to rent for reasons other than affordability? To completely ignore the growth of this sector is going to lead to a huge growth in homelessness and overcrowding – as they have nowhere to go.
The only way out of the mess experienced by some, but not all, areas is to build more homes. Robbing Peter to pay Paul – i.e. taking property from the rental market to get people on the ladder – isn’t going to work. Demand is growing for people who want to buy and who need to rent – both need to be satisfied.
It’s time we produced properly informed reporting on the PRS, rather than misusing statistics for political gain and if this is the level of understanding of the property market by MPs, then I’m afraid we are going to have a property crisis for years to come!”
Well said Kate.
Property118 have also added their thoughts here:
I am not going to add to what has already been written by others.
I guess it is entirely credible that a Conservative think tank is so in fear of Generation rent and Shelter and losing the next election that they will serve up a load of garbage analysis and poorly thought out policy ideas instead of addressing the real issues in housing.
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