"What we could ask for is a cut, or no extra charge on empty homes being brought back into the sector, or no surcharge on new-build, or no surcharge on certain property types."
Those being – perhaps somewhat obviously – the 3% stamp duty surcharge for landlords purchasing property and the cut to mortgage interest tax relief that has effectively moved the sector in the direction of limited company structures, at least for new purchases and increasingly, existing properties.
Now, there are very good reasons for this, because both measures have ‘skewed’ the buy-to-let sector, and the ability of landlords to keep on providing the properties required in the private rental sector.
There have been obvious and ongoing impacts. Clearly, a lot of ‘dinner party landlords’ decided this sector wasn’t going to be for them after these measures were introduced, meaning cuts to profitability, increased upfront costs, not forgetting greater requirements in terms of regulations and responsibilities.
Many have sold up, and there is an argument to suggest that this has helped professionalise the sector, which I would accept. The big question however is whether the properties that left the PRS were ever replaced? Did ‘dinner party landlords’ sell to other landlords or did they move back into owner-occupation?
Certainly, when you look at the property requirements of the PRS in the years ahead, you would have to surmise that there is a severe shortfall – others might, quite rightly, argue the same about owner-occupation but given that renting tends to be the entry-level option for most younger people leaving home/University, we need to accept that the supply of these homes is incredibly important.
So, what can be done? I hesitate to walk down a well-worn path here because part of me believes we are effectively whistling in the wind with regards to overturning both those Government measures mentioned above.
Isn’t it somewhat futile to keep calling for the stamp duty surcharge to be abolished? Are we ever going to have a Government u-turning on mortgage interest tax relief levels for individual landlords?
Indeed, when it comes to stamp duty in particular, the direction of travel appears to be the opposite - an intent to hike the charge, not cut it. Apparently, this was due to be announced in last year’s Budget, but it was pulled last minute. So, again, is it worth our while to be calling for it?
Well, yes I think it is and the reason is undoubtedly focused on supply-side issues in the PRS. You may well have seen the latest commissioned-research from the National Residential Landlords Association by Capital Economics – it conservatively estimates that 100,000 new private rental homes are required over the next 10 years if other housing tenures double their rate of growth. If they do not, then the figure is closer to 230,000.
That’s a lot of ‘units’ to be found, however again according to the research, if the Government were to remove the surcharge it is estimated 900,000 private rented homes could be made available.
Now, you might well point out that 900,000 is a lot more than a requirement of 230,000 so Government might not think it needs to go as far as a full cut. It may well look at the decision to include landlords in the stamp duty holiday period during 2020 and 2021 and see the purchase boost this provided, and wonder if stamp duty parity between owner-occupation is the right way to go.
However, what I can categorically say is that a decision to cut the surcharge, or to alter it significantly, will have a positive impact on PRS supply. Of course, existing landlords will continue to purchase but their number has been diminished, and the barriers to entry for new landlord blood are huge right now.
So, while we might not get the measure to be abolished, what we could ask for is a cut, or no extra charge on empty homes being brought back into the sector, or no surcharge on new-build, or no surcharge on certain property types. There are options.
Of course it would be easier to cut the surcharge completely – again the Capital Economics research suggests this would give the Treasury £10bn extra in tax revenue over the same period, because it would benefit from a greater number of transactions. Again, the stamp duty holiday period should give them plenty of evidence to determine whether they would generate more tax by cutting stamp duty.
What we do know is that increasing stamp duty for landlords will have a further and severe impact. That should not be on the agenda; instead let’s hope we have a Government who can see the real problem in our market – PRS supply – and let’s hope they are ambitious enough to recognise the solutions that exist and what they can do to provide the required homes to meet a significant (and ongoing) demand.
