Kate’s 5 ‘must read’ property news stories this week

publication date: Sep 29, 2014
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Kate's top 5 stories this week...

1. Mansion tax: Labour plans for tax on £2m+ houses
Labour now plans to levy a tax on multimillion-pound properties worth more than £2 million, most of which will be in London. What is also a ‘bizarre’ twist is the £1.2 billion expected to be raised won’t go to help house people, but will be transferred out of housing into the NHS.

Critics denounce the proposed tax as unfair and difficult to administer, despite the assurance of Ed Balls, the Shadow Chancellor, that measures will be built in to protect the asset-rich/cash-poor and those whose homes are worth just above the £2million cut-off point. Critics also point out that 10% of London properties worth over £2 million are just one- or two-bedroom flats. Savills Director of Residential Research, Lucian Cook, says their analysis refutes this: “A mansion tax with a fixed threshold would distort market dynamics and really create a threshold at the £2m mark.” Pensioners may suffer most as around a third of £2million-plus homes have been occupied by the same owners for over ten years.

My thoughts – if this was a move to genuinely make the housing market fairer, the money wouldn’t be going to the NHS. Where money is really needed is to fund social and affordable homes. Apart from this, people already pay 7% tax when buying a £2m+ home and the main issue is this will just put a ‘ceiling’ on properties around this level for some years – not making any financial difference to taxpayers coffers at all and artificially ‘holding back’ property prices.

Read more: Ed Miliband - Mansion tax

2. Scrum imminent over rental property as 6% fewer properties available
Figures from the Association of Residential Letting Agents’ (ARLA) third quarterly report are pointing to a squeeze on stock levels. David Cox, ARLA’s Managing Director, comments that demand for rental properties has risen significantly, while supply has dropped, in a period where new tenancies normally rise. Landlords are not investing in new buy-to-let properties, although more landlords’ properties (16%, a rise of 7%) are coming back onto the lettings market after failing to sell. But landlords selling property (currently 32%) are overtaking those buying (27%) for the first time in four years.

Some good news though, more tenants in the private rented sector (9%) are checking their landlords’ reliability, and renting through licensed agents who offer Client Money Protection Schemes. To read more, go to Arla - Market Surveys

My thoughts – in 1968 the Rent Act was introduced and with it rent controls. Many institutional landlords left the market, partly why our private rented stock is mostly owned by individual buy to let landlords. With these landlords already in decline, politicians housing policy needs to be careful not to encourage withdrawal from the market which would put huge amounts of pressure on rental stock, especially in areas such as London and the South East.

3. Ed Miliband headlines housing crisis in Labour Party Conference speech
The Town and Country Planning Association (TCPA) has applauded Labour’s undertaking to double house building and accelerate the creation of a new generation of Garden Cities as part of a raft of responses to the UK housing shortage. Kate Henderson, TCPA chief executive, says that they “provide a foundation and an economy of scale for high quality, attractive and inclusive places, creating new jobs and truly sustainable lifestyles.” More debate, however, is needed about the role of Garden Cities in helping to meet the UK’s urgent need for more housing, and investment in and regeneration of existing towns and cities, since regeneration remains a top priority. The TCPA has produced a publication explaining the role Garden Cities can play in assuaging the housing shortage. To read more, go to TCPA - Garden Cities

My thoughts – In the past when we’ve had explosions in cities, we’ve solved the problem by creating garden cities – such as Milton Keynes. And with 1.6 million people on council waiting lists and in some cities, working people not being able to afford even poor quality rental stock, garden cities have to be a good way forward

4. Do Labour understand the housing market?
The Home Builders Federation has disputed Labour’s accusation that house builders generally ‘sit’ on land ready for development, effectively blocking new homes from being built. Steve Turner, HBF’s Director of Communications, indicates three independent studies in the last ten years, most recently by the OFT, whose conclusions have been that builders do not ‘land bank’. A further recent HBF survey of the larger construction firms established that as few as 4% of plots with planning permission had not yet started building. He adds, “It’s unhelpful when political rhetoric centres on myths, when the real challenge is how we increase housing supply…. politicians need to work with the house-building industry to address the constraints on housing supply.” He underlined HBF’s determination to continue to present balanced and objective proof to policymakers to overcome ‘myths’ and tackle the real issues. For more on this, go to House Builders Federation 

My thoughts – Labour have clearly appreciated the urgent need for new homes in the UK. The idea of helping small to medium developers to access more finance to build is a good one, but to misunderstand how larger developers work and that it’s investment companies and indeed local authorities and government that ‘sit on land’ suggests there is some poor understanding at policy level of how the actual housing market works – and therefore begs the question, can they come up with policies to actually ‘fix it’.

5. Record numbers use property to fund retirement
A recent Barings survey suggests that 1 in 14 non-retired people, or 2.5 million, plan to fund their retirement by selling their main residence, an increase of 2% since 2013. And 16%, or six million people, say they will rent or sell property to do so, the highest number since 2009 and up 3% since 2013. Rod Aldridge, Barings’ Head of UK Wholesale Distribution, says that “it is worrying that the number of people relying exclusively on their property to fund retirement has increased again… property prices can be volatile so relying on your home to provide all your income to fund retirement is risky.”

However, the number of people saying they have ‘never planned’ to use property to fund their retirement increased significantly from 35% in 2013 to 52%. 6% of people living in the West Midlands say they plan to sell their primary residence to fund retirement, and 21% plan to sell or rent other, secondary properties. Wales is potentially less vulnerable: 5% of people say they plan to sell their primary residence to fund their retirement and 5% to sell or rent other properties. Read the full article on Barings website.

My thoughts - I am extremely worried about pensions being invested in property. You make money from property by building, doing it up or by letting. Building is a good way potentially to sell your own home and build your new one for less money and if done well, it can be worth 30% more when mortgageable. However, buying a property and doing a ‘make-over’, so new bathroom, kitchen and a paint job, isn’t. Most people over pay for the ‘opportunity’ to do up. And for those who want to buy to let, this is a 20 year hold, very inflexible asset and with tenant voids, damages and the need for tens of thousands of pounds maintenance, it isn’t necessarily the ‘panacea’ to people’s pension income requirements.

Check out some more of our content about pensions:-

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