BBC Breakfast covered the issues rightly raised by RICS this week, saying that by 2025, 1.8 million more homes would be needed for tenants than we have now.
The problem is, due to the government increasing landlords’ costs via rules and regulations and reducing profits by increasing taxation, many landlords have been left wondering if it’s worth investing in property at all.
The research shows:
• 58% of Royal Institution of Chartered Surveyors (RICS) agents reports that sales of buy-to-let properties have fallen since May
• 86% of landlords – ie, nearly all of them! – are saying they won’t necessarily increase their portfolios from now on
The first statistic isn’t a huge surprise in that huge numbers of investors brought forward this year’s purchases to beat the 3% additional stamp duty paid on second homes. It’s the second statistic that I find more worrying. A lack of landlords doesn’t translate into more homes for first-time buyers – but it does mean fewer homes for tenants.
What are RICS asking for?
In the last few years, George Osborne has been getting out his hi-vis jacket at every opportunity, but now RICS are saying “it’s time for Theresa May to get out her hard hat”. Well I beat her to it, here’s a picture of me in mine!
In my view RICS are absolutely right to ask the government to bring a balance to house building. It’s about time there is a recognition that landlords are not ‘forcing’ rental growth; quite the opposite in fact. They are reacting to it and providing a much-needed service.
Fewer landlords simply means fewer properties for tenants.
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Is rental growth because of affordability problems?
Not necessarily. It’s actually successive government policies which have driven the growth in the private rented sector:
They sold off more than two million council homes, many of which ended up in the PRS
They then drove an initiative to increase the number of students in higher education
Whether you approve or not, they then let millions of new people into the country to work here from abroad, temporarily. Some, though, have stayed.
None of these groups are able to buy, so renting is their only option.
Government policies have driven the growth in the PRS and landlords have stepped up to the plate.
In addition, today’s lifestyle is all ‘rented’. We rent our music and videos and many people lease their cars, too, rather than owning them outright.
Renting is just a part of the new ‘sharing economy’ where people have lots of experiences, rather than take the well-trodden path of the past:
Buy a house
Move up a couple of homes
For many people, this way of life has gone and therefore our housing stock must adjust accordingly.
We rent, we go back home, we rent some more, we get married, we buy, we get divorced, we rent, we buy and so it goes on… these days we are jumping on and off the property ladder.
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Why have landlords stopped thinking about investing?
Increase in stamp duty: 3%, but it’s tax deductible
Loss of mortgage interest relief – and on top of this you cannot deduct mortgage costs, interest payments, booking fees etc.
Are landlords just whinging?
It appears not, The Institute of Chartered Accountants in England & Wales (ICAEW) attacked the removal of mortgage interest relief as "unreasonable, unworkable and unthought through".
It has pointed out that those worst hit will be small property investors, including middle-class savers adding one or two buy-to-let properties to their pensions and other portfolios.
Looking at the impact of this, in some cases the removal of mortgage interest relief could mean that the rental profit landlords ‘appear’ to earn could increase threefold.
In addition, increased costs of regulations for providing prescribed information, smoke and carbon monoxide alarms and the ridiculous and virtually impossible rule of having alarms checked on the day the tenant moves in, are all seriously increasing costs. It’s not that good landlords and agents mind new rules, it’s just that the good guys pay to get them done, the bad guys don’t and few are enforcing them – so who actually benefits?
But haven’t landlords done a lot of damage to the property market?
These are some of the accusations levied at landlords:
They ‘crowd out’ first-time buyers
That’s not really been proven. At best, investors can put a ‘floor’ on prices falling, but any investor that competes property prices up is a fool!
They ‘take’ £9bn in housing benefit
This is absolute rubbish. It’s a gross figure, not net. Most of that money is recycled back into the economy and then tax goes back to the government on the rental profit made.
They can own homes at a ‘better rate’ than FTBs
This is true to some extent, but if you increase the landlord costs, then tax them more, they have to increase rents, which hurts tenants and reduces their ability to save to buy. Hurting landlords means hurting tenants. And who is to say they can afford the property even if prices drop due to landlords selling up?
They are greedy, mean and just driven by money
Rubbish. Research I have done from funding for the Tenancy Deposit Charitable Foundation suggests quite the opposite:
Most are over 55 and their property/income is their pension, so they look after their tenants well;
Most have a job and just one property;
Most are in normal jobs, such as coach driver, teacher, librarian;
They invested in property because the financial sector gave such a poor delivery.
Where there is an issue for the industry is that many landlords have been able to afford a rental property by being ‘careful’ with their money. And this frugality means it’s not always easy to get them to spend money on their properties.
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What the Government needs to do
There are three key issues which I believe the government needs to address:
We tend to have a lot of policies, but no overarching plan so we tend to ‘rob Peter to pay Paul’;
New stock is the only way forward, anything else is papering over the cracks;
We should get rid of a lot of the agenda-driven policy decisions – ‘entrenched positions’ which aren’t helpful – we need to work together, getting around a table and, as both the industry and government are poor at that, which is the major reason consumers are being failed.
What are they getting right?
The government’s obsession with home ownership seems to be waning and there’s a better understanding that new builds need to be of all tenures;
More rental property provided by large landlords will help raise the standards – this will help tenants realise that they should not put up with poor properties and large fees from rogue agents/landlords;
More use of public land is good – Greater London Authority has done a good job at generating more affordable homes to date, but needs to do much more, as do other local authorities.
The sooner the government begins to see landlords as part of the solution for the private rented sector, rather than the problem, the sooner we can help ensure tenants live in a safe and secure lettings industry which drives choice.