Years have passed since the crisis of the United Kingdom’s rental market


In the year 8 July 2015 was a watershed moment for the UK property market – the significance of which is now fully appreciated. In his first summer budget, then Exchequer Chancellor George Osborne won universal acclaim when he announced a phase-out of mortgage-interest relief for landlords. Few see any reason why landlords should continue to benefit from the relief that was taken away from landlords 30 years ago.

And so began an extended crackdown on the nation’s private rental sector that ended this winter’s rental property drought.

Despite the misguided policy actions that have brought us to this point, there are still practical steps the government can take to alleviate the problem. But time is short.

Literally, renters are paying the price for a series of policy mistakes. London rents are 19% higher than they were before the pandemic, and many renters across the country are struggling to find a home at any price.

This is largely because many landlords have responded to prolonged tax and regulatory measures by selling. According to research by industry group Propertymark, between March 2019 and March 2022, properties available to rent fell by 49%. It also indicated that 53% of buy-to-let properties sold this March left the private rental sector entirely.

Economists from the Bank of England to the University of York have insisted that such sales should have no effect on rents because more homeowners mean fewer renters. Unfortunately, this math doesn’t really work. Rentals house more people than owner-occupied homes. And while all buyers can afford to rent, not all renters can afford to buy.

However, additional measures to protect landlords quickly followed the 2015 budget. In the year In 2016, a 3% tax surcharge was applied to all residential rental property purchases. Residential landlords are now subject to more capital gains tax (CGT), while owner-occupied homes do not attract CGT regardless of their value. Even cryptocurrency profits are only taxed at 10% for low-income taxpayers and 20% for high-income taxpayers. Landlords’ profits, however, are taxed at 18% and 28% respectively.

In June this year, the government published a well-intentioned white paper entitled “A Fair Private Rented Sector” which, among other things, seeks to make it harder and more expensive for landlords to evict tenants. That proved the last straw for many landlords.

But as it now becomes clear, tenants are hurt more than anyone else by these measures.

The fundamental problem is that both national and local governments have failed to fulfill their promises on the supply side. Interventions against landlords, such as various buy-to-let schemes and the aforementioned tax measures, have increased the demand for home ownership or reduced the supply of properties available for rent. Both have learned to raise rents.

Reversing these tax increases is unrealistic, however, as landlord taxation is one of the few issues that unites an otherwise polarized electorate. At the same time, despite the desire to address the shortage of social housing, this will take many years to bear fruit.

A more practical approach is to consider the issue from the landlord’s perspective. (I have to declare an interest when I let properties here in London and Sheffield.) As we get older, many of us lose our appetite for financial complexity. With low returns and increasingly tight management, landlords are reaching a point where they can sell faster than they otherwise would have. And when they do sell, fewer of those properties are left to rent, with fewer younger landlords replacing them.

One way to prevent this loss of supply is for local or national government to manage these assets through long-term leases.

The government pays the landlord a rent based on market value, but it is reduced somewhat to reflect the fact that local authorities take most of the responsibility for upkeep and maintenance of the property. The tenants pay whatever social rent the government chooses. This allows the government to take control of a large number of properties quickly, without the capital cost to buy or build. It also facilitates supply management. Meanwhile, landlords will get fixed rents and a better option than simply selling, ensuring continued supply to the social-housing sector in a cost-effective manner.

In fact, this counters the unhelpful “rogue landlord” narrative and provides greater security of tenure for tenants, which generally increases competition in the rental market.

This is no pipe dream. Local governments, though sporadic, ad hoc, and low-key, have effectively implemented this vehicle. Beyond awareness and appetite, the main problem is that national government pressure has caused housing benefits to lag behind market rents. This makes such leases financially unviable for many landlords.

Another idea is to adjust tax incentives around gifts. There are significant inheritance-tax incentives for leaving gifts to charity in your will. A modest reform of these and the creation of a national social housing charity would allow older landlords to engage in such long-term leases in a tax-efficient way to gift properties to the social sector in perpetuity.

What is clear is that many of the assumptions about landlord behavior are incorrect or downright wrong. If they are pushed too hard, landlords will leave the sector and this will have real-world implications.

As for renters, many are finding it uncomfortable that the only thing worse than renting from a private landlord is not having a private landlord to rent to.

More from other writers at Bloomberg Opinion:

• Britain needs a better resilience strategy for Covid: Therese Raphael and Sam Fazeli

• Sterling markets are heading for damage: Marcus Ashworth

• Can Switzerland be independent of Putin’s fascism?: Andreas Kluth.

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

Stuart Trow is the host of “Money, Money, Money” on Switch Radio and the author of “The Bluebird’s Guide to Economics.” Previously, he was a strategist at the European Bank for Reconstruction and Development.

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