« | Home | »

Episode 14: The Buy-to-Let Racket

Tags:

Sometimes, when you try to do something positive, it only draws more attention to what you aren’t doing. Ed Miliband has announced a new policy in relation to private sector rentals: for three years, landlords won’t be able to raise rents above the rate of inflation. It’s not hard to spot that this policy is targeting private sector renters. This demographic is young, and strongly represented in London, the only area of the south-east where Labour have good winning chances. For all the talk about London house prices and the winners from the housing bubble there, more London households rent their homes than own them. The bubble and the rental explosion are the same thing: homes zoom up in price, and a direct result is that fewer people can afford them.

One very obvious solution to the housing crisis is to build more homes. A lot more homes. The Barker Review of Housing Supply in 2004 said that Britain needs to build 245,000 new private sector homes a year. No government has got anywhere near meeting that target. Britain is building fewer homes that at any time since the First World War. The number of homes built in 2014, a decade after the Barker report, was 118,760. The non-Tory parties vie with each other in promising how many homes they’re going to build: 200,000 a year by 2020 (Labour), 300,000 a year by some unspecified future date (Lib Dem), 500,000 total social rental homes by 2020 (Green), 1,000,000 total on previously developed land by 2025 (Ukip). Whoever is in power, I don’t believe that any of these targets will be met.

There’s a missing policy option, though, which no mainstream party seems willing to go anywhere near, but which would have a big impact on rental costs and the affordability of housing. Labour could abolish the tax break on mortgages taken out for the specific purpose of buy-to-let. Gordon Brown abolished the tax break on normal mortgages in 2000. MIRAS – mortgage interest relief at source – had been gradually run down over a period of years, on the not unreasonable grounds that home-owning is already heavily privileged by the tax system. The break for buy-to-let is still there, and is very expensive for the state: as much as £5.2 billion in 2013. That’s a lot of money to be transferred to private landlords, who get all kinds of other exemptions and tax breaks for the cost of running their rental properties. The £5.2 billion could be dedicated to a special fund for housebuilding, which would get us more or less to where we need to be.

It isn’t going to happen, though. The official reason for not touching the tax break is that it would cause rental costs to go up, because the costs of taking away the break would be passed on to renters. I don’t believe that: I think what would happen would be a small panic among speculators who have piled into buy-to-let, followed by a downturn in house prices and rental costs. And that is probably why it won’t happen. The usually understated economist Tim Harford says this of UK housing: ‘House buyers are delusional, the housing market is broken and a housing boom is the economic equivalent of a tapeworm infection.’ The tapeworm needs to be fed, so politicians won’t advocate a policy which will make the market fall, even if that is what the country needs.

And then there’s another reason it won’t happen. More than 200 MPs – that’s a third of Parliament – own buy-to-let properties. More than 100 of them own buy-to-let properties in London. They do that because they know very well just how rigged the system is. If you think MPs are likely to vote for anything which damages the buy-to-let racket, I envy you.

Comments on “Episode 14: The Buy-to-Let Racket”

  1. Tom Chance says:

    John,

    One party is willing to go near buy-to-let tax breaks. The Green Party manifesto pledges to scrap the mortgage interest relief tax break completely, and to plough any money then raised in tax into building social housing. As you note, this would achieve two positive ends – fund much-needed new homes, and reduce pressure on how prices (and therefore rents) from property speculation.

    Tom Chance
    Green Party housing spokesperson

  2. kadinsky says:

    When the postwar social housing boom occurred more than half the electorate rented. Today it is a third. It’s difficult to see even a progressive Labour party taking the measures needed to seriously address the housing crisis if it means anagonizing the majority of voters. Sad that British democracy has been brought so low by bricks and mortar.

  3. John Cowan says:

    I haven’t looked at any actual statistics, but in principle taxes on (economic) rent can’t be passed on to tenants, because they are already paying all that the traffic will bear (unless there is rent control of some sort in effect, as in New York City).

Comment on this post

Log in or register to post a comment.


  • Recent Posts

    RSS – posts

  • Contributors

  • Recent Comments

    • rncgray on Thomas Bewick’s Sketchbook: Somewhat reminiscent of the classic physicist's reductionist mindset "Imagine a sphericaL cow..."
    • KdW on Diplomatic Protection: The Thomson Reuters Foundation is hardly an illicit organisation. Not that I have any specific information, but there are plenty of people there who d...
    • RobotBoy on On Muhal Richard Abrams: A very welcome tribute to a remarkable artist and organizer. One of the greatest crimes committed against jazz by 'Jazz', the Ken Burns documentary,...
    • Phil Edwards on In Bloomsbury Square: "Further everywhere" is lovely, but I suspect a closer English equivalent would be "all points beyond", or more simply "all other places" - the locuti...
    • judgefloyd on An Unfolding Humanitarian Emergency: When it looked like this citizenship rule had only affected the Greens, the government was very snooty about it, with a government senator tweeting hi...

    RSS – comments

  • Contact

  • Blog Archive

Advertisement Advertisement