Tax increases for private landlords will drive some small landlords out of the sector, while others will try to pass the costs on to their tenants, stretching household budgets and putting homeownership further out of reach.
Taking Stock, a new report by LSE London, analyses the private rental sector and its growing importance to the UK housing mix. The authors Kath Scanlon, Christine Whitehead and Peter Williams find the sector has more than doubled in size in the past 15 years and now accounts for almost one-fifth of all dwellings. It provides an alternative to ownership for those who cannot afford to buy, or prefer not to. Traditionally providing homes for young single people, the sector now houses an increasing number of families.
Despite government initiatives to encourage institutional investment, the bulk of properties are owned by individual landlords with only one or two buy-to-let properties.
The government has recently changed the tax treatment of landlords in several ways, including imposing a surcharge on Stamp Duty Land Tax for landlords, removing the wear and tear allowance, and reducing the amount of mortgage interest eligible for tax relief. These changes will hit some categories of small landlord particularly hard.
Irrespective of any regulatory changes, the authors suggest that demand for private renting will continue to rise, with individual landlords remaining the dominant providers. They highlight concerns over whether there will be sufficient landlords to meet continuing growth in tenant demand.
The report finds:
- The growth of buy-to-let is in part a product of the low returns available to investors elsewhere in the market, and that driver is likely to continue.
- High house prices and the need for large deposits make it unlikely that younger households will enter owner-occupation to the extent they did in the last four decades, increasing their reliance on the private rental sector.
- The proposed new tax treatments will damage landlords’ returns and create disincentives to invest in the sector.
- The government’s goals for the private rental sector are multiple and sometimes inconsistent.
- Improved data are urgently needed to inform policy.
Kath Scanlon said:
“There have been a number of recent changes in the tax treatment of small landlords, and more generally in the tone of policy discussion about the private rented sector.”
“These decisions seem to reflect anecdote rather than hard evidence, as there is a striking lack of data about landlords and their business models.”
“The current government favours institutional landlords, but even if that part of the sector were to grow rapidly, small landlords would still be the backbone of the industry.”
“We need a private rented sector that works for the long term with policies that reflect the housing challenges in the UK faces.”