‘Onward’ report blaming landlords for housing crisis has the wrong target

Today (Monday 25 June), a report written by Neil O’Brien, Conservative MP, and published by a new Conservative think-tank called Onward has argued that private landlords are to blame for young people struggling to get onto the housing ladder.

Launching the report, O’Brien said, ‘We need to change the balance between the rented sector and home ownership… [and]… discourage more people from investing in rental property, because the buy-to-let boom has bid up prices and reduced homeownership among younger people.’

The radical report recommends ending or severely curtailing tax breaks for buy-to-let and private landlords, a stronger role for local councils and major reform of the planning system to allow communities rather than developers to lead the process.

Observers of the industry will be looking on in shock, as many believe it is the increasingly draconian changes heaped on landlords in recent years that has led to an increase in rental prices for young people. Indeed, O’Brien himself states that:

Private renters used to spend 10% of their income on rent in most of the country, and around 15% in London. Today, they spend over 30% and nearly 40% respectively. Meanwhile, since 1970 house prices have increased more than in any other OECD country.

Let us look at some of the changes imposed by this Conservative government that has led to this rise:

1. A special premium Stamp Duty tax rate of an additional 3 per cent on property purchases for buy to let  on top of the ordinary rate.
2. The move to charge landlords tax on net income instead of profits. No longer can landlords deduct the interest cost of loans against rental income, in future they will just get a tax credit equal to the basic rate of tax. This has pushed thousands of landlords who were previously basic rate income tax payers into the higher rate of tax – a huge rise in their tax bills.
3. A special capital gains tax rate. The standard rate of CGT is 10 per cent for basic rate income taxpayers while for higher rate and top rate income taxpayers it is 18 per cent. Landlords, however, pay a much higher 18 per cent if they are basic income rate taxpayers or 28 per cent if they are higher or top rate income taxpayers.

If anything, landlords need a tax break, not more penalties which are driving them out of the market. Earlier this month, an exodus of landlords from the buy let market in Britain was reported, causing an acute shortage of available properties to rent, particularly in parts of London. The dearth of rental properties is a nationwide issue but is now particularly severe in the capital, where there has been a 20% drop in the number of properties available to rent over the last 12 months. This only serves to drive up rents and penalise the young people that this new report from Onward claims it is trying to help.