The UK’s Rental Market Crisis Has Been Years in the Making

The significance of July 8, 2015 in the UK property market is now fully appreciated. The Chancellor of the Exchequer in his first summer budget announced a phased reduction of mortgage-interest relief for landlords. Most people didn’t see why landlords would benefit from relief that had been taken away from owner-occupiers more than 30 years before.

The country’s private rental sector has been squeezed over the last few years, which has resulted in this summer’s rental property shortage.

Despite the policy mistakes that have brought us to this point, there are still practical measures the government can take. Time is very short.

Tenants are paying the price for a series of policy mistakes. Many would-be tenants across the country are struggling to find a home at any price, as rents in London are already higher than pre-pandemic levels.

Many landlords have responded to tax and regulatory requirements by selling up. According to a survey by Propertymark, there was a decline in the number of properties available to rent. In March, 53% of buy-to-let properties sold were left in the private rental sector.

According to economists from the Bank of England and the University of York, selling your house will not make a difference to your rent. That math doesn’t work out. Rental properties tend to have more people in them than owner-occupied ones. Not everyone can afford to buy.

The budget followed further measures to deter landlords. Residential landlord property purchases in 2016 were subject to a 3% tax surcharge. Residential landlords are now subject to higher rates of capital gains tax than owner-occupied homes. Cryptocurrencies are only taxed at 10% for lower-rate income taxpayers and 20% for higher rate payers. The landlords have their gains taxed at 18% and 28%.

In June of this year, the government published a white paper that sought to make it more difficult and expensive to evict tenants in the private rented sector. It proved to be the final straw for many landlords.

Tenants have been hit harder by the measures than anyone else.

Both national and local governments have failed to fulfill their supply-side pledges. The Help to Buy schemes and the tax measures against landlords have either increased or decreased demand for home ownership. Both are pushing rents higher.

One of the issues that unite an otherwise divided electorate is taxing landlords. Even if there was a will to tackle the shortage of social housing, it would take a long time to bear fruit.

From a landlord’s perspective, a more pragmatic approach would be to consider the issue. I must declare an interest in the properties I let in London andSheffield. Landlords are reaching the point of selling sooner due to smaller returns and convoluted administration. Only a small percentage of the properties remain available to rent when they sell.

Local or national government could take over management of these properties under long-term leases to prevent this loss of supply.

Local authorities assume most of the responsibility for tenanting and maintaining the property, so the government would pay landlords a rent with reference to market rates, but reduced somewhat. Tenants would pay whatever social rent the government chose. This would allow the government to quickly take control of a large number of properties without having to spend a lot of money. It would help with supply management. Landlords would receive a steady rent and a viable alternative to simply selling, which would ensure a continuity of supply to the social-housing sector.

This would give tenants greater security of tenure, while increasing competition in the rental market as a whole, and it would counter the unhelpful “rogue landlord” narrative.

This is not a dream. Local governments have employed this vehicle, albeit on an ad hoc and low-key basis. National government pressure has caused housing benefits to lag behind market rents. Many landlords are not able to afford such leases.

There is an idea to change tax incentives. There are incentives to leave gifts to charity. A slight modification to these and the creation of a national social housing charity might allow aging landlords to give their properties to the social sector in perpetuity.

Many of the assumptions about landlord behavior are flawed. Landlords leaving the sector has an impact on the real world.

Having no private landlords left to rent from is worse for tenants than having to rent from private landlords.

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