The UK needs a big boost in number of rental properties to cover demand

Landlord Expert
By Landlord Expert July 5, 2012 07:31

If the private rented sector is to meet the increasing challenges being placed on it to satisfy ever increasing demand, maintain standards and prevent rents from rocketing, there needs to be urgent reform of its tax treatment and regulation.

The figures speak for themselves. Countrywide, the UK’s largest estate agency and property services group, has shown that across the country in 2011 there was a 24% increase in the number of tenants registering for accommodation in the private rental market with the number of days it takes to re-let a property having fallen in the same period by over a day. In London alone, demand has increased by 35% with properties let almost 3 days quicker.

With demand increasing at such a rate without a matching increase in supply it is little wonder that rents, according to LSL Property Services, have increased in the past year by 2.4%. Of particular concern is London, where the average rent now stands at over £1,000 a month, 4.5% higher than last year. Little wonder that Rightmove has reported that a third of tenants are having to use half of their wages or more to pay their rents. 

With a joint report published by Savills and Rightmove having predicted that by 2016 one in five households will be in the private rental sector, action is needed to boost supply, not least because buy-to-let lending remains at only around a third of levels seen in 2007.

As a recent report by Professor Ball of Reading University also points out somewhere between 300,000 and 750,000 properties currently being rented out are held by ‘accidental landlords’. They are being rented only because the owners cannot get the price they want to sell at and many will disappear from the rented stock once market conditions improve.

Whilst the Government’s review of institutional investment in the private rental market, headed by Sir Adrian Montague, is a welcome step, it is important to remember that, as the Communities and Local Government Select Committee has rightly noted, “the sector is, and will continue to be, dominated by small companies and individual landlords.” According to Professor Ball’s study, almost 90% of English landlords are private individuals and couples. Policy for growth has, therefore, got to be geared primarily at supporting the army of individuals and couples who rent properties.

Private individuals in the PRS are also much faster to respond to investment opportunities and could be ready buyers of new-build properties, which is what they did in the last decade to a considerable extent. 

The Residential Landlords’ Association (RLA) has been leading the campaign to boost supply and has developed a series of proposals which would achieve this.

Firstly, taxation. The CLG Select Committee, the Joseph Rowntree Foundation and Cllr Jonathan Glanz writing for Conservative Home have all argued that reform to the way the sector is taxed is vital to boost supply. The tax treatment of the sector is predicated on rented property being treated as an investment, not a business. This means that there is no incentive in the system for reinvestment and refurbishment, both of which would lead to more properties being available as to well raising standards. To address this, the RLA proposes:

  • Rollover relief for capital gains where the sale proceeds are being reinvested in a property for rent or the property is being sold to a first time buyer.
  • Entrepreneur Relief for CGT would encourage disposals where the proceeds are not to be re-invested. This, together with roll-over relief, would result in an increased churn of properties with more being refurbished.
  • Capital allowance for enhanced repair and refurbishment.
  • Self-Invested Pension Plans (SIPPs) should be allowed to buy residential accommodation for letting. To avoid possible abuse, the letting would have to be via a recognised agent, the property would have to be retained and let for a certain number of years and it would only apply to lower value properties. The CLG Select Committee has called on the Government to give this proposal serious consideration.

Combined, these proposals would not lead to a loss of revenue to the Treasury since they would bring many unoccupied properties into use, so generating fresh income, bring forward tax allowances which would otherwise be claimed at a later date and enable a greater turnover of property, thereby boosting stamp duty receipts. Figures from Professor Ball ‘s study show that every £1 invested in the private rental market provides a return to the economy of £3.50 through expenditure on building work, decoration and furniture. As well as VAT receipts from purchases, there would be extra income tax from the employment created.

With some 75,000 properties owned by local authorities, housing associations or other public sector bodies lying empty, the RLA is proposing that all publicly owned, empty accommodation should be subject to an auction, where landlords in the private rented sector would be allowed to bid. Sales should be subject to the condition that the property is let within a year of purchase.

Through adopting these measures, Ministers would be able to cover both their policy objectives for the sector, thereby preventing rents spiralling out of control due to a lack of supply, but also in raising standards. An increase in supply would ensure tenants would no longer find themselves having to accept the first property they saw. Instead they would be able to make genuine choices about which accommodation they liked, leading to better quality accommodation being offered.

Landlord Expert
By Landlord Expert July 5, 2012 07:31

Membership Login

Register| Forgot Password?

BEST LANDLORD OFFERS

Recent Member Comments

  • Carlo Gaudiano { Dear Landlord Expert. I have two tenants in a spacious 2 double bedroom garden flat. I want to allow them to sublet the 2nd double... }
  • User AvatarJohn Walters { need advice on a difficult situation please. I have a very difficult and aggressive tenant in Bolton who refuses to pay rent or move out... } – Jun 01, 10:41 AM
  • Philip Haworth { Is there a letter to raise order for possession of the property. }
  • User AvatarLandlord Expert { We do not know of any issues. There have been 3 questions submitted today and have been published although I see none for you. Providing... } – Apr 20, 4:51 PM
  • User AvatarJazz Sounds { Is something wrong with your site? In your "ask a question" section I am unable to post my question. I am also unable to view... } – Apr 18, 10:37 AM
  • Older »

News Archive