UK landlords will not relish in a Labour win in the general election

Landlord Expert
By Landlord Expert January 29, 2015 21:24

A Labour victory, or a red-led coalition, could be detrimental to the housing market, reducing the supply of homes and deterring overseas buyers from investing in London, property experts have warned.

Two thirds of UK landlords will leave the private rented sector if Labour wins the general election in May and a rent controls policy is introduced, limiting the number of affordable rental properties, according to new research from the Residential Landlords' Association (RLA).

Ed Miliband is expected to set out proposals for three-year tenancies, with only limited rent rises permitted in that period, in line with inflation.

However, data in the most recent English Housing Survey shows that between 2008 and 2009, and 2012 and 2013, social sector rents increased by over 25pc.

In comparison, private sector rents increased over the same period by 6.5pc. Inflation, as measured by both CPI and RPI, over this period was around 16pc.

Alan Ward, chairman of the RLA, has warned that proposals for rent controls will leave tenants worse off with less choice, reducing the supply and opening up the market to dodgy landlords.

"This is just window dressing and does nothing to address the supply side issues...or get rid of crooks," said Mr Ward.

“At a time when tenants need more choice over where they live, state-controlled rents would choke off supply, increase rents and reduce quality. It is a tax on tenants.”

50p tax rate

There are also murmurings in the Labour camp of a return to a 50p tax rate, along with new taxes on bankers' bonuses, fuelling fears that London could lose its competitive edge.

"France's experience has already shown the impact that too much taxation can have on a country and capital city," said Becky Fatemi, managing director of Rokstone real estate, referring to punitive tax policies imposed on the wealthy by President Hollande that have driven high net worth individuals to live in the UK.

"The last thing London needs is wealthy overseas buyers and city executives deciding they want to relocate and live elsewhere in Europe," she added.

"This will have a huge domino effect on people on lower incomes as wealthy households provide employment and revenue to local restaurants, bars and shops," she said, citing a recent City of Westminster study.

Mansion tax

According to research by Rokstone there are approximately 97,000 properties worth more than £2m in the capital. "Therefore if a mansion tax is introduced it will totally disable the London property market," Ms Fatemi added.

Guy Meacock, head of the London office at Prime Purchase, a buyer agency, agreed that a mansion tax on £2m plus homes, one of Labour's flagship proposals, is "an issue."

"Labour just don't think these things through," he said. "It's a vote winner and the politicisation of property. It's rich-bashing."

The coalition has also taxed wealthy property owners, Mr Meacock continued.

Both domestic and overseas buyers have been hit by the overhaul of stamp duty, which he described as a "fair system" that benefits 98pc of people, and capital gains tax.

"But the mansion tax pledge is a cultural shift, a tax on assets, which will send shock waves through the establishment felt most keenly in London," he said.

"This could be the straw that breaks the camel's back...we need to be very careful we don't push people too far and seen to be anti-opportunity or, ultimately, investment will go elsewhere and into other asset classes."

The double whammy of stamp duty and a mansion tax around the £2m mark will also impact house prices, causing some readjustment downwards of pricing as buyers and sellers negotiate.

Under-supply

According to Mr Meacock the chronic supply-demand imbalance is driving up mainstream house prices - not overseas buyers.

But since 1986, neither Labour nor Conservative governments have successfully incentivised or worked with private housebuilders to increase housing stock.

The charts below compare two 13-year periods that run concurrently under both parties.

"Use it or lose it" is a policy detailed in Labour's housing study, the Lyons Review, which encourages the building or redevelopment of derelict buildings or landholdings where the owner has planning permission to develop new housing but has not implemented a project.

Labour proposes to charge fees or force through compulsory purchase orders from landowners or developers the party considers to be landbanking.

But this is "not the right way to go," said Ms Fatemi.

"Sometimes sites have planning permission, but planning requirements under Section 106 obligations may make the site commercially unviable for a developer or funders may be unwilling to support new development. So really redundant buildings and sites should be dealt with ideally by local authorities on a case by case basis."

Anthony Codling, analyst at Jefferies, agreed that this could actually stall building work rather than speed it up.

Landlord Expert
By Landlord Expert January 29, 2015 21:24

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