There’s a story in the Times today that I like, not because it says anything especially surprising, but because it demonstrates a principle so clearly. The headline is “Renters may face price rises as landlords cash in on property” and the opening paragraphs read:
“Hundreds of thousands of landlords are planning to cash in big gains from a decade of rising property prices as the government’s assault on buy-to-let encourages an exodus from the market.
More than one in four landlords intend to sell at least one of their properties over the next year, risking a crisis for tenants, according to a survey by the Residential Landlords Association (RLA).”
The underlying problem is that the government is in the process of removing some tax breaks for private landlords. It also recently announced proposals intended to provide greater protection from eviction for tenants.
That increased level of protection may make sense for the government (including local government) in the longer term, since if families with children become homeless there is an obligation on the public authorities to rehouse them, which clearly has a cost. Nonetheless, it still increases the risks and hence ultimately costs for the landlords (and consequently tenants), which may make some reconsider their investment.
Meanwhile, the reduction in tax allowances is one of those things that may instinctively appeal to many, who might feel that more tax on landlords can’t be a bad thing. However, the return that investors expect on their money is dictated by other factors altogether. If the difference cannot be recouped through increased rents (bad for tenants) then the owners will sell up and put the proceeds elsewhere, leading to a decrease in supply and a resulting increase in rents (bad for tenants). If supply and demand were more evenly matched then we might expect an offset from the increased supply of property for sale, leading to a drop in prices, but in the parts of the country where the housing market is tightest this won’t be big enough to make property affordable for those who rent.
I suspect people tend to see tax deductions as a benefit for the landlord rather than what it really is, which is a subsidy from the government to private tenants. It’s perfectly possible to argue that such subsidies are a bad thing, but if that is the reason for the policy change then the government ought to explain it clearly. And of course it isn’t the reason – I doubt very much that they thought it through at all. At best some thicky in the Treasury might have thought it would raise tax revenue, when anybody but a jackass can see that it won’t.
I’m always puzzled by situations in which governments could achieve the results that they want at no cost to themselves (meaning us), but choose to do something else instead. The only way that the costs of housing will be reduced is to increase supply of housing in the places it is needed most. This means both relaxing and speeding up the planning process, which can be done with the flourish of a pen (or email: can you flourish an email?). Apparently that is far too easy.