It would be a huge shame to see either of these policies ditched, being the closest the government has come to addressing the causes of the housing crisis.
Investing in property is the most lucrative way to make money but it has damaged the rest of the economy by pushing up prices, making it harder for ordinary people to buy their own home, making it harder for people to save, encouraging the treatment of houses as commodities instead of homes, and starving the wider economy of capital, which could go into what Theresa May describes as “productive investments” – including new housing supply.
An extra upfront cost of buying a house that you don’t need to live in, and extra costs associated with taking on too much debt to invest in property – which the government’s policies impose – are both reasonable steps to take to create a fairer housing market.
We don’t blame landlords for investing in property – they made a rational investment decision. The trouble is, when presented with a housing crisis, the tax system gave them an incentive to exploit it rather than help fix it. The stamp duty surcharge and reduced mortgage interest tax relief help make the decision to invest in existing properties a little less rational.
Naturally, with any challenge to the status quo, people with vested interests will resist it. And if there is upheaval in reaching a new equilibrium, then it’s the government’s job to mitigate that.
There doesn’t seem to be much upheaval so far. The government is sensibly phasing out the tax relief over five years, for a start. But it won’t affect that many landlords: only a third of private rented properties are mortgaged, while many of them will be held by companies or individual landlords in the basic tax band. Rents are already as high as they will go – if affected landlords try to raise rents in response, then tenants could find that unaffected landlords offer them a better deal.
Indeed, predictions of The Death of Buy-to-Let seem wide of the mark. In the 12 months since George Osborne announced the policy, buy-to-let investment has actually gone up! Between August 2014 and July 2015, 108,400 buy-to-let purchases were made with mortgages. Between August 2015 and July 2016, that number was 123,300 – an increase of 14%.
It’s a slightly different story with the stamp duty surcharge: many landlords brought forward their purchases to the first quarter of 2016 in order to avoid paying the extra 3%, and in the following quarter there was an inevitable dip. It’s too early to say if activity will return to previous levels, but stamp duty paid on additional properties was worth £424m in the second quarter of 2016, with total receipts rising by 13%, which indicates that the policy is bringing in cash to the Exchequer.
That cash should really be used to address other problems within the housing market. If demand from landlords falls, then house prices will fall far enough to allow first-time buyers to buy homes on the market. One more first-time buyer means one fewer household demanding a private rented property, so that means the policy will have no net impact on the supply of rented housing.
That still leaves a massive shortage of homes, and millions of private renters who are still a long way from home ownership. The government needs to give them greater stability in their homes through protection from eviction and rent increases. And, as we and landlord groups both agree on, the government needs to build more homes, especially socially rented housing. Whether or not the government reduces property speculation, they now have a new source of revenue to invest.