Under their proposal, if you live in a property for three years, your landlord becomes eligible for a capital gains tax break if they sell it to you. That would give you the ability to negotiate a lower price. You can find out how much your home was bought for through the Land Registry so could probably figure out the lowest amount you could offer that would still, after tax, be better than they’d get on the open market. Bear in mind that they wouldn’t be paying an estate agent either.
And not only that, but you the tenant would get a “long-term tenant’s credit”, equivalent in value to the landlord’s tax break (or, alternatively, a standardised amount). Onward says this would contribute to your deposit, although it’s not clear how you would get this money before the sale in order to put down a deposit.
This is mostly paid for by taking away other landlord deductions on capital gains tax, so makes it look less like a bung to landlords and more palatable – to Her Majesty’s Treasury at least.
That is a pretty impressive giveaway to tenants, and may well see a boost to home ownership numbers. But an answer to the housing crisis it is not.
If you want to buy your house, your landlord might not want to sell. And if they do, they might have bought relatively recently so your cut from the taxman could be negligible. People who do buy could immediately flip the property, selling at full market value and make a windfall at the public’s expense. It’s a complete lottery, and that’s for the lucky ones.*
Whether or not you get the credit before completing on the sale, getting to a point where you can buy the house you live in is still a challenge. Yesterday’s IFS report tells us that fewer than 40% of young adults can afford the median house in their area, and that’s only if you have a 10% deposit. The Office for National Statistics revealed that more than half of 22-29 year olds have no savings.
That means a lot of tenants won’t get anywhere close to this giveaway, and most beneficiaries would have been likely to buy anyway.
Onward accepts that the tenants left behind need a better deal. Indeed, Director Will Tanner has described the tax break as an incentive for landlords to provide longer tenancies. The report rightly notes that the tax break proposal is not incompatible with longer tenancies imposed by regulation, but suggesting it be an incentive is unhelpful. Clearly many landlords will not be tempted by the opportunity for a more profitable sale, so their tenants would still face uncertainty over their home and no protection from eviction if they complain.
And either way, if your landlord wants to sell and you can’t buy then you face an eviction with no appeal.
All tenants should have an expectation of a long term home, which is why we are calling for an end to Section 21, the law that allows landlords to evict without a reason. If landlords are allowed to evict in order to sell, they should have to pay compensation to the tenant – that would mitigate the hardship involved, but ideally incentivise a tenanted sale to another landlord.
Under Onward’s policy tenants stand to benefit by more as their homes value, and their landlord’s capital gain, rises. This creates an awkward situation where some better-off renters have a vested interest in house prices rising, because they will end up with more equity in the home they buy. Rents for the rest of us aren’t going to fall unless there is voter pressure for more house building, particularly at a local level. The danger is this policy creates more NIMBYs.
There’s a certain appeal in a Right to Buy for private renters, so I’m glad that Onward has looked properly at how it could work. But unless concerns are addressed, and the millions of renters who won’t get to buy out their landlord get a better deal as tenants, then this apparently gold medal policy could go down like a lead balloon.
*Because the capital gain on any given house is fairly easy to work out, there’s a potential scenario where homes that were last bought in, say, the 1990s become wildly popular with renters who are fairly close to raising a deposit to buy. Prices have at least trebled in most places so those people would be willing to pay more rent now because they would be in line for a big payout should the landlord sell to them. That might lead to distortions in rents arising from when homes were bought. Admittedly this is more likely if the long-term tenant credit is based on the individual property’s value, and not a standardised measure.