Homeownership Up and Rents Down Following Landlord Tax Changes, Reports Generation Rent

Homeownership levels are up, while rent prices have come down following the Government’s recent landlord tax changes, according to a new report from tenant lobby group Generation Rent.

Despite warnings from across the property sector that the curbs on buy-to-let landlords would lead to rent price hikes, due to a potential decline in housing supply, rents have in fact fallen in real terms.

The study shows that a decrease in the stock of private rental homes has no bearing on rent prices, and should not be seen as a barrier by policymakers to reforming the sector.

The 3% Stamp Duty surcharge for additional properties and the phased restriction of mortgage interest tax relief were announced by the then-Chancellor, George Osborne, in 2015, to give first time buyers the edge over landlords in the property market.

Since the Stamp Duty surcharge was introduced in April 2016, the private rental sector has shrunk, by 111,000 by the second quarter (Q2) of 2018, but warnings of crippling rent rises have been confounded.

Homeownership Up and Rents Down Following Landlord Tax Changes, Reports Generation Rent

In fact, real rents (adjusted for inflation) have dropped by an average of 2.8% in the same period. Generation Rent notes that there is, therefore, no evidence that a reduction in the supply of rental homes has pushed up rents.

This is unsurprising, it says, since homes moved out of the private rental sector tend to be matched by a family moving from renting to owning.

Consequently, the supply of rental homes and the demand for them move together, leaving the balance – and rents – unaffected.

If measures to improve tenant security caused more landlords to sell, Generation Rent believes that this would raise homeownership and improve the experience of tenants, while having no impact on the level of rent.

Generation Rent is part of the End Unfair Evictions coalition with ACORN, the London Renters Union and New Economics Foundation, calling for the abolition of Section 21 notices, which allow landlords to evict without giving tenants a reason.

To mitigate the hardship of unwanted home moves and encourage sales with sitting tenants, Generation Rent proposes that landlords be required to pay compensation to a tenant they evict on no-fault grounds.

The number of first time buyers per year has already grown by 21% since Osborne’s first announcement on landlord tax changes in July 2015, to 366,000 in the year to June 2018.

The landlord tax changes were one of two recent shocks to the size of the private rental sector that Generation Rent explored in its report; the other was the surge in demand for rental housing, after mortgage lending on low deposits evaporated in 2008. In this case, real rents also fell.

Growth in the private tenant population, as measured by the Labour Force Survey, rose from 182,000 per year between Q2 2005-Q2 2007, to 321,000 a year between Q2 2007-Q2 2010. In the three years from January 2008, rents dropped by 6.7% in real terms.

Dan Wilson Craw, the Director of Generation Rent, says: “Despite scaremongering by the property industry, renters have little to fear from a housing market that is no longer a playground for speculators. If homes leave the private rented sector, then so do the private renters, who are now able to become homeowners. The balance of supply and demand is unchanged and so are rents.

“Policymakers should therefore worry less about the impact of reforms on landlords’ investment decisions, and focus instead on introducing the kind of regulation the sector so badly needs.”

He insists: “Any efforts to boost homeownership must be matched by reforms that protect tenants whose landlord wants to sell. We need to put an end to landlords evicting without a reason and cushion the blow for tenants who are forced to move through no fault of their own. Requiring landlords to compensate tenants would achieve this while encouraging sales with sitting tenants.”