It remains a law of politics that it is often only governments of the ‘right’ that can implement avowedly left-wing policies, and vice versa. This government is no different.
Had Labour gone into the last election promising a massive hike in the National Minimum Wage and the renationalisation of the railways in the South East, they would likely have been derided as naïve,1980s throwbacks. Both of these measures are set to be among the key domestic reforms of this majority Conservative government.
Yet perhaps the most interesting area that currently proves this law of politics is in the housing market.
The government has not explicitly declared a ‘war on landlords’. However, the evidence is now overwhelming that Conservative ministers want to severely reign in the activities of private landlords, directly curtailing the deployment of private wealth in a free market.
Higher-rate tax relief on mortgage interest repayments is being removed, restricting relief to the 20% basic rate. The 10% annual allowance for ‘wear and tear’ on furnished properties is being removed; in future, landlords will only be able to claim for costs actually incurred on fixtures and fittings. The Autumn Statement saw the chancellor announce a 3% increase in Stamp Duty on second homes, declaring "people buying a home to let should not be squeezing out families who can’t afford a home to buy". And it’s important not to forget the ‘Starter Homes’ plan announced by the Prime Minister at the 2014 Conservative Party conference: “We’re going to build 100,000 new homes – and they’ll be 20% cheaper than normal. But here’s the crucial part. Buy-to-let landlords won’t be able to snap them up… Just first-time buyers under the age of 40.” In other words, new homes should be reserved for owner-occupation.
What is behind all of this? The government appears to have recognised several things. First, there are more votes to be gained by helping first-time buyers than there are to be lost among landlords. According to government figures, the number of households renting privately increased from around 2 million in 2000 to 3.6 million in 2010/11. While the number of landlords has grown steadily over the last two decades, they still represent a tiny percentage of the population, and despite these housing market reforms, many will probably still vote Conservative.
Second, the decline of home ownership is not just a supply problem, but also one of demand composition. As the chancellor observed, rates of home ownership are a function of the type of buyers in the market. If a small number of wealthy landlords consistently crowd out first-time buyers as they have done over the last two decades, simply building more homes will not lift rates of owner-occupation. Demand-side interventions are required in addition to increasing the supply of housing.
Third – and this is crucial – there is an overwhelming fiscal imperative to encourage and enable sustainable homeownership. Why? When working-age households do not get on the housing ladder, they eventually become renters during retirement. The vast majority of this group rely on the state to meet their housing costs, in the form of means-tested Housing Benefit. Allowing owner-occupation rates to slide further downward would store up a massive fiscal time bomb in the form of increased welfare spending. The Exchequer has a huge interest in moving people on to the housing ladder, such that their lifetime housing costs are effectively compressed into the working-age stage of their life, and they do not need to turn to the state to help pay their rent during old age.
So, what next? In 2013, the Whose Home? report from the Strategic Society Centre recommended many of the policies the government has taken forward on reserving new homes for first-time buyers and using tax thresholds to reduce incentives for private landlords. Given the apparently popular support met by these reforms, the government has plenty of scope to go further, with significant policy benefits and few political downsides.
Ministers should therefore consider extending the Starter Homes policy by implementing a full ‘new-build buy-to-let mortgage moratorium’, preventing the purchase of new-build homes with buy-to-let mortgages for the foreseeable future, as well as a ‘three-year rule’, such that short-term tenancy agreements cannot be drawn up in relation to homes that are less than three years old, keeping new-build homes in owner-occupation.
Finally, the government should put in place a ‘buy-to-let lending cap’ on the proportion of mortgage lending by banks that can be distributed as buy-to-let mortgages. According to the Bank of England, buy-to-let lending was 14.5% of gross new mortgage lending in the third quarter of 2015, up from 8.8% in 2007. This trend should be put in reverse.
Interest groups representing private landlords have sometimes sought to present the growth in renting as part of some natural process of social change. It isn’t. It reflects active policy choices, and thankfully, this government has recognized the policy imperative and political scope to act.
