Some six or so years ago George Osborne, the then Chancellor of the Exchequer made a clear, politically-led move to reign in the growth of the buy-to-let market.

george osborne

Two key decisions were made which have had significant consequences for the private rental sector (PRS), not least for many landlords and their service providers.

Over a four year period from 2017 onwards, private landlords with property in their personal name saw a gradual annual reduction in their ability to offset against tax the interest on their mortgage finance costs.

The second decision by Osborne was to increase by 3% the stamp duty payable by anyone purchasing an ‘additional’ residential property.

The impact of these measures has been exactly as Osborne and his government advisors at the Treasury intended: to gradually reduce the attractiveness of buy-to-let investment.

Pro-tenant lobbing

This is of course what the pro-tenant lobbying groups, Generation Rent and Shelter wanted but as some more experienced commentators forecast back in 2016 accurately predicted: ‘be careful what you wish for’.

Capital Economics, a respected consultancy, recently produced a report for the National Residential Landlords Association (NRLA) which highlights a reduction in the number of rental properties now available to let.

Many reading this column will themselves be aware of the increasingly acute shortage of rental accommodation in many UK regions alongside rising rental price inflation.

Across the Irish Sea, a similar initiative to the section 24 tax imposed here in the UK by Osborne, was introduced some years ago to limit the offset of mortgage interest against rental income and was imposed on Irish landlords.

But it was subsequently repealed by the Irish government as an acute shortage of rental accommodation gradually emerged, just as is occurring here on the UK mainland.

What did Osborne and his UK government think back then would happen if the supply of rented accommodation was gradually restricted?

Any student of economics at GCSE level would confirm that when demand increases and supply is choked off, inevitably prices will rise and that is exactly what has been occurring in the last 18 months.

BTR solution?

For some, the concept of new purpose-built rental accommodation would provide the supply-side solution.

I recall myself attending an event in Westminster organised by the British Property Federation some years ago where Brandon Lewis, then the Housing Minister, spoke glowingly about the forecast growth of the Build to Rent sector (BTR) and how it would be the future of the PRS.

To date after some seventeen years of gestation and billions of pounds of investment and government financial incentives some 70,785 units are now completed, according to the BPF website.

Capital Economics found that if owner-occupation and social housing continue at their ten-year average rate of growth, then the private rented sector supply would have to increase by 227,000 per year to hit government targets. It also noted that “even if the other [housing] tenures doubled their rate of growth, 105,000 homes for private rental would be needed each year, which is well above current rates of (supply) growth.”

As we regularly report in our upcoming developments section in Property Investor News magazine the pipeline of Build to Rent units is increasing but it is woefully short of providing the numbers of rental homes needed to meet government targets.

And unfortunately for those on low to middle incomes, a substantial majority of rents paid by tenants in the large scale BTR blocks are in the top quartile of rents paid.

This should not be any great surprise given the rising cost of land with planning approval and now of course with build cost inflation rampant, the providers of BTR units find themselves with a product which is increasingly priced out of the reach of many prospective tenants.

The key question of course is, will this government as was the case in Ireland, belatedly recognise the folly of the decisions made by Osborne and reverse the taxation policies he brought in?


The author: Richard Bowser is the editor and founder of the monthly print magazine Property Investor News, which he launched back in 2002. He is an experienced private landlord and long term property investor with a diverse portfolio in London and the north east of England.

He can be contacted via www.property-investor-news.com

6 COMMENTS

  1. My view is that the govt will do nothing until it reaches crisis point. Minimum another decade before any action might take place. Currently the govt and local councils are still at war with landlords and are increasing pressure on investors not reducing it. We are not even at a plateau let alone anywhere near a reversal of that anti landlord attitude.

    Still to come are the EPC changes moving from E to D, Making tax digital, and increasing use of local licensing as a means to “Beat up” all landlords not so called rogue landlords where current legislation is enough to deal with the issue, its just that local councils do not use the powers it already has.

    Govt have got used to requisitioning hotels as a way to sweep problems under the carpet but that is unsustainable and in reality is just diverting public money from one avenue to another.

    Personally I have seen large increases in rents… Example recently a tenant moved out of a 2 bed property renting previously at £495 and it was re-let in less than a week at £600 pcm…

    “When demand increases and supply is choked off, inevitably prices will rise”… YUP!!! not rocket science.
    So when the EPC changes come in and more regulations on top then rents will increase further as PRS supply diminishes even more.

  2. I recall some years back a typical void would be 4 – 6 weeks with an 18-month – 2 year churn. I now have next to zero voids and my churn is around 3 – 4 years. Sure, landlord costs have gone up, but so have rents. Whilst this increase may not in all cases offset additional costs, the reduction in voids does. I would rather be a small fish in a smaller pond than a small fish in a bigger pond, so maybe it’s landlords who need to be careful what they wish for because, before Osborne, the sector was becoming saturated – great for renters, but not for landlords.

  3. Even if things were made easier it WON’T encourage LL to return.
    This has been the Irish experience.

    With EPC and S21 issues LL are still selling up and WON’T return if S24 is abolished.

    Shrewd LL are deleveraging and reducing property numbers.
    The still dysfunctional eviction process makes letting a highly risky business model without RGI or guarantors.

    Very few tenants are able to source guarantors or qualify for RGI.

    So the LL carries the can when feckless tenants default on rent.

    2 years is roughly the time it takes to evict and have a property ready for letting again.

    The business model is simply broken which is why many LL are getting out of the AST game.

    FHL; SA and AirBnB are far more profitable though they are a lot harder work.

    The standard AST business model is broken even more so with HMO with the the latest ridiculous Individual Council Tax Banding for just bedrooms.

    No surprise therefore that LL are deserting the AST business model.

    This WON’T stop.
    There will be continual declines in AST available letting properties.
    Govt has only itself to blame for this situation.
    It’s bonkers anti-LL policies have caused these circumstances.

  4. Only my opinion, but I don’t think the Gov and tennants as well, appreciate that landlords are in the game to a generate income. Just like going to the local tool hire shop. I no longer absorb cost increases by the Gov. I just pass them on. I know full well that when my properties are vacant, a 10% rent in crease will not be unachievable. Demand is high in my area already. I can also see properties advertised for rental with expression of interest and a offered rental fee from the prospective tenant. A bidding war! The main problem I see is the landlords accepting cash as rent. Staying under the radar. Providing poor accommodation to the lesser qualifying tennants that would in a ideal word, would have a creditable chance of securing good accommodation. But as it get more restricted the landlords apply more conditions to prospective tennants.

    • Just to add to your anecdotal evidence of letting property shortages.

      I have 3 occupants who I have made homeless as I’ve sold up have missed out on 10 rental properties due to competition.
      It appears they viewed but it was gone that day.

      They are at their wits end.
      They AREN’T homeless yet as I’m allowing them to remain while conveyancing concludes.

      They are viewing 2 flats this Wednesday.
      I doubt they will be successful.

      No indication as to whether they have been required to enter a bidding contest.

      They great occupants and only my selling is making them homeless.

      No LL have purchased my flats.
      So that is a reduction of another 4 quality letting properties.

      And so it goes on!!

  5. Osbourne knew exactly what he was doing. He is not stupid. As the article said, he made decisions for political reasons, in other words, selfishly. He knew that by the time the **** hit the fan he would be well out of it. Surely there must be some way of ensuring that politicians actually act for the greater good instead of just lining their pockets and disappearing.

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