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Opinion: Giving tenants greater choice is crucial

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Opinion: Giving tenants greater choice is crucial

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Published by Max Salsbury for 24dash.com in Housing and also in Central Government

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Image: Housing via Shutterstock

By Alan Ward, chairman, Residential Landlords Association

For the first time, the private rented sector is larger than the social sector. As the demand for rented housing continues to increase, the budget provides an important opportunity to help ensure that there is the supply of decent accommodation to match it.

Giving tenants greater choice over where they live through a sufficient supply of housing is crucial to encouraging healthy competition between landlords on standards as well as price. The ultimate prizes are higher standards and better returns.

But there is also an economic imperative to boosting growth in the sector.

Every £1 invested in the PRS provides a return to the economy of £3.50 through expenditure on building work and furniture. Figures produced by Professor Michael Ball of Reading University in a report for the RLA has shown that the tax on rental income paid by England’s market tenancies totals £3.5 billion – equivalent to £1,000 per tenancy. This would pay for the government’s build to rent fund three and a half times over.

So far, the story of the government’s efforts to boost supply has been one of seeking to lever in institutional investment through the use of housing guarantees and the establishment of the build to rent fund. 

The RLA has no problem with encouraging such investment, indeed actively supports it. To place all the emphasis on such investment, however, over encouraging the army of individuals that make up the vast bulk of the UK’s landlord population is serving only to miss a considerable opportunity. How could this be achieved?

Firstly, the chancellor, and political parties of all persuasions need to rule out completely any prospect of rent controls or index linking rents. Research conducted by the OECD in 1987 noted that the “flight of investment” from the private rented sector as a result of the last time the UK introduced rent controls led to the proportion of privately owned rental properties falling from 53% in 1950 to 8% in 1986.

Little wonder that the Communities and Local Government select committee last year warned in no uncertain terms that rent controls, “would serve only to reduce investment in the sector at a time when it is most needed”.

Secondly, the chancellor needs, as a matter of urgency, to reform the way the sector is taxed. For too long it has been disadvantaged by a taxation system that favours owner-occupiers and the social sector.

Reform of the tax system to provide greater incentives for investment would create real benefits for tenants since much of the tax notionally paid by the landlord is in fact paid by the tenant as landlords set rents to allow for taxes. Key to this is ensuring that renting a property is recognised within the tax system as a trading activity, using roll-over relief for capital gains tax to encourage re-investment.

Similarly, it is time that ministers looked seriously at the potential that pension funds could play in financing new homes to rent. 

We would urge ministers also to do more to enable individual landlords to develop small plots of disused public sector land; land that is likely to be too small for large, institutional investors. Individual landlords could quickly build and refresh dismal urban areas and generate new revenue for councils through new homes bonus and council tax.

In order to secure the necessary funding, we urge the government to expand its housing guarantee scheme to enable individual landlords to pool their developments together to collectively reach the £10 million threshold.

And finally, we would call on the government to scrap Article 4 Directions, powers used by local authorities to restrict the growth of shared housing. Quite simply, to have reforms to the housing benefit system increasing demand for shared homes whilst enabling local authorities to restrict their supply is a recipe for disaster.

Many of the problems associated with significant concentrations of shared homes, such as anti-social behaviour, could be solved in other ways and it cannot be right that councils are able to use the planning system to embark on social engineering.

The chancellor has the chance to support a housing revolution in his budget. We call on him to seize the moment and support the nation’s landlords and tenants.

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