Even though Brexit has dominated political chatter in the UK for more than two years, focus is slowly starting to turn towards the UK property market. The Labour Party conference last week was full of the chest thumping populist policies you would expect from a political party conference. However, slowly but surely signs are emerging of a concerted effort to control the UK property market, increase taxes and shift power even more towards tenants.
UK property taxes highest in the developed world
Before we look at the new proposals from the Labour Party, it is worthwhile reminding ourselves that property taxes recently topped £80 billion a year level for the first time ever. This is an increase of just under £20 billion since 2010 when the sector was on its knees. If we strip out the political agendas and look at the cold hard facts, as delivered by the OECD, they do not make for good reading.
In 2016, property taxes in the UK accounted for 12.5% of overall taxation which is more than double the OECD average of 6% (Independent article November 2017). When you consider this was before many of the more recent tax changes and regulatory adjustments, the 12.5% figure may well turn out to be conservative.
The Scottish government has already abolished section 21 notices, which allow landlords to pursue a “no fault” eviction of tenants, and it seems the Labour Party is about to follow suit. In a move which has caused uproar amongst landlords up and down the country, yet more power is likely to be put in the hands of tenants with the courts giving them full backing. As political parties, on the left and the right, continue to use landlords and tenants as pawns in their political games, where will this all end?
Those who follow the private rental market will be well aware of ever tightening regulations introduced by the Conservative government together with increased taxes. Changes to HMO regulations over the next few days will increase the number of landlord licences which will further swell the coffers of the authorities. Section 21 notices are a morally valid and legal means of obtaining vacant possession of a property, whether looking to sell or live there in the future. Quite why the Labour government seems determined to strip landlords of more and more rights while increasing taxation is bizarre.
Second home owners
In a move which was welcomed by many members of the Labour Party, Jeremy Corbyn announced plans to double council tax for those who have second homes/holiday homes. The average tax bill for a second home owner would increase by £3200 a year. The move might have been more palatable if the funds raised were to be invested by the relevant local authority but that is not the case. The additional funds, estimated to top £560 million a year, would be collected by the Treasury and used to create “affordable homes” in struggling areas of the UK (switching money from the South to Labour heartlands of the North?). However, there are serious concerns that an increase in property taxes will directly impact local economies which often depend on holidaymakers.
As a side note, what would happen to the second homes of many UK MPs who receive significant taxpayer funded allowances? Would we be in a situation where these “second homes” are subject to a doubling of council tax which would be paid for by UK taxpayers? So, UK taxpayers would not have the choice of exiting this “market” and would instead be expected to fund the political gravy train forever and a day?
Housing shortages in the UK
It is all well and good politicians of the day pointing the finger at property investors, suggesting they are banking millions of pounds in profit, but what have recent governments done to help the housing market?
The UK is running literally hundreds of thousands of units behind new build targets, first time buyer assistance is pushing prices higher and higher and the sale of social housing to tenants at submarket prices, which began in the 1980s, is only just being phased out in many parts of the country. There has also been a chronic lack of investment in building apprenticeships which has impacted the number of skilled workers available to the UK housebuilding sector. No incentive to build more homes and not enough skilled workers to do the job.
As a consequence, the private rental sector has taken up much of the slack caused by government indecision and inability to put together a long-term cohesive policy. Strangely, the Conservative government, but to a greater extent the Labour Party, have decided to bite the hand that feeds them and attack buy to let investors and private landlords. This may make for good headlines, vote winning taglines and show that politicians “care” but the effects of these short term strategies will have a major impact on the UK property market for many years to come.
While there are caring landlords who abide by all regulations, often at considerable cost to themselves, in simple terms, if the investment risk/return ratio does not add up then investment in the UK private rental sector will evaporate. If politicians think there is a chronic shortage of occupier owned homes, social housing and private rental properties today, this will fade into insignificance compared to the situation they are creating for tomorrow.