Apr

Government’s war on landlords causing havoc in the rental market

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“Britain’s demented war on landlords has already backfired”, says Daily Telegraph columnist Matthew Lynn, and “There is no sign whatsoever that the Government realises it is to blame,” he says.

Furthermore Mr Lynn says that the chaos in the rental market is adding to Britain’s inflation problem because housing costs are a major factor in the inflation calculation. Rising rents are sending inflation even higher – “Now the Government seems determined to make things worse,” he says.

The latest inflation figures in April show that UK inflation remains stubbornly above 10 per cent and disappointedly overshoots the Bank of England’s prediction by at least 1 per cent, while food and housing costs are growing at at least double the 10 per cent average rate.

The Government and the Bank of England blame these persistently high inflation rates on the Ukraine war leading to high food and energy costs, as well as sluggish supplies of goods and materials following Covid. But, argues Lynn, successive Conservative Governments’ housing policies have been a major contribution to the problem.

Nine interest rate rises by the bank of England, from near zero to 4 per cent, in the last18 months have failed to quell inflation, and it looks like there’s more to come. It’s predicted that the bank rate may rise to 4.5 per cent soon, which will put more pressure on buy-to-let landlords with mortgages to show any profit at all, without putting up rents further.

Since George Osborne’s tax hikes, removing landlords’ ability to claim mortgage interest payments against income, a 3 per cent surcharge on stamp Duty (SDLT) and the removal the 10 per cent wear and tear allowance, there’s been no let up for landlords.

Next came a slew of increasingly complex regulations, tenants’ right-to-rent immigration checks, limits on damage deposits, increasingly demanding energy performance (EPC) standards for rental properties, and now imminent new laws which will give tenants far more security of tenure.

All this has put much more pressure on the small-scale landlord. The latest interest rate rises will make it more difficult for landlords with mortgages to make a profit from letting property. Is it any wonder many are considering downsizing their portfolios, if not selling-up altogether.

The result is those landlord prepared to stay the course are increasing their rents along with their costs inflation and there’s developing a real shortage of suitable rental accommodation at a reasonable price for the average renter.

So, Government action over these last 10 years is driving small-scale landlords, and those who have not had the foresight to incorporate their businesses, by far the majority, are being driven out of the market.

Even the Bank of England is now admitting that the higher tax rates, the increasing regulation of the sector, and the more recent increases in borrowing costs, are resulting dramatic rent increases and a severe shortage of rentals.

So, argues Lynn, “This demented war on landlords is now a major factor in the cost of living spiralling out of control.” While the Government continues on its current policy path with this property market, until more housing gets built, and landlords are given some incentive to invest, he sees no prospect of bringing inflation back down again.

London rents in some locations are rising at a rate approaching 30 per cent prompting the Mayor Sidiq Khan to start a campaign asking for rent controls similar to those imposed by the SNP Government in Scotland, while the rest of the country has seen rises in the region of 5 per cent, considerably more than a year ago.

The imminent ban on the Section 21 so called “no fault” evictions included in the Renter’s Reform Bill, coupled with the investment needed to upgrade much of the existing old property stock used in renting, is making many landlords take stock of their lot.

As Mr Lynn says,

“The completely predictable result is that landlords are getting out and doing something else with their money. An estimated 140,000 landlords retired, sold up and left the market last year according to research by Hampton’s and a further 500,000 are expected to follow over the next five years.”

You don’t take a master’s degree in economics to know that if you remove supply (of rental housing) while demand for renting remains the same or is rising – because first time buyers are being priced out of the owner occupier market – rents will continue to rise and fuel inflation.

It’s hard to believe that a Party in power for so long shows so little sure grasp of the real issues involved in housing and how this now fuels inflation. When rents rise at the rates they have been doing, renters will inevitably want to maintain their standard of living by asking their employers for more money. This is threatening a runaway wage-price inflationary spiral that could easily get out of control as it did in the 1970s.

As Mr Lynn says,

“The simple fact of the matter is that the Government has made an almighty mess of housing policy for years. We need lots of affordable homes for people to buy, and homes for people to rent as well, depending on their circumstances. The only way to achieve that is to rip up planning restrictions, overrule local councils and the courts, and start building a lot more.

Furthermore,

“The war on landlords has already backfired badly, sending rents spiralling out of control. And now it is driving inflation higher too. The worst part of it all is that there is no sign whatsoever that the Government realises it is to blame.”

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