Tax hikes slow house-building claims Berkeley Group

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Landlord Tax:

A major house builder has blamed, in part, recent tax increases on private landlords as a reason for not increasing its house-building.

Berkeley Group said today that a fall in demand by domestic buy-to-let landlords was one of a number of reasons why it would be impossible to boost housing supply, beyond its current plans.

It cited especially the decision to restrict mortgage interest relief to the basic rate of income tax and the 3 per cent stamp duty levy on the purchase of new homes to rent out. It noted the importance of supporting landlords who, it said, “buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward.”

It comes at the end of a week in which the Office for Budget Responsibility warned of “subdued growth in residential investment.”

Recent research by the Residential Landlord Association’s research exchange, PEARL, has found that of the almost 3,300 landlords responding to its survey, 69 per cent said that the stamp duty levy, introduced in 2016, is putting them off investing in further rental property.

David Smith, Policy Director for the RLA, said:

“We have long warned the Government of the dangers of its tax raid on the private rented sector. Now we see its impact, with investment in new homes slowing and house builders not confident to up their levels of house building.

“Rather than taxing new homes, it is time for smarter, pro-growth taxation that recognises the rental market as a crucial part of addressing the housing crisis.”

The Residential Landlords Association: The home for landlords

The RLA represents the interests of landlords in the private rented sector across England and Wales. We’re home to over 50,000 landlords nationwide, with a combined portfolio of over a quarter of a million properties. A growing community of landlords who trust and rely on us to deliver day-to-day support, expert advice, government campaigning, plus a range of high-quality services relevant to their needs.

A statement by Berkeley Group today states:

“The market conditions in London and the South East are unchanged from the first half with home movers and downsizers continuing to be constrained by high transaction costs, the 4.5x income multiple limit on mortgage borrowing and prevailing economic uncertainty.

“In addition, domestic buy-to-let investors, who buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward, are further impacted by additional transaction costs and the removal of interest deductibility.

“These factors, together with the changing planning environment and the time and complexity of getting on site following planning approval, mean that Berkeley is currently unable to increase production beyond the business plan levels.”

The Office of Budget Responsibility has published its latest Economic and Fiscal Outlook. It can be accessed at: http://cdn.obr.uk/EFO-MaRch_2018.pdf   Page 67 notes:

“Real residential investment rose by 7.8 per cent in 2017, up from 7.6 per cent in 2016. In line with our forecasts for house prices and property transactions, we expect relatively subdued growth in residential investment over the forecast period. Housebuilding is expected to slow in the near term, reflecting subdued turnover in the housing market and modestly higher interest rates.

“Housebuilding is then expected to rise as housing market turnover picks up. Housing improvements are also expected to slow in the near term thanks to recent weakness in real wages, before picking up as real earnings growth picks up. Over the medium term, residential investment is expected to grow broadly in line with real GDP.”

RLA PEARL’s report, The Impact of Taxation Reform on Private Landlords, is available at: https://research.rla.org.uk/wp-content/uploads/impact-taxation-reform-landlords-2018.pdf   It surveyed almost 3,300 landlords, of which 69% said that the decision to impose a three per cent stamp duty levy on the purchase of new homes to rent in 2016 is putting them off investing in further rental property.

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