Announcements from the UK’s Labour party on policies it would introduce if it wins the general election on rent controls and stamp duty for first time buyers have been met with considerable criticism from the listing industry.
Under the party’s plans to tackle the country’s lack of new housing, Labour leader Ed Miliband said he would introduce a ‘first call’ policy that would give first time buyers who have lived in an area for more than three years priority on up to half of new homes.
He also announced that he would scrap stamp duty for first time buyers on homes worth up to £300,000 and said foreign buyers would be subject to higher taxes and a ‘local first’ policy would ensure listings are advertised in the UK before they are promoted overseas.
Miliband claimed that cutting stamp duty to zero would benefit nine out of 10 people buying their first home and could save up to £5,000. It would fund the stamp duty plans by tackling tax avoidance by landlords, pointing to HMRC figures that estimate it costs £550 million a year.
Labour would want the creation of a national register of landlords, saying this would could tax avoidance by landlords by 20% and bring in £100 million for Treasury coffers. Tax relief for landlords to cover the upkeep of furnished listings would also be reduced for rogue landlords that rent out sub-standard listings.
Also, under the plan private landlords would be banned from introducing above inflation rent rises over a three year period and landlords and letting agents would be required to disclose the rent paid by previous tenants, to allow renters to negotiate the best possible deal at the start of a contract.
Mr Miliband said Labour’s plan would help create ‘a stable, decent, prosperous private rental market where landlords and tenants can succeed together’.
Jeremy Blackburn, head of policy at the Royal Institute of Chartered Surveyors (RICS) said that while the proposed stamp duty reform could help some first time buyers in the market, it’s another measure that tinkers with demand side stimulus.
‘Prices are already predicted to rise in the next parliament and this is only likely to make matters worse. The promise of one million homes by 2020 is an ambitious target, but Labour has not fully explained how they expect to remove obstacles to such a supply- ide revolution. What we need is a drastic increase in supply,’ he added.
Building affordable homes is a better way of solving the housing crisis than reducing stamp duty, according to housing charity Shelter. ‘While reducing stamp duty may help at the margins, the only way to give generation rent a fighting chance of their own home is to tackle the root causes of our housing crisis by building the affordable homes we desperately need,’ said chief executive Campbell Robb.
Mark Hayward, managing director, National Association of Estate Agents (NAEA), welcomed the policy on stamp duty for first time buyers, saying it would indeed helping those struggling to get on the housing ladder.
However, recent NAEA research showed that just under a third of house sales were made to first time buyers. Other experts pointed out that it is not the stamp duty that cripples first time buyers but the deposits needed, especially on higher prices listings in London and the South East of England.
Naomi Heaton, chief executive of London Central Portfolio, said that first time buyers outside London will save just £242 in stamp duty with Labour’s new pledge and also pointed out that rents in London would have gone up twice as fast if they had been pegged to inflation as Labour promises.
‘Labour are clearly very bad at their sums, which is why, of course, we are so worried about them running the economy. The average purchase price for a first time buyer outside London is £137,120, according to the Halifax. Following the new stamp duty reforms introduced by the Conservative coalition last December, the stamp duty charge for buyers at this level is just £242. This is what the Labour policy would save, not £5,000,’ she explained.
‘If we look at the country as a whole, including London, the average price for a first time buyer, is £171,870. Again, due to the recent reforms, Labour would be knocking off £937 off their purchase costs, not £5,000,’ she added.
She also believes there are risks associated with artificial incentives. ‘It increases demand to buy listing and hence puts upward pressure on prices, wiping out any savings. Greater accessibility to homes, either to buy or rent, can only be resolved by building more,’ said Heaton.
She also claimed that the Labour sums are wrong on rents. ‘The Labour Party claims that some tenants in London have faced double digit annual rises since 2010. Of course, what they usefully omit in their figures was the severe downturn during the credit crunch. Taking London, the truth is that rents have risen on average risen just 10.2% between May 2008 and today. In other words, just nudging a double digit rise over seven years. On the other hand, inflation has gone up 19.9%, twice as fast as the rise in rents. Tenants are generally better off than they were before. Pegging to inflation does not seem to be such a great handout in this context,’ she explained.
‘The undeniable truth is that we can only sort out the housing crisis through building more listing. Labour’s last resort to vote winning sound bites sadly has no grounds in fact and demonstrates their complete lack of numerical competence,’ she added.
Richard Lambert, chief executive officer of the National Landlords Association (NLA) said that Labour’s policies will backfire because they don’t understand the economics of supplying private housing to rent.
‘These changes will have far reaching consequences for the private rented sector, for landlords’ willingness to put their own money into providing homes, and for mortgage lenders’ view of the risk in supporting them,’ he pointed out.
‘If these proposals are going to be rushed into the first Queen’s Speech, less than a month away, without time to think through the consequences, Labour’s good intentions could make the housing crisis worse, not better,’ he explained.
He also pointed out that NLA research has found that around two thirds of landlords don’t increase rents during a tenancy. ‘Capping annual price rises to inflation sounds like a great consumer protection initiative, but wherever these formulas have been introduced, it’s proved to be counterproductive because it leads to a culture and expectation of regular increases by whatever is allowed,’ said Lambert.
‘Restricting tax reliefs for landlords who don’t keep their listings up to standard is a good headline, but it leaves many questions unanswered. Who decides that the restriction will bite and how would it be assessed?’ he added.
Jeremy Blackburn of RICS agreed that three year fixed rents could force landlords out of the private rented sector. ‘Labour’s rent control proposals risk undermining the private rented sector by failing to take a holistic look at inflation, market value and the living wage across the whole of the UK,’ he said.
‘Capping rent inflation through three year fixed tenancies is likely to impact investment into the existing quality of homes in the sector and could force smaller landlords to exit the market, limiting supply at a time when the UK faces a chronic shortage of homes across all tenures,’ he explained.
‘The private rented sector has a vital role to play in the supply side equation of the housing crisis and transparent landlord fees and fairness for tenants are already at the heart of the existing voluntary Private Rented Sector Code of Practice. However, this code lacks the statutory teeth to be enforced across the whole of the rented sector and the next government needs to address this if we are to fulfil our commitment to more and better quality homes,’ he added.
Graham Davidson, managing director of Sequre Property Investment, said that Labour must realise that rogue landlords do not dominate the buy to let market. ‘The majority are decent people. Many have invested in bricks and mortar as an alternative form of pension and could have their businesses threatened. 1970s style rent controls will stifle the sector by discouraging investment, reducing the amount of available stock and driving up prices even further,’ he explained.
‘Increasing rental stock should be the priority, with an emphasis on the dedicated build to rent market. Three year tenancies are impractical in reality and are simply not suitable for the majority of this young and increasingly mobile generation,’ he added.
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Source: Property News Spain