In an effort to increase tax revenues, stamp out unscrupulous landlords and free up homes for domestic buyers, the last 5 years have seen successive increases in residential taxes. These have been particularly targeted at foreign buyers and the luxury end of the market. The effects are being seen. Higher value properties have experienced significant price discounts whilst London’s new builds have seen sales fall as much as 41%.
Despite this, the UK is no closer to solving its housing crisis. Government building pledges are still being missed with an anticipated 250,000 shortfall of homes promised by 2020. According to Inside Housing, affordable housing numbers are also at a 24 year low with only 1/5th of Right To Buy sales being replaced.
With one week to go until the General Election, Naomi Heaton, CEO of London Central Portfolio, outlines her 5 point plan for the next Government to get the property market moving, increase building volumes and provide some Viagra to the UK economy and Exchequer.
Provide relief to buyers of new builds from the 3% Additional Rate Stamp Duty (ARSD)
Whilst Stamp Duty receipts are reportedly up, buoyed by the introduction of ARSD, sales in London are down 29%. The implementation of ARSD on first purchases by international buyers has dampened demand, particularly in London’s new developments. With average prices starting at substantially more than the UK average, throttling the sales of expensive new builds will not provide more housing for aspiring homeowners.
This slowdown is now affecting developer’s ability to provide further private and affordable housing. New building starts have fallen 75% in the capital, according to JLL. The Government cannot afford to overlook this. Nor that sales in Prime Central London are estimated to contribute £3.8bn to the UK economy and 1.7bn through Stamp Duty and VAT each year.
Relief from ARSD for new properties, already under construction, will help maintain the essential ‘parallel housing market’ funded by foreign investors. This provides the essential cashflow for developers to build more domestic homes.
Whilst penalising foreign investors makes good political soundbites, turning this tap off does not provide more affordable homes, quite the opposite.
Announce that current property tax legislation will remain unchanged during the next parliament
The last 5 years have seen 3 successive increases in Stamp Duty, amounting to as much as 15%, an Annual Tax on Enveloped Dwellings of up to £218,000, a non-resident Capital Gains Tax, reductions in mortgage interest relief for landlords and a new ‘look through’ non-domicile Inheritance Tax. Continuous Government interference has increased uncertainty, with Brexit amplifying a wait-and-see attitude.
Prime Central London, where prices average £1.8m, provides 31% of all UK Stamp Duty receipts. Transactions, however, are now at an all time low, down 33%.
To address this fiscal drag, the Government needs to renew buyer confidence by affirming the status quo for current tax legislation. Buyers can then assimilate the extra buy-in costs and re-enter the market with confidence. Increasing top-end sales would result in additional tax revenue, supporting economic growth during Brexit, whilst demonstrating Britain is open for global business.
Provide incentives for professional Landlords to supplement much needed rental accommodation
The Government’s target is to build 1m homes by 2020, with an additional 0.5m promised by 2022 in the Conservatives’ Manifesto. However, Shelter project a 250,000 shortfall at current building rates, whilst social rented accommodation diminishes as Right to Buy sales are not replaced.
With limited provisions for those renting, either because they cannot afford to buy or as a lifestyle decision, existing rental stock must be actively expanded, particularly where it does not compete with domestic buyers. In April, according to CML, buy to let lending was down 80% compared with last year as ARSD and reductions in mortgage interest relief deter new purchases.
As private landlords are disincentivised to regulate the sector and help aspiring homeowners, bona fide institutional and professional landlords should be incentivised to provide quality rental accommodation. This will both meet the needs of Generation Rent and promote the UK’s position as the go-to destination for international professionals.
Institute greater regulation of illegal short-letting and websites such as Airbnb
Laws were relaxed in 2015 to promote the sharing economy and allow owners to let out their homes for up to 90 days each year without planning permission. However, limited regulatory oversight is causing cause major problems. Alongside genuine homeowners, unscrupulous landlords are taking advantage of websites such as Airbnb to obtain serial short-let tenants at the expense of long stayers. Less publicised, are the growing numbers of tenants themselves renting properties on a long-let basis, and then subletting at a profit without the landlord’s knowledge.
Illegal sub-letting not only puts bona fide landlords in breach of their lease but frequently they do not receive any rent as these are scams run by fraudsters. It is time the Government regulates these activities. For example, property deeds could be provided at registration on short-let websites, ensuring available properties are directly owned and not sublet. However, this does not address stock being illegally removed from the long-let market, exacerbating the property crisis for Generation Rent. The next Government will need to draw up properly conceived legislation.
Review recent increases in Business Rates
Despite vigorous campaigning, controversial increases in business rates went ahead at the last UK Budget. With a new Government on June 9th, Hammond’s promise to review rate increases must be kept to alleviate the burden.
Last year, LCP examined the impact on small retail business in London. This identified increases over 100% for some budget hotels and 80% for certain retail outlets. Generally, retail saw increases of around 1/3. Westminster Council recently described high streets as the ‘beating hearts of communities’ but small retailers are already disappearing with internet giants and chain stores taking over.
With the UK’s mantra of paying ones ‘fair share’, it is quite unfair that small businesses, normally tenants, are assessed on the basis of rising property prices – from which they do not benefit. The loss of our entrepreneurial small businesses will reduce the stimulus to create vital new jobs, whilst the financial contribution from multinational corporates will diminish as rates on out of town warehouses fall by hundreds of thousands of pounds.
The next Chancellor must conduct a root and branch review to support small companies and ensure the UK remains attractive, cosmopolitan and open for business.