Market Reforms
13 July, 2015Markets and investors, of all sorts, hate uncertainty and speculation and so a majority Government of any colour, I think, would have been ...
Clearly it was always unlikely that the incoming party would have solely been red, and I suspect that a Labour-Lib Dem coalition, propped up by the SNP, would have caused havoc in the London and UK housing markets. However, as we all are now aware, this is not the case. The industry seems broadly pleased with the new Government. I wonder how happy they will be, though, if we manage to vote our way out of the EU? Anyhow, that's a discussion for another time.
No matter who makes up the new Government, housing market reform should be at the top of their to do list – all the parties talked about how it needs to change, although with not too much detail. The Tories will now try and push through the enhanced Right-to-Buy scheme, an idea so ridiculous that almost everyone (apart from the tenants who can buy their homes at huge discounts) is against it. This may well benefit one to two million of the most secure tenants in the UK, but it yet again decimates social housing stock and does not alleviate the main problem – lack of supply. I have thought long and hard as to what I would do, and I have come up with four key areas to be addressed to fix our broken market. Currently, the market works for the few against the many; I believe that reforming how we build, buy and let properties will, in the end, work for almost everybody.
First Reform Buy-to-Let landlords (BTL) restrict stock for first time buyers – this has been going on for at least 20 years, and it really pushes out people trying to get onto the property ladder. Not only is supply reduced, as there are so few properties in areas of high demand, rents are sky high so would be first time buyers are stuck in renting hell, unable to buy. Therefore, to improve supply, I would stop providing income tax relief for landlords with more than five properties, and I would begin to charge an enhanced income tax on revenue earned from the sixth property onwards. I would ringfence the income tax to go into regional development funds to finance more social and affordable housing.
I understand that this will be unpopular with the majority of landlords but I cannot think of another way of restricting the size of an individual's housing portfolio-this way at least income is going back into the market.
Second Reform Set up regional development and planning bodies. This way, bodies covering larger areas, not just councils or boroughs, can take a more joined-up approach to planning and building. We all know that we need around 200,000 new homes a year – however these cannot just be dumped in random areas. We need thoughtful planning that includes schools, roads, water and sewage works and most importantly local jobs. We need to encourage people out of urban centres into new towns, where there are employment opportunities. Having regional bodies, I believe, will allow planners to take a more holistic view.
Third Reform Incentivise pension and investment funds to build and manage social housing through favourable tax treatment. The funds would own the properties and retain the rents, thus giving a stable return to investors. Social tenants would then have access to new, good quality housing, meaning that fewer private landlords are being paid by the DWP. This opens up the private rental market, increasing supply and so driving up standards across the board. Coupled with the BTL tax reform this should also see more housing available to owner occupiers come onto the market. Therefore, local and central Government have fewer responsibilities to build and run social housing; people investing in the funds can be confident of a decent return and be happy in the knowledge that it's an ethical investment that helps the more vulnerable in society; and we end up with more housing stock. The pension fund housing will be planned and developed in conjunction with the new regional development bodies, making sure that the new communities have the correct amenities.
Fourth Reform Incentivise property developers to build on brownfield sites, especially those that are polluted, by providing very favourable tax incentives around the clearing, cleaning and building costs. This will allow a more efficient use of existing space, and will help to improve areas by cleaning up land that is currently unsafe.
Reforming Stamp Duty Land Tax was a good start by the last Government, but it's only a very small step at the beginning of a long journey. We also need to reform the way houses and flats are valued within the mortgage process; regulate estate and letting agents; and change the way leasehold flats are owned, giving leaseholders more rights and more control.
The above is just a start – we need a radical change to how we buy, sell, rent and build houses in the UK – otherwise a whole range of people will simply be shut out, and a society in which people do not believe they have a stake is very dangerous. Changing the housing market will, in the end, make it much fairer and will benefit the vast majority of the UK population. And yes, it will probably bring down prices throughout the UK (although maybe not in prime and near prime central London) – but surely that is the aim, as salaries aren't going to increase enough to allow most people to buy where they want to live.
No matter who makes up the new Government, housing market reform should be at the top of their to do list – all the parties talked about how it needs to change, although with not too much detail. The Tories will now try and push through the enhanced Right-to-Buy scheme, an idea so ridiculous that almost everyone (apart from the tenants who can buy their homes at huge discounts) is against it. This may well benefit one to two million of the most secure tenants in the UK, but it yet again decimates social housing stock and does not alleviate the main problem – lack of supply. I have thought long and hard as to what I would do, and I have come up with four key areas to be addressed to fix our broken market. Currently, the market works for the few against the many; I believe that reforming how we build, buy and let properties will, in the end, work for almost everybody.
First Reform Buy-to-Let landlords (BTL) restrict stock for first time buyers – this has been going on for at least 20 years, and it really pushes out people trying to get onto the property ladder. Not only is supply reduced, as there are so few properties in areas of high demand, rents are sky high so would be first time buyers are stuck in renting hell, unable to buy. Therefore, to improve supply, I would stop providing income tax relief for landlords with more than five properties, and I would begin to charge an enhanced income tax on revenue earned from the sixth property onwards. I would ringfence the income tax to go into regional development funds to finance more social and affordable housing.
I understand that this will be unpopular with the majority of landlords but I cannot think of another way of restricting the size of an individual's housing portfolio-this way at least income is going back into the market.
Second Reform Set up regional development and planning bodies. This way, bodies covering larger areas, not just councils or boroughs, can take a more joined-up approach to planning and building. We all know that we need around 200,000 new homes a year – however these cannot just be dumped in random areas. We need thoughtful planning that includes schools, roads, water and sewage works and most importantly local jobs. We need to encourage people out of urban centres into new towns, where there are employment opportunities. Having regional bodies, I believe, will allow planners to take a more holistic view.
Third Reform Incentivise pension and investment funds to build and manage social housing through favourable tax treatment. The funds would own the properties and retain the rents, thus giving a stable return to investors. Social tenants would then have access to new, good quality housing, meaning that fewer private landlords are being paid by the DWP. This opens up the private rental market, increasing supply and so driving up standards across the board. Coupled with the BTL tax reform this should also see more housing available to owner occupiers come onto the market. Therefore, local and central Government have fewer responsibilities to build and run social housing; people investing in the funds can be confident of a decent return and be happy in the knowledge that it's an ethical investment that helps the more vulnerable in society; and we end up with more housing stock. The pension fund housing will be planned and developed in conjunction with the new regional development bodies, making sure that the new communities have the correct amenities.
Fourth Reform Incentivise property developers to build on brownfield sites, especially those that are polluted, by providing very favourable tax incentives around the clearing, cleaning and building costs. This will allow a more efficient use of existing space, and will help to improve areas by cleaning up land that is currently unsafe.
Reforming Stamp Duty Land Tax was a good start by the last Government, but it's only a very small step at the beginning of a long journey. We also need to reform the way houses and flats are valued within the mortgage process; regulate estate and letting agents; and change the way leasehold flats are owned, giving leaseholders more rights and more control.
The above is just a start – we need a radical change to how we buy, sell, rent and build houses in the UK – otherwise a whole range of people will simply be shut out, and a society in which people do not believe they have a stake is very dangerous. Changing the housing market will, in the end, make it much fairer and will benefit the vast majority of the UK population. And yes, it will probably bring down prices throughout the UK (although maybe not in prime and near prime central London) – but surely that is the aim, as salaries aren't going to increase enough to allow most people to buy where they want to live.