Daily Telegraph keeps up pressure on ‘anti-buy to let government’

The Daily Telegraph - an outspoken critic of George Osborne’s fiscal changes aimed at extracting more money from the buy to let sector - has renewed its attack.

Matthew Lynn, a financial journalist writing in the Telegraph, restated familiar facts about housing shortages emphasising the usefulness of a private rental sector and the way in which changing tax rules will hit landlords disproportionately.

Even so, it is a good read and an example of how at least one part of the national press is still campaigning for the buy to let sector.

Here’s the piece in full:

It is not often that a government policy actually works. Rebalancing the economy towards manufacturing? Nope. Raising productivity? Not much sign of that happening yet. Narrowing the trade deficit? It just keeps on getting bigger and bigger.

But here is one that does appear to have been successful - crashing the buy to let industry. In the past year, the government has declared all-out war against Britain’s growing army of private landlords. Their taxes have been increased, and stamp duty put up. And, guess what, it is working. Judging by the number of new mortgages for the rental sector, the market is collapsing.

But hold on. What makes us think that the government is any better at planning the housing market than it is at planning anything else? In truth, there were lots of good reasons why the UK needed more homes available for renting. The state can crash the market if it wants to – but there is no evidence to suggest that a healthier housing market will result.

Over the past year buy-to-let landlords could be forgiven for feeling about as popular as Jean-Claude Juncker gate-crashing a Vote Leave rally. They already faced a lot of extra rules, from health and safety regulations, to making them informal border guards, responsible for checking the immigration status of their tenants.

On top of that, George Osborne changed the rules, so that interest on their properties can no longer be set against tax – a measure that is not applied to any other business – while increasing the stamp duty on any second property. The Left keeps arguing for full-scale rent controls, and those may not be far away. 

In April, according to the Council of Mortgage Lenders, the number of new buy-to-let mortgages was down by 85pc. Year-on-year there was a 51pc fall in lending. True, the figures were distorted by investors rushing to beat the deadline for higher stamp duty charges. Even so, that is the kind of collapse that makes the Athens stock market look safe by comparison.

It is not as if returns are getting better. For all the hysteria about Generation Rent battling punitive landlords, the actual figures suggest something else is going on. The Office for National Statistics’s latest data show rents rose at 2.6 per cent in the past year, and just a fraction more than that in London.

That is roughly in line with the increase in real wages, although if you are at the bottom of the pay scale and got an increase from the new living wage, your earnings will have gone up by about seven per cent, or a lot more than your rent. House prices are accelerating by around 10 per cent annually, but rents are not even close to matching that. In effect, renting is getting cheaper compared with buying.

There is nothing wrong with that – it’s good when stuff gets cheaper. But it is not what we usually read. Of course, there has been a huge shift from owner-occupation to renting in the UK. Owner-occupation has dropped from a high of 70.5 per cent of homes in 2000 to about 64 per cent now. Back in 1999 there were 2m privately rented homes, out of a total of 20m households. Now there are 3.8m, out of 22m homes.

There are slightly more owner-occupiers – up from 14m to 14.3m – but significantly fewer people renting social housing. Private rentals account for most of the increase in the supply of housing over the last 15 years. But the government’s blizzard of higher taxes looks to be bringing that to a grinding halt.

Is that really such a great idea? In fact, there were some perfectly good reasons why the UK needed more rental properties over the last two decades. We have a lot more students, especially from overseas, and typically they want to rent.

We have a lot more immigrants, and regardless of what happens in this week’s referendum, that is not likely to change soon either. Does that Polish scaffolder really want to buy a house, or would he rather rent and save up for a property back at home?

Finally, we have a far more flexible labour market, with a lot more people job-hopping from city to city, as the demand for their skills varies, and their careers change direction. Those people want to rent as well. We have no idea what the right balance between the rental and the owner-occupied sector is. The market will decide. That is what it is there for. 

True, we have a general shortage of housing. There is no question that the supply of properties has not kept up with demand, or with the increase in the population. But the way to fix that is by building more houses.

It is not by trying to micro-manage the market, or second guess what kind of homes we need, and where, and who should be paying for them and owning them.

In reality, the government has no idea what the right mix between rental and owner- occupied homes should be. It might be 70 per cent owner-occupied as it was a decade ago. It might be 78 per cent as it is in Spain, or less than 50 per cent as it is in Switzerland. Your guess is as good as mine, and certainly as good as the Treasury’s.

If we punish landlords hard enough, we can make them flee the market, but all we will actually do is create a shortage, and drive up the prices for the people who do want to rent, while making very little difference to the people who want to buy.

Even worse, a crash in the rental market will ripple out into the economy in all kinds of unexpected ways. Everything we know about economics tells us that government intervention invariably fails.

We may need more housing, but that will only happen when we rip up regulations and planning restrictions to allow more homes to be built. This intervention is not likely to end any more happily than any other form of state planning – and may have consequences that we neither expected, nor are happy with.