Tory activist rounds on government over three year tenancies

A Tory activist has made an outspoken attack on the government’s policies towards the private rental sector on the pages of a leading Conservative website.

Writing on Conservative Home, Dr Rosalind Beck - a doctor of criminology and a Conservative party member in south Wales - starts by saying: “One would be forgiven for asking what on earth has happened to core Conservative values.”

Beck is openly critical of the proposal, announced just over a week ago, that the government would back three year tenancies as the norm in the sector, if a consultation process agrees with the idea.

Beck, a landlord herself, says most tenants prefer six month tenancies, which then become periodic; she also highlights the fact that many lenders do not allow tenancies of more than 12 months. 

“Making three year terms obligatory would also have the effect of leading some accidental landlords to decide to leave a second property (or their only property if, for example, they were going away on a work contract) empty, rather than face problems getting their property back” says Beck, who describes the consultation process as a “cut and paste” copy of the proposals introduced north of the border by the Scottish National Party.

Beck goes on to touch on Build To Rent, S24 tax changes and the government being influenced by “landlord-hating groups such as Shelter and Generation Rent and also from within its own ranks”.

It’s an interesting read and comes as parties begin preparations for their annual conferences, which begin in only nine weeks’ time. 

Beck’s piece is reproduced in full below:

One would be forgiven for asking what on earth has happened to core Conservative values. 

This week, we had certain Conservative Cabinet Ministers attacking business; this from ‘the party of business’. This followed the huge, unfunded commitment to the NHS (what happened to fiscal responsibility?) and now we have a consultation paper announced by James Brokenshire, consisting of a cut and paste from the left-wing Scottish National Party, proposing three-year tenancies in the private rented sector.

In fact, average tenancy lengths are already around four years, and it is my experience as a landlord that most tenants prefer six months, which then become periodic. As many lenders do not allow tenancies of more than 12 months, and often landlords are tied into very lengthy terms, if compulsory three year tenancies were introduced, landlords could be pushed into breach of contract (with huge financial implications) by the Government. 

Making three year terms obligatory would also have the effect of leading some accidental landlords to decide to leave a second property (or their only property if, for example, they were going away on a work contract) empty, rather than face problems getting their property back.

This is in a context where supply of rented housing is already being squeezed. There are 46,000 fewer rented properties this year compared to last (the first reduction in many years) according to the Government’s own figures. Other research predicts a further 133,000 properties will be lost to the sector in the coming year, as landlords leave a market which they feel is under siege. Landlords already have to comply with more than 140 separate regulations.

This latest idea follows closely on the heels of other proposals in last week’s report by Onward, authored by Neil O’Brien.

O’Brien’s suggestions for the private rented sector – which were reported as though they were largely unproblematic – would be even more destructive for the sector. He proposed that the Green Party’s 2015 Manifesto pledge of so-called “restriction of tax relief” which George Osborne “stole” should be extended further so that landlords’ legitimate finance costs would be completely disallowed for all new rented housing. As most private landlords need to take out a buy to let mortgage to fund a new-build or the purchase (and often renovation) of a property to rent out, and as this cost is now treated as profit and taxed accordingly, very few landlords are now willing to carry on anyway. Extending it further would be devastating for supply. He also, incredibly, suggests that landlords no longer be allowed to claim furnishings in a rented house as a legitimate expense, because ‘owner-occupiers cannot,’ conveniently forgetting that if I supply a bed to a tenant, that is not for my personal use as it would be in my own home.

Had O’Brien followed this subject as closely as I have – I wrote a 78 page report on it – he would have seen that the argument that, in his words, this “would equalise treatment with owner occupiers” was roundly condemned by Paul Johnson at the Institute for Fiscal Studies as ‘plain wrong,’ as first time buyers already enjoy a huge and incontrovertible tax advantage compared to private landlords.

More fundamentally, the Institute of Chartered Accountants of England and Wales stated:

“The idea that landlords will be taxed on the profit of their businesses, but not be allowed to offset the costs of creating that taxable profit is absurd, unjust and unsustainable. It overturns a fundamental, centuries-old principle of taxation.”

If it is not enough to point out the clear injustice of a policy, what about the fact that a fiscal attack on landlords is also an attack on tenants?  Huge, potentially infinite taxes on any business inevitably mean higher costs for the consumer – in this case, higher rents which will in turn lead to arrears, more bankruptcies, more evictions and increased homelessness. It is already reported that the costs of emergency accommodation have risen to half a billion pounds.

So, this kind of virtue signalling (attacking the nasty landlords) is already affecting supply of rented housing.  As supply drops and demand increases (with hundreds of thousands more migrants expected to enter the UK in coming years, most of whom will need rented housing), the landlords remaining will be able to pick and choose the best tenants. God knows what will happen to the rest, in what is effectively social cleansing.

There will also be the knock-on effects for other businesses, as rented housing forms a critical, yet unrecognised, part of the infrastructure. If the rented housing is not there for workers, where will they live?

It needn’t be like this. If the Government returned to its key principles of supporting business, ensuring fair tax policies and not regulating and restricting business to the nth degree, then morale and investment could return to the private rented sector.

The Government does not appear to oppose renting on principle; it has feted the large Build to Rent organisations, for example, offering them incentives and exempting them from the fiscal attacks, under the pretext that this would herald a new ‘professionalisation’ of the sector. What this really means is that expensive flats get built in big cities by a sub-sector which comprises two per cent of the private rented sector.

The irony is that individual landlords are uniquely placed to fund the new-build properties that the Build to Rent companies have failed to deliver, but are the precise group completely disincentivised by Government to do so.

When O’Brien suggests that landlords be then further disincentivised so that all new-builds get diverted to owner-occupation, he fails to grasp that landlords have often provided the upfront financing of new-builds so necessary for projects to get off the ground; this has enabled developers to then also provide more homes for owner-occupation, alongside. 

Without landlord finance, developers are missing a key source of finance impeding their ability to get anywhere near the Government’s housing targets. He implies that landlords stole the properties from under the noses of potential owner-occupiers, when without landlords, many of these properties would never have been built.

It will thus be highly regrettable if the Government chooses to remain on its destructive and populist path – egged on by landlord-hating groups such as Shelter and Generation Rent and also from within its own ranks – but I fear it will only stop when the homelessness figures reach crisis proportions and when it becomes clear that no-one else can rescue the rented sector in the UK, except the ‘small’ traditional landlord, currently so vilified.