Dr Rosalind Beck, Author at Property118

I offer here a brief critique of the report which has just been published by the Joseph Rowntree Foundation.

To download the full report please CLICK HERE

Those of you who are aware of the debates surrounding Section 24 and who have kept abreast of our research findings on Property118 will know that we are the ones who brought attention to the need to compare the UK Government’s fiscal attack on private landlords with what had occurred on two occasions in Ireland. Until recently the Treasury had not uttered a word on this matter; indeed it is reasonable to assume that George Osborne was unaware that similar policies had been implemented with disastrous effect in Ireland in the last two decades.

So, in principle, one would have welcomed JRF’s decision to develop these comparisons which we initiated and perhaps highlight the dangers of taxing some landlords into bankruptcy; Section 24 means some landlords will have to find the money to pay tax even on a loss in their businesses and as these are more likely to be portfolio landlords (because they pay the most in interest and interest is now not deducted as a legitimate expense, but taxed as though it were still in landlords’ pockets), the collateral damage on tenants in the UK PRS will be immense and is in fact likely to be more extreme than what occurred in Ireland. In its first incarnation in Ireland, there was a 50% rise in rents over the period of 1998 to 2001 when it was in operation (and, unlike in the UK, it did not apply to properties already owned, but only to new purchases, so it was a far milder version than that currently being phased in in the UK).

However, having read the report, I found it to have very different emphases. Most notably, there is an underlying assumption by the authors that the way in which the Irish Government has regulated the Irish PRS is a positive model to be emulated in the UK; this strikes me as all wrong, as culturally the Irish PRS appears to be far more fractious and dysfunctional – probably more like the UK PRS of the 1970s. However, the other key assumption they make is that the English PRS is in a bad state and needs to be reformed. From my perspective as a landlord I know that most private rented housing is of good quality and around 80% of UK tenants are satisfied with their private housing. Despite recent Government utterances about the UK housing market being ‘broken,’ this certainly doesn’t apply to the PRS, which is well-functioning and dynamic housing tenure.

So the whole premises behind the report strike me as ill-conceived and I would ask: who thought it was worth spending money on analysing the Irish PRS as something to be copied? There ARE lessons to be learned from what is happening in the PRS in Ireland, but the main lesson is that the Government should not launch a tax assault on landlords; not unless it wants to see spiralling rents and increasing levels of homelessness. In this regard, Ireland is the antithesis of a role model.

I will now examine specific points they make and give my view on them.

The authors state:

‘The challenging issues of affordability, security and property management have raised interest in regulation of the private rented sector in England.’

Since there are over 200 regulations already in force which apply to private landlords, who are they suggesting have this raised interest in regulation? Does this mean they want even more regulation? Do they think that introducing ever more rules and bureaucracy, often with associated costs, will lead to the greater supply of rented housing desperately needed?

The authors then argue:

‘Incentives are important to encourage regulatory compliance amongst landlords. In Ireland and England, compliance with registration or licensing conditions can be encouraged through eligibility for tax relief or restrictions of powers for those who fail to comply.’

Being able to deduct finance costs to arrive at profit is not an incentive. It was a central tenet of tax law for centuries until it was removed this month (as it also was in Ireland before Government abandoned the use of basic logic in the tax system, namely that ‘profit = income – costs’). As the Institute of Chartered Accountants of England and Wales has pointed out:

‘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.’

The authors should not therefore be calling a partial restoration of a fundamental right as an ‘incentive.’ It is necessary to call for a complete restoration of it as a matter of justice and common sense. Only then can one realistically look at encouraging people to invest in the provision of rented housing by examining the kinds of incentives offered in other countries.

For example, one incentive which would interest landlords and might persuade them back into the market after the scrapping of Section 24 would be to (re-) introduce the tapering relief enjoyed by landlords in Germany and other advanced nations so that if they own a property for 10 years there is no Capital Gains Tax to pay. In fact, I am surprised Germany was not chosen as the role model (it usually is).

The authors go on:

‘Longer-term tenancies with protection from eviction can increase feelings of security, but these can be undermined by lack of affordability and poor property conditions.’

I believe what this means is that in Ireland, longer tenancies have been introduced and ‘coincidentally’ the problem faced there is that rents are too high, supply is insufficient and the current housing stock can be poor. They do not seem to think that these are all interconnected and later on in the report suggest that regulation is not as important as the disallowing of finance costs in terms of disincentivising investment. I agree, but I think it is also a very important disincentive, even if it is secondary (and that is only because the fiscal attack is so disastrous).

The authors have taken on board Shelter’s recent campaign for longer tenancies in the UK, but omit to mention the fact that the average length of tenancies in the UK has grown to around 4 years anyway. No statistical evidence is provided that longer tenancies are something the vast majority of tenants want. Advocating for longer tenancies across the board does not make sense; many workers, students and so on would not want this.

The report seems to be a kind of ‘tenants rights’ manifesto in many ways; the input of landlords’ views is tiny relative to the input of tenants’ viewpoints. So it should not be presented as an impartial account; it seems to be very ideologically driven.

So the authors appear to be attempting to advocate for tenants when they mention affordability and when they talk about poor property conditions, but key concerns of landlords are scarcely addressed at all. That is not likely to lead to landlords coming on board with the proposals.

The authors could have analysed why some landlords do not want to offer longer-term tenancies for example. They might have asked how many properties are secured with mortgages from lenders who will not allow long-term tenancies. They might have described what their recommendations would be for how landlords could evict quickly a non-paying tenant who had been granted a long-term tenancy.

I believe that in essence they are proposing a solution for a non-existent problem; and that this agenda of the need for longer-term tenancies is an ideological aim of Shelter (and coincidentally Shelter’s former Chief Executive has now joined JRF).

A further point they should have stressed in terms of insisting on longer tenancies, is the possibly negative effects of this on the supply of housing. Some accidental landlords, for example, might rent out a house for a year or more (perhaps if they are working abroad or in a different part of the country) if they are sure that they will be able to re-gain control of it when and if they need to sell. One already runs great risks every time one lets a house to a tenant as they may turn ‘rogue’ and wreck your property. There is also the risk of falling foul of the many rules and regulations and be prosecuted even as criminal if you did not realise your tenant was illegally in the country for example; being a landlord is a difficult and risky business and any further hurdles put in the way will only act as further disincentives.

So, if potential landlords are going to be tied into mandatory long-term tenancies they might decide to keep the property empty. How does that help with the housing shortage? How does implementing restrictive policies which deplete the amount of housing available at any one time help with the quest for affordability? The authors acknowledge that there is a problem with lack of supply in Ireland; don’t they consider this might be because of the excessive regulation (Government interference) in Ireland? Instead, they hold Ireland up as a model to emulate.

‘In particular, research by Sherry Fitzgerald, a property advisory firm, advised that over 40,000 units had been lost from the PRS between 2011 and 2015 due to buy-to-let vendors selling properties (Sherry Fitzgerald, 2015).’

The link between the Irish Government’s policies towards the private rented sector and this contraction in supply is clear.

‘This is not to suggest that the PRS in Ireland is necessarily or definitively well regulated or functioning coherently, as there have been a number of criticisms of the sector. Despite the 2004 reforms, the PRS in Ireland has been characterised as ‘a fragmented, under-capitalised ‘‘cottage’’ industry, lacking the professionalism and modern synergy with a strong regulatory framework that prevails in other EU countries’ (Taft, 2009).’

If this is the case, it is hard to see why the authors are holding it up as a model for the UK.

In terms of the remit of the report, it is clearly too limited. For example, because they are only looking at the PRS in both countries, they make no mention of the evidence that tenant satisfaction levels amongst tenants of social landlords is very comparable to those for tenants in private rented housing. Why is there not more focus on the need to improve conditions in social housing? Why was it decided that the authors would only put the spotlight on the private rented sector? Do social tenants not matter? For example:

‘Tenants were asked about their experiences of living in the PRS, including a focus on their housing costs, tenure security and property standards, and their relationships with landlords.’

The partiality of the report in addition to being underlined by the absence of any focus on tenants in social housing is compounded by the almost non-existent landlords’ perspective. Notably, when they obtained their tenant sample, they should have also asked the landlords of the tenants they interviewed what their thoughts were on how things worked. Without this, the accounts of the tenants are unreliable. The sample may also be skewed, moreover, as an unspecified number of the sample came via a housing advice charity (who are more likely to have perceived problems with their housing).

One can take the example of repairs to illustrate this. Whereas a tenant might complain that repairs were not done promptly, had the landlord been asked, they might have said that in fact they were done promptly, but that the tenants’ expectations were too high (maybe they thought a broken boiler should be replaced within 24 hours for instance) and/or they might mention that the tenant was in arrears and/or was even abusive. The issue of mould is mentioned by the authors, but no discussion of the most common cause which is lack of ventilation, made worse if landlords improve homes with better insulation but the tenant does not ventilate. Tenants might also lie or exaggerate. The authors sought no independent corroboration. This wouldn’t be acceptable in a court of law.

The authors also write about the need for landlord education; but what about tenant education?

So, the authors are happy to address the issue of poor housing conditions (which paints landlords in a bad light); but there is no mention of rogue tenants (and the extremely stressful situations often faced by decent landlords).

‘Incentives continue to be important in Ireland, where more advantageous tax relief is available for landlords who let to low-income tenants for a minimum of three years, through the Housing Assistance Payment programme.’

It is my understanding that the levels of ‘housing benefit’ are, however, very low in Ireland and way below market rent, so I don’t see why this model would be attractive to UK landlords at the very point when we have to maximise rents to cover the tax on fictitious profit.

The UK Government’s ‘war on landlords’ should also be seen in this context and it is, I believe, wrong of the authors to not be more explicit that what they call an incentive is, in fact, only the first step in Ireland towards full restoration of landlords’ rights to deduct finance costs to arrive at profit. The Irish Government is restoring the 25% ‘restriction’ of ‘tax relief’ in 5% increments as it has realised this policy exacerbated the housing crisis in Ireland. The full 100% finance costs will then be deductible once more.

‘Low-income tenants often struggle with accessing and keeping tenancies in the private rented sector, suggesting a role for support schemes that work with landlords to help tenants with these issues.’

As an experienced portfolio landlord, I find this a very euphemistic statement. What does it mean that they struggle? I have had people ‘struggle’ in the sense that they have chosen to spend the rent money on drink, drugs, mobile ‘phones, Sky packages, takeaway meals, cigarettes, a summer holiday and so on. In fact, it is then the landlord who struggles – trying to pay the mortgage on the tenants’ home as well as on their own and all of the other associated costs, whenever they find they have a rogue tenant. If JRF wants its research to be seen as credible, it must also present the landlords’ viewpoint. You cannot just look at one side of an equation as the solutions proposed will not then be the correct ones.

The authors also comment on the desirability of limiting the frequency of rent increases, clearly believing that this is another policy which should be considered in England. Government control of rents in the PRS is a populist policy often mooted as a solution to rents rising. In fact, the evidential basis for rent caps having a positive impact is non-existent (Niemitz, 2016) and yet it is still often called for. The opposite approach is suggested by some of the stakeholders in the report:

‘Rent controls were not seen as desirable or important by all stakeholders. Many respondents in different local authority areas, and at a national level, from different sectors, commented on their wariness at dissuading landlords from letting property in an era of low housing supply in some locations.’

Also, instead of thinking that landlords are going to apply in droves to house people on benefits if they are allowed to offset finance costs, they should be put in the picture that many landlords are now moving in the opposite direction, away from this client group. This is not only because Local Housing Allowance is now often way below market rents and because of Section 24, but also because landlords are becoming increasingly sick of being accused of taking (stealing) taxpayers’ money when they house people on benefits. If landlords only house people who pay their rent out of their salaries they do not face this ludicrous accusation (in fact, Housing Benefit is paid to tenants who cannot afford to pay their rent; it is not a ‘subsidy’ to landlords).

‘One way of incentivising registration may be to permit the offset of capital expenditure on improvement works against rental income, helping to tackle concerns that landlords are negatively affected by recent taxation changes.’

No. Sorry. That wouldn’t do it for me. Again, I repeat, the main recommendation should be abolishing Section 24.

The authors recognise the impact of the disallowing of finance costs in Ireland:

‘More stringent taxation and its financial impacts, rather than tenancy registration per se, has been highlighted as a driving force for those landlords that have left the market in Ireland (Irish Examiner, 2016). Forthcoming improvements to Mortgage Interest Tax Relief for buy-to-let landlords may help to reverse this trend.

Also:

‘Tenancy registration in Ireland, and landlord licensing in some parts of England, are effective ways of collecting more accurate information about the size, composition and geography of the sector.’

One assumes they see this as important, because academics and researchers like data. I wouldn’t have seen it as a priority though.

‘This may include improved marketing of and support for schemes that seek to support low-income households and landlords with tenancy access and sustainment, such as a national rent deposit guarantee proposed by Crisis and the National Landlords Association.’

No. Sorry. This also won’t do it. An indemnification for all arrears and damages would do it. As any experienced landlord knows, if a rogue tenant decides not to pay the rent, they can get away with at least 5 months’ rent-free accommodation while the case goes through all the legal procedures and at the end they are faced with this massive loss of money through rent arrears and legal costs and also the invariable renovation and clean-up works as tenants who don’t respect their promise to pay the rent often also damage the property. One month’s deposit doesn’t come near to covering this risk.

They ask for support schemes to assist landlords who cater for low-income households. What assessment have they done regarding the impediments to landlords catering for this group? Clearly, Section 24 is a massive impediment, which they do acknowledge, but it is not the only one. Have they calculated, for example, what proportion of the £9 billion or so lost to UK landlords every year because of rent arrears and damage comes from the behaviour of this group? I’m not saying that they are mostly to blame for landlords’ massive financial losses each year – I am saying that the authors should have addressed this question.

There is certainly a perception that it is this group which causes the greatest losses. I think they need to fill in this gap in our current knowledge. One idea would be to at least suggest a facility whereby data were collected on the landlords’ assessment of losses through rent arrears and damages. As I mentioned, even more crucial is to suggest that Government indemnify landlords’ losses if they agree to house people whom they would not normally risk taking on. Why should landlords be asked to take these enormous risks with their assets when only landlords then face the hit of the associated costs? It is very easy to ask other people to take risks that no-one else is willing to take. I doubt very much, however, if landlords will continue to do this. Wherever possible, facing a tax levy on our finance costs (as though they are profit when they are not), landlords are going to go for the safe bet and aim to secure tenants with the greatest means.

‘In both England and Ireland, forms of landlord licensing and tenancy registration were shown to have multiple benefits in improving the circumstances and experiences of tenants in the PRS, and in enhancing market understanding of the sector.’

If the authors had asked landlords in general what they thought about licensing the response would have been very different. In Cardiff, for instance, each licence costs around £600 and each time the council issues or renews a licence I believe they feel they have to justify the fee and the way they do this is by demanding that thousands of pounds worth of work is done – for example replacing original Victorian doors with horrible fire doors which tenants hate and which they jam open as they are sick of them slamming back in their faces. Of course these licence fees are a Godsend to financially-strapped councils and pay the wages of council employees. No conflict of interest there.

There is also a section in the report related to security of tenure where the authors talk a lot about tenants’ rights. They do not talk about landlords’ rights or about tenants’ responsibilities, unfortunately. The difficulties landlords face at the hands of rogue tenants are not considered to be of equal worth to report on in their endeavour to improve how the UK PRS functions.

‘There needs to be greater consideration of how incentives could improve the sector in England, particularly given recent punitive taxation changes that have been unpopular with landlords and could result in disinvestment.’

This would have been better written thus:

‘There needs to be an urgent reversal of Section 24. As Paul Johnson of the Institute of Fiscal Studies has stated, it is ‘plain wrong’ to tax landlords as a business but not allow them to offset the costs of producing that taxable profit. In addition to being unfair, it will be extremely damaging as landlords are very unlikely to take out finance costs to develop the new housing that is urgently needed in the rental sector, when these costs are treated as profit to be taxed. Many will also leave the sector. This bizarre change in accounting rules will cause untold damage to the poorest in society as rents and homelessness levels rise; as they did in Ireland. The Government should completely reverse its approach to the PRS, and recognise it as a hugely valuable resource and as an essential component of housing provision in the UK. The Government should look at introducing incentives, particularly tax incentives such as those which exist in countries such as Germany and it should immediately end its ‘war on landlords.’

In sum, I think this report does not focus on the right issues, even so far as comparing the UK with the wrong country and believing the Irish PRS is more functional than the UK one, when I believe the opposite is the case. It is also too focused on tenants and their perspectives and does not speak out clearly against the main threats facing the PRS and the low-income families within it especially – notably, Section 24, the freezes to LHA and the changes to Universal Credit. So, geographically and substantively I believe the report unfortunately adopted the wrong focus.

I will send this critique to the authors and report any feedback here.

Dr Rosalind Beck

Portfolio landlord and campaigner against Section 24.

I recently exchanged a number of emails with someone who supports Section 24 of the Finance (No. 2) Act 2015. The emails are self-explanatory.

The challenge for you is to guess who my correspondent is?

EDITORS NOTE

This is a very long article which you will not want to stop reading once you get into it.

You might want to grab a cuppa before you begin.

8.38pm, 3^rd January 2017.

Dear…

It has been drawn to my attention that you think disallowing unincorporated landlords’ finance costs to arrive at profit is a good idea. It actually is a crazy idea. If you take a look at my report you will see how strong the arguments are against this measure and you will also see how your views are at odds with amongst others, the IFS, the Institute of Economic Affairs and the Institute of Chartered Accountants of England and Wales. Dame Kate Barker, who formerly sat on the MPC and wrote a seminal report on housing in the UK, has also now expressed her belief that this is an ill-advised move (she initially supported it as she, too, didn’t understand it fully). Many others are adding their voice against it as they have grown to understand what it actually means. My report can be read here:

https://media.property118.com/wp-content/uploads/2016/10/6G0YKMd1Wf.pdf

Perhaps you can get back to me with your views on it?

Thanks.

Yours sincerely

Dr Rosalind Beck

9.16pm, 3^rd January 2017

Dear Ros,

Many thanks for your email. I have saved your report for future use. I am sure I will find it useful.

I am particularly interested in point 5 of your executive summary which ends:

“….although surveys show that more than 80% of tenants are satisfied with their homes.”

I searched the rest of the document for any reference to these surveys but could not find them. I have probably missed the references so if you could point me to where they are in the report I would be very grateful, or to any other source of the >80% figure. I don’t think this is what the Survey of English Housing Reports and, of course, it is just one survey.

I think the merits of the tax do partly depend on whether tenants in the English private rented sector really are satisfied with their homes, the amount they pay for their home and the quality of those homes. Hence my interest in the >80% figure.

All best wishes,

9.40pm, 3^rd of January 2017:

Hi…

Thanks for your prompt response. Here are the references I cited in the report. You will see that at least one of them shows greater tenant satisfaction in the PRS than in the ‘social’ sector. I’m not sure though why you think that this is the key issue as there are a wide range of arguments against Section 24 which are unrelated to tenant satisfaction, which of course is highly subjective anyway. The objections raised by the Institute of Chartered Accountants, for instance, would be difficult to counter.

However, you imply that if high levels of tenant satisfaction can be proven that you will withdraw your support for Section 24. Is that correct?

All the best.

Ros

What percentage of tenants are satisfied with their landlord? – M-S Estates

What percentage of tenants are satisfied with their landlord? – M-S Estates

New research commissioned by specialist buy-to-let lender, Paragon Mortgages, has revealed more than three quart…

http://prsupdate.co.uk/2014/07/private-rented-sector-tenant-satisfaction-on-the-rise/

http://www.rla.wales/policies-news/90-of-tenants-th-their-homes/

10.22pm, 3^rd of January 2017:

Dear Ros,

Many thanks for sending through the references. I see that the 84% reference to the overall “fairly satisfied” measure. However, the link you provided also links through to the more detailed report on private renting that the EHS did which is here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/570848/Private_Rented_Sector_Full_Report.pdf

On page 2 of which they explain that

“Private renters are less satisfied with their tenure than owner occupiers and social renters, but satisfaction has increased since 2004-05. · In 2014-15, two thirds (65%) of private renters were satisfied with their current tenure. This compares to 98% of owner occupiers and 82% of social renters. · Although lower than the other sectors, satisfaction with tenure has increased among private renters since 2004-05, when about half (48%) of private renters were satisfied.”

I’m not sure what you would say a good rate of satisfaction would be – but 65% is not great. The rise from 48% may suggest some adaptation to the inevitability of renting for so many more people now as compared to 2004-5. As you say it is hard to know but of course it would be possible to ask tenants more detailed questions about

I am very grateful for your providing this link as I would not have stumbled upon the 65% figure otherwise.

My support for Section 24 hasn’t changed.

All the best,

ps here are some other highlights from that report you kindly pointed me to:

Satisfaction with tenure was particularly high among older and retired private renters. · In 2014-15, 90% of private renters aged 75 or older were satisfied with their tenure compared to 60% of those aged 35-44 years and 71% of 16-24 year olds. · The majority of retired private renters (85%) were satisfied with their current tenure compared to 59% of unemployed private renters and 59% of private renters in part-time employment. There has been an increase in the proportion of private renters who were charged a fee(s) on entering their current accommodation. These were sometimes hidden by the agent or landlord. Introduction and main findings | 3 · In 2014-15, 40% of households in the private rented sector were charged a fee on entering their current private rented sector accommodation, up from 34% in 2009-10. The average value of the fee was £223, up from £196 in 2009-10. · 18% of private renters said that they felt some of these upfront charges were hidden. Most tenants paid a deposit when they moved into their accommodation and nearly two thirds of their landlords paid this into a government authorised deposit scheme. · Three quarters (74%) of private renters paid a deposit when they moved into their accommodation and 62% of their landlords paid it into a government authorised deposit scheme. Dwelling condition and safety in the private rented sector has improved since 1996 but remains poorer than other tenures. Due to increasing numbers in the private rented sector the number of households in poor conditions has remained similar. · In 2014, 28% of private renters (1.2 million households) lived in dwellings that were non-decent, compared to 47% in 2006 (1.1 million). · Compared with other tenures, the private rented sector has a higher rate of nondecency. In 2014, 18% of owner occupiers and 14% of social renters lived in dwellings that were non-decent.

10.54pm, 3^rd of January 2017:

Dear…

As I say, I don’t understand why you are so focused on the issue of tenant satisfaction and I am sure I could find other surveys which conflict with the 65% figure. If we follow the logic inherent in this focus though it would mean that a lower level of satisfaction (than some arbitrary figure) amongst customers in any business would mean that they should not be allowed to offset the costs of creating a taxable profit and should instead have some costs re-defined as profit, even to the point of making them go bankrupt. I am sure businesses would find this bizarre as we also do – Richard Dyson at the Telegraph is not the only person to have called Section 24 ‘absurd,’ and the type of law one would expect to be introduced by a dictator in a third world country (and as a highly respected financial journalist he is not given to hyperbole).

Also, what would happen if council and Housing Association tenants didn’t report a sufficient level of satisfaction? What would the sanction be? You may not be aware of it, but many of us provide housing at rents very comparable to those of Housing Associations (and as we are taxed on this, in the case of benefit tenants we provide housing which is more cost-effective to the tax-payer).

I do not believe however that tenant satisfaction surveys are the key issue at all here. I would like to know what you think of the arguments in my report which are far more central to this issue, most importantly, the following quotes from the Institute of Chartered Accountants in England and Wales.

‘Denying a business tax relief on expenses wholly and exclusively for the purpose of the business is not fair and reasonable.’

‘We can think of no other business where the cost of funding the capital of the business is not tax allowable.’

Ros

11.39pm, 3^rd of January 2017:

Dear Ros,

I agree – if the lowest rates of satisfaction, when carefully measured, were in the LA or HA sectors then private landlords would have a case to be heard which would go along the lines of: “Don’t alter what we are doing yet – concentrate first on where the greatest problems are”. However, you are not in a position to make that case because of the EHS survey results. As far as I know no other survey is carried out on housing that is representative so I don’t think you would be able to find other reputable surveys to counter what the EHS reveals. You will of course be able to find landlord organisations quoting parts of the EHS other than those parts I have just sent to you.

The arguments about treating housing as a normal business don’t work because housing is not a normal business. It is asymmetrical, like education and health. The provider knows far more and has far more power than the ‘consumer’ – who has to move home to ’shop around’. This is why, in education, health and housing, normal business rules create bad results. It is why almost all private schools are charitable (who would send their child to a profit making school?). I am not against a private rented sector, just as I am not opposed to private schools – but they need to be regulated in ways truly private businesses don’t need to be. Most people only have one home and only get one education.

Of course, if there was any evidence that profit making schools with the same tax allowances as other businesses worked better than state schools or (charitable private schools) an argument could be made for allowing them to operate as such businesses with the normal business arrangements that your describe.

The government also knows that there are far more private tenants than private landlords, And even more parents of private tenants than there are parents of landlords. The constituency that is annoyed by private renting is now very large and becoming more annoyed when stuck in this tenure through to middle age (35-44, as the EHS shows). I suspect that the government’s actions may also be influenced by this – although they may simply be following the logic above about housing not being like other goods. However, that logic has always applied. Whereas the political arithmetic of tenants and their wider families is what has changed most recently. I find this more plausible than the argument of government incompetence on this issue. Conservative government minister tend to know the private rented sector quite well. Many have been or are landlords. They are annoying a great many of their friends by doing what they are currently doing. They may yet back down because of that (but any back-tracking will now be politically dangerous for them). They will have started down this road knowing most of these issues. Not following through with their stated policies will make it look as if they are not on the side of “hard working Britain” or whatever phrase they are currently using.

And the louder landlords complain about the new taxes – the better the government will look. Interesting times. As I say, they may get back down. Alternatively they may welcome you attacking them as it makes their rhetoric look more plausible or they may actually think it is the right thing to do. I just think it is the right thing to do.

All best wishes

11.59pm, 3^rd of January 2017:

Hi…

You haven’t said what you think about the arguments from the ICAEW. These are arguments about the fundamental issues at stake here, rather than political speculations.

All the best

Ros

9.31am, 4^th of January 2017:

Hi….

As I mentioned to you last night, I am really interested in your response to the views of the ‘experts’ on Section 24, especially those of ICAEW.

As an aside though I do have a few things to say about your interpretation of the tenant satisfaction figures. A colleague looked at this for me and had the following to say:

You have chosen to quote the figures about tenants’ satisfaction with their tenures. It is not surprising that owner-occupiers and social tenants who can have life-long tenure and even pass the property on to their children, are more satisfied with their tenures.

What is relevant here is how satisfied people are with their accommodation. The results are PRS, 82% and social renters, 80%. These figures are on page 16:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/570848/Private_Rented_Sector_Full_Report.pdf

“Satisfaction with accommodation 2.18

Across tenures, owner occupiers were more likely to be satisfied with their current accommodation than all renters, at 95%. Among renters, 82% of private renters and 80% of social renters said they were satisfied. There was no significant difference in levels of satisfaction with accommodation between social and private renters, Annex Table 2.5. 2.19 Since 1994-95 there has been little change in the proportion of each tenure who were satisfied with their accommodation. The proportion of owner occupiers satisfied with their accommodation increased by 2 percentage points. Among social renters the proportion of satisfaction households dropped by 3 percentage points. There was no significant change in the proportion of private renters satisfied with their accommodation, Figure 2.5.”

As you mentioned there would be an argument against Section 24 if it were found that social renters’ levels of satisfaction were lower, I assume you will therefore be changing your view in light of the 82% to 80% comparison. Personally, I don’t see this as the crux of the matter at all, but as you do, I can only make the assumption that you will now change your view.

All the best.

Ros

10am, 4^th of January 2017:

Ros,

I really do believe that private renters are not satisfied with their lot and have good reason not to be satisfied. As you say, part of the reason will be their insecurity of tenure, but another part will be the high rents they pay. Housing costs are highest for this group (because mortgage interest rates are low).

I don’t believe I am likely to change your view. But I would ask you to try to put yourself in the shoes of someone who only has access to the private rental market in England as it is currently constituted. There are many ways to change its constitution. One way is the imposition of these new taxes.

As far as I am aware the ICAEW is not a body that has carried out much research on private tenants. I would recommend you look at the many reports produced by Shelter over recent years. Again it is worth putting yourself in their shoes and asking why they produce their reports rather than simply assuming they are misguided.

We live in an incredibly divided country which is I think why we are having this conversation. The financial interests of different groups of people in this country have diverged far more than in any other country in Europe. Reserach produced a few years ago by Saville’s showed that private landlords as a whole have experienced the greatest rise in wealth in the UK of any tenure group. Of course this is an average figure and you may dispute Saville’s findings (they were published in the FT).

I do understand that you are very aggrieved by the imposition of these new taxes, but given all that I know about housing I can’t oppose them and can see why it is rational to expect them to be a small part of the many things that need to change is people are to be able to feel secure in their homes, to have good quality homes, and to be paying a proportion of their income for housing that is reasonable. Of course, one result of these changes will be to deter small landlords from buying properties. That appears to already have happened with very rapid falls in BLT purchases.

All best wishes

6.28pm, 4^th of January 2017:

Hi…

You seem to be avoiding answering my questions, specifically:

Since the EHS finds that tenant satisfaction is higher amongst private tenants than social tenants are you going to withdraw your support for Section 24?

Your answer to the quotes I provided from ICAEW is to say they aren’t experts on housing. As Section 24 amounts to a historical shift in accounting precepts and abolishes the centuries-old tax tenet that profit = income – costs, it wouldn’t matter if they knew nothing about housing as this is about fundamental issues of taxation fairness. As such it sets a dangerous precedent. In my view, rather than look for evidence of someone’s credibility regarding a particular knowledge base, I prefer to engage with the actual arguments – whether they are being presented by a bus conductor or by the Governor of the Bank of England.

Further points:

Your latest email also indicates your belief that Section 24 will affect the wealthiest landlords. It will not. It will affect only unincorporated landlords with finance costs – people who owe the most, not those who own the most. The wealthiest landlords will not have mortgages and will be unaffected as will those running often identical services under the umbrella of a company.

Regarding your point that renting is currently expensive in comparison with mortgages, that could easily change and then landlords would face the hit – you must bear in mind that we have taken the risks and that for some of us that has paid off but it could easily have gone the other way – when I started out I was subsidising tenancies from my monthly salary as my monthly mortgage payments were higher than the rents. Several friends mentioned to me that they were interested in investing in housing but were too scared of the considerable risks we take and/or they decided to spend their money on holidays, new kitchens and so on. Also, straightforward comparisons between the costs of renting and having a mortgage are usually unsatisfactory as they exclude the cost of maintaining one’s own home (indeed the fact that this is an unknown quantity is one of the things which deters some people from buying).

With regard to Shelter, they have behaved disgracefully over this. You can see some of my correspondence with Campbell Robb below. They should be sued under the Trades Descriptions Act (if such a thing exists) as they provide no shelter but see it as their central role to criticise those of us who do. I would point out also that their newly-invented ‘Living Homes Standard’ (which my house would fail under as I get recurring mould in my kitchen and can’t work out how the slugs are getting in – ie. my house is ‘damp’ and has an ‘infestation’) shows that 69% of homes in the PRS allegedly fail, whilst 68% of council houses and 66% of HA houses fail. Yet still Shelter focuses all its negative energy on the PRS. I mention this, in case you want to use this new ‘standard’ as an alternative to tenant satisfaction surveys and as a benchmark for whether the PRS is performing so dreadfully in comparison with (subsidised) social housing. It doesn’t look like it to me.

You say that you think s24 will make tenants more secure in their homes, improve the quality of the homes and make rents lower. Can you think of an example whereby levying a tax on something has increased its quality, stimulated its continuing supply, and reduced its price? In fact, taxing landlords on fictitious profit will have the opposite effect. If you look at the case studies in my report you will see how some landlords will face effective tax rates of over 80 and 90% by 2020 even without an increase in interest rates. Their first recourse will obviously be to increase rents to the absolute maximum and cut maintenance budgets to the bone. It is shameful that Shelter is supporting this. I also believe that once Campbell Robb has left (I believe he is off around about now), Shelter will become less invested in this position.

You are right that landlords will now be deterred now from making further purchases, which will clearly have a negative effect on supply of rented homes and will also therefore put pressure on rent levels. Of course, anyone would have to be mad now to get involved in BTL with the fact that as your costs go up and your profit goes down, you are deemed to be earning more and get taxed more, sometimes, as I say, to infinite levels. Just as an aside, with my portfolio in South Wales, if interest rates go up by 3% at any point, my profit will be zero but my tax payable on my non-income will be £8,000 pa. I have explained this to baristas at Costa Coffee who can understand it immediately and express suitable outrage; yet we still meet with the attitude by people who should know better, that this is ‘proportionate’ and ‘reasonable.’ Uh, on what planet?

It is often assumed that the way forward is to redistribute housing so that somehow private rented housing becomes owner-occupied housing. However, even if a landlord sells, which means evicting a tenant and a first time buyer can purchase, without more homes being built then it is (at best) the property equivalent of musical chairs. However, there is also the problem of where all the tenants will go who are not in a position to buy (students, migrant workers, benefit recipients and/or those on low pay/zero hour contracts, professionals who move regularly to progress their careers and so on). It is estimated that millions more rented homes will be needed over the coming years. As someone who was brought up on benefits in a single parent family I have first hand experience of living in a situation where renting was the only option ever available to my family. I find the arguments one sees from the likes of Generation Rent – that such tenants can buy the homes from their landlords – absolutely ridiculous. If some houses are now sold by landlords in distress it will generally be the wealthier classes who will be in a position to buy, not the current tenants. I have asked Shelter to let me know when and how they made the policy decision to abandon the latter and champion the former. I’m still waiting to hear.

The main problem with Section 24 which you have not mentioned is that it is retroactive and affects purchases already made. Many commentators have not understood this and did not understand how effective tax rates will turn infinite for many portfolio landlords at some point. I will just say that some influential people who did agree with it initially have shifted their position when they fully understood the implications, as I explained these to them. This is the only sensible position to reach. I wonder how long it will take you to arrive at it?

All the best.

Ros
PS

I have also put the link to another article which illustrates the injustice of taxing a business on its main cost. Some people lack empathy and can’t understand why we are so angry about this and I think the article about taxi-drivers is useful in this regard. I don’t know if you employ any staff – if you do, you might like to consider how you would feel if the wages you paid out were re-defined as taxable income as though you had not paid them out and as though that money were still in your bank account.
Campbell Robb – Why are you supporting the Tenant Tax? | Property118.com

Campbell Robb – Why are you supporting the Tenant Tax? | Property118.com

Property118 Forum for Private Landlords

Taxi drivers to lose tax relief on fuel in the Autumn Statement 2016 | Property118.com

Taxi drivers to lose tax relief on fuel in the Autumn Statement 2016 | Prop…

Property118 Forum for Private Landlords

10.24pm, 4^th of January 2017:

Dear Ros,

Some quick answers below.

On 4 Jan 2017, at 18:28, Ros

Hi …

You seem to be avoiding answering my questions,specifically:

Since the EHS finds that tenant satisfaction is higher amongst private tenants than social tenants are you going to withdraw your support for Section 24?

The key satisfaction that matters when it comes to tenure is with tenure and they are not satisfied with that. I suspect that there are countries in Europe where private tenants are happier with their tenure than people in other tenures.

Your answer to the quotes I provided from ICAEW is to say they aren’t experts on housing. As Section 24 amounts to a historical shift in accounting precepts and abolishes the centuries-old tax tenet that profit = income – costs, it wouldn’t matter if they knew nothing about housing as this is about fundamental issues of taxation fairness. As such it sets a dangerous precedent. In my view, rather than look for evidence of someone’s credibility regarding a particular knowledge base, I prefer to engage with the actual arguments – whether they are being presented by a bus conductor or by the Governor of the Bank of England.

Accountants don’t have a great record when it comes to issues of taxation and fairness. They are often implicated in schemes and plans designed to try to reduce the taxes paid by well off people.

Further points:

Your latest email also indicates your belief that Section 24 will affect the wealthiest landlords. It will not. It will affect only unincorporated landlords with finance costs – people who owe the most, not those who own the most. The wealthiest landlords will not have mortgages and will be unaffected as will those running often identical services under the umbrella of a company.

I did know this and I do think that incorporated landlords will be the next to be targeted. Of course a very very large number of landlords have become incorporated in recent months to try to avoid the taxes. I suspect one reason for the taxes being introduced is that the Treasury had begun to worry about the amount of money being borrowed by BTL landlords and how that might make banks unstable, effecting all of us in future.

Regarding your point that renting is currently expensive in comparison with mortgages, that could easily change and then landlords would face the hit – you must bear in mind that we have taken the risks and that for some of us that has paid off but it could easily have gone the other way – when I started out I was subsidising tenancies from my monthly salary as my monthly mortgage payments were higher than the rents. Several friends mentioned to me that they were interested in investing in housing but were too scared of the considerable risks we take and/or they decided to spend their money on holidays, new kitchens and so on. Also, straightforward comparisons between the costs of renting and having a mortgage are usually unsatisfactory as they exclude the cost of maintaining one’s own home (indeed the fact that this is an unknown quantity is one of the things which deters some people from buying).

“I took a risk so I should be rewarded for that” is a very common argument that well off people use to try to make themselves feel better about their growing wealth. I don’t think housing, like health and education, should be managed by this kind of behaviour.

With regard to Shelter, they have behaved disgracefully over this. You can see some of my correspondence with Campbell Robb below. They should be sued under the Trades Descriptions Act (if such a thing exists) as they provide no shelter but see it as their central role to criticise those of us who do. I would point out also that their newly-invented ‘Living Homes Standard’ (which my house would fail under as I get recurring mould in my kitchen and can’t work out how the slugs are getting in – ie. my house is ‘damp’ and has an ‘infestation’) shows that 69% of homes in the PRS allegedly fail, whilst 68% of council houses and 66% of HA houses fail. Yet still Shelter focuses all its negative energy on the PRS. I mention this, in case you want to use this new ‘standard’ as an alternative to tenant satisfaction surveys and as a benchmark for whether the PRS is performing so dreadfully in comparison with (subsidised) social housing. It doesn’t look like it to me.

Campbell Robb is off to run the Joseph Rowntree Foundation so it will be interesting to see what they start spending their millions on researching each year. I too have damp and slugs – or at least we think they are slugs (we only ever see the trails) but the huge difference between me and an tenant is that I chose to buy a house that is damp and could sell and move, or spend money on the slugs. A tenant is being given a service and the landlord chooses whether to solve the damp or make more money.

You say that you think s24 will make tenants more secure in their homes, improve the quality of the homes and make rents lower. Can you think of an example whereby levying a tax on something has increased its quality, stimulated its continuing supply, and reduced its price? In fact, taxing landlords on fictitious profit will have the opposite effect. If you look at the case studies in my report you will see how some landlords will face effective tax rates of over 80 and 90% by 2020 even without an increase in interest rates. Their first recourse will obviously be to increase rents to the absolute maximum and cut maintenance budgets to the bone. It is shameful that Shelter is supporting this. I also believe that once Campbell Robb has left (I believe he is off around about now), Shelter will become less invested in this position.

Leaving a tax on cigarettes has increased their quality because they are harmful. Our current laws that have encouraged a huge rise in very unregulated private landlords that has been harmful.That is partly why the speculation is being taxed. Taxes on things that are a bad idea are very common.

You are right that landlords will now be deterred now from making further purchases, which will clearly have a negative effect on supply of rented homes and will also therefore put pressure on rent levels. Of course, anyone would have to be mad now to get involved in BTL with the fact that as your costs go up and your profit goes down, you are deemed to be earning more and get taxed more, sometimes, as I say, to infinite levels. Just as an aside, with my portfolio in South Wales, if interest rates go up by 3% at any point, my profit will be zero but my tax payable on my non-income will be £8,000 pa. I have explained this to baristas at Costa Coffee who can understand it immediately and express suitable outrage; yet we still meet with the attitude by people who should know better, that this is ‘proportionate’ and ‘reasonable.’ Uh, on what planet?

Did you explain to the baristas that you own a large part of your portfolio, not the bank, and tell them just how much your total equity now is? Did you tell them what costa coffee baristas in Vienna pay in rent and are paid per hour?

It is often assumed that the way forward is to redistribute housing so that somehow private rented housing becomes owner-occupied housing. However, even if a landlord sells, which means evicting a tenant and a first time buyer can purchase, without more homes being built then it is (at best) the property equivalent of musical chairs. However, there is also the problem of where all the tenants will go who are not in a position to buy (students, migrant workers, benefit recipients and/or those on low pay/zero hour contracts, professionals who move regularly to progress their careers and so on). It is estimated that millions more rented homes will be needed over the coming years. As someone who was brought up on benefits in a single parent family I have first hand experience of living in a situation where renting was the only option ever available to my family. I find the arguments one sees from the likes of Generation Rent – that such tenants can buy the homes from their landlords – absolutely ridiculous. If some houses are now sold by landlords in distress it will generally be the wealthier classes who will be in a position to buy, not the current tenants. I have asked Shelter to let me know when and how they made the policy decision to abandon the latter and champion the former. I’m still waiting to hear.

Yes we do need a good quality rented sector – more than half of the UK population now rent (if you count by population). I am sure that responsible private renting is possible as happens in other countries but that will require other changes to law. The tax changes may simply be the start. In a country that has become poorer governments do not have much to offer people but that can increase their security of tenure.

The main problem with Section 24 which you have not mentioned is that it is retroactive and affects purchases already made. Many commentators have not understood this and did not understand how effective tax rates will turn infinite for many portfolio landlords at some point. I will just say that some influential people who did agree with it initially have shifted their position when they fully understood the implications, as I explained these to them. This is the only sensible position to reach. I wonder how long it will take you to arrive at it?

The same argument could have been made when the poll tax was abolished and replaced by council tax. It could be made for any new taxes on wealth. It could be made to try to prevent a land value tax being introduced. Or you could simply say we live in a democracy and you have a vote. but your tenants have more votes, because there are more of them. I would actually give them the right to stay in their home and change their landlord so I would go a lot further than Section 24 – more freedom more choice – and the compensation to the landlord would be less than the property is worth to give landlords a good incentive to be good landlords. I don’t think I’ll get my wish very soon – but the rules have been changed rapidly in the past at various crisis points.

All the best.

Ros
PS

I have also put the link to another article which illustrates the injustice of taxing a business on its main cost. Some people lack empathy and can’t understand why we are so angry about this and I think the article about taxi-drivers is useful in this regard. I don’t know if you employ any staff – if you do, you might like to consider how you would feel if the wages you paid out were re-defined as taxable income as though you had not paid them out and as though that money were still in your bank account.
If I pay someone – such as a builder – the wages I pay them are defined as taxable and I have to pay tax on them before I pay it to the builder. I actually like paying taxes as I know what they are spent on.

I can see you are annoyed – but are you really telling me that these changes will make you destitute, or simply not as well off as you currently are?

Making sure taxi drivers pay tax on fuel helps stop wasting fuel and encourages more use of more efficient public transport.

I hope this brief answers are of some use – we are miles apart politically – but the country as a whole has just become much poorer than it was a few years ago. We have just seen the largest rise in premature deaths since 1940. We have a health service that is underfunded. And we have some of the lowest taxes in Europe.

All the best

5.52pm, 5^th of January 2017:

Hi…

Here is my response to your replies

How are landlords responsible for other people’s tenures? We have no control over housing tenure in general, just the quality we provide in our own rental houses and tenants are very satisfied with that, as we have seen – more so than they are in the social sector. Also, I’m not responsible for other people’s lives and choices which have influenced the tenure they find themselves in. As the majority of landlords own only one property you could have a scenario where Nurse A had saved up for years and used their savings to buy a BTL house for their retirement (while Nurse B had spent their spare cash on the here and now) and after say 20 years of owning it, maintaining it, having the work and hassle of renting it out, Nurse A could be forced to sell it to Nurse B or anyone else – possibly someone from a far wealthier family who could meet mortgage requirements – gifting this person the deposit they had saved from their salary. Do you think that this kind of redistribution of wealth (through the expropriation of private property) is fair and the way to go? If so, who else in this country should have their property expropriated?

With regard to your question about me, my share of the equity in my portfolio is about £500,000 – theoretically, as it is very difficult to sell in South Wales (plus about £75,000 equity in my own home) – if I sold up the business part would be taxed at 40%. If Jeremy Corbyn sold his £600,000 house he would be taxed nothing and end up with more than me. The difference would be that I have lived in a far cheaper house and provided a housing service to hundreds of people over the years who are not in a position to buy and who need rented housing. Many of my houses have rents set at ‘social’ levels – and because councils and HAs have sold off so much affordable housing I am sure my tenants are pleased my houses were available. I have one tenant who has since 2005 been paying £325 for a two-bed house in the street he was brought up in – I have never put the rent up and there is no social housing there. He will never be in a position to buy but he has had a long-term home at a low rent. What is so awful about me doing this? And if you read my report you will see that it is exactly people like him who will have to be ousted at some point as landlords, including myself will not be able to keep the rents at these levels. Kate Barker has now come around to this reality – after I pointed out the consequences to her of this policy which she initially supported, as has Patrick Collinson at the Guardian to a significant extent after I explained the nitty gritty to him (although I believe he still probably hates landlords).

To give you more detail about my financial circumstances (since you ask), I can reveal that my current annual pre-tax income is generally between £40,000 and £50,000 so I am not the ‘wealthy landlord’ you assume us all to be (and this is the most I have every earned, because of low interest rates). Most of my houses have either fallen in value or just regained the value attributed to them in 2007. Before that date, my calculated risk-taking paid off as values grew and that is why I have equity overall. You seem to believe risk-taking in business is wrong. I’d say it’s necessary. If no-one took risks and began businesses this country would go bust. And my risk-taking has led to a successful business which has lasted nearly 20 years so far and helped to plug what would have been a desperate shortage in rented provision.

You also ask whether this will make me destitute or just a bit worse off. The answer is much closer to the former than the latter.

To illustrate further, in my report I have the following case study of my friend ‘Caroline.’ This has been checked and double-checked by a chartered accountant who is an expert on Section 24 and it has also been verified by Megan Shaw at HMRC who is tasked with the implementation of s24:

“At present, her rental profit is £65,000, and she has no other income. In 2020/21, if all her rent receipts and costs, and therefore her real profit, remain exactly the same, her taxable profit will be deemed by HMRC to be £220,000. Her tax will go up by 256%, from £15,200 to £54,100. This will be 83% of her real profit.

The net income, which she needs for herself and her daughter to live on, will go down by 78% – from £49,800 to £10,900. But she will not be entitled to any benefits, because of her deemed income of nearly a quarter of a million.

To maintain her after-tax income of £49,800 she will have to increase her rents by 33% between now and March 2020. Not that she will be any better off herself from this.
Thanks to a ludicrous tax she faces bankruptcy unless she sells up or increases the rent. It is not a question of bearing an additional burden, it is a matter of economic life and death.”

My situation is not as imminently dangerous as this but if interest rates go up at any point by 3% I will have zero income and have to pay £10,000 in tax and live on fresh air and support my two teenage children on that.

How long do you think you could manage on a zero salary whilst being taxed as though you were earning £200,000?

Like you I have no problem paying more tax. I was brought up in a working class, socialist household and have no problem for example if the 40% rate kicked in at £20,000. I wouldn’t lose any sleep over that – as long as everyone earning the same as me had to pay the same. What we are talking about here though – and I think you still haven’t grasped it – is effective tax rates which turn infinite because the higher our costs go, the more we are deemed to earn. I don’t know how many other ways there are of saying this. So your comment about ‘us’ having the lowest taxes in Europe will ring hollow to me as – to illustrate further – if my actual profit was £1 and I had to pay £10,000 tax MY effective tax rate would be a million percent.

Perhaps you might like to tell me your personal financial details now? It might be of interest to me as I too could have been an academic with my Cambridge degree, Masters and PhD, but I didn’t think it was that worthwhile. I think renovating decrepit housing stock and providing a housing service is of far more palpable use than work in academia. Indeed my PhD was pretty meaningless and also other research I was paid to do was pointless. Much research just confirms what we already knew and judging from my vast experience as a student a lot of teaching is also way below par.

So if landlords are to be treated in such a way what about turning the spotlight on academics? As you wish to see people like me lose my income through the expropriation of my properties, would you also agree that academics should have their salaries cut by, say, half so that this money can be used to support poorer students? Would this also be fair? One could use the argument that ‘student satisfaction surveys’ show a low level of satisfaction for what they get for the exorbitant tuition fees and that all academics’ salaries should be drastically cut as a consequence. This still wouldn’t come near to the tax burden we are being made to bear, however.

Also, if you think private housing is not socially useful, then as many of us provide an almost identical service to social housing providers, do you think they are also socially not useful? Despite what you say about you believing there is a role for private housing, landlords would get out of this business extremely quickly if your expropriation idea looked like it might ever be introduced. It would cause mass evictions and a housing crash, but perhaps you would like that? How do you think that would help first time buyers and others who bought before the crash and were left in negative equity with the threat of their homes being repossessed? I think your idea has not been thought-out to its natural conclusions, just as Section 24 hasn’t been.

You also use the word ‘speculator,’ when I bought my last rental houses in 2007 and my first one in 1998 and have not sold any. Do you call this ‘speculation?’

I also have to correct you on the idea that BTL poses a risk to the economy. Mark Carney made a statement about this immediately prior to the Summer Budget of 2015, which assisted George Osborne immensely (just like his controversial intervention during the Brexit campaign). In fact, this is without substance as in the last downturn landlords just hunkered down and got on with things; they didn’t panic sell at all. It is baseless scaremongering, which recent history proves to be so. Owner-occupiers with their much higher LTVs pose a far higher risk – especially those who only put down a 5% deposit. Landlords have very low LTVs on average.

I also find it strange that you think tenants can’t move house. It is far easier for them as they don’t have to sell to move for one thing. Very often we have tenants who want tenancies just for 3 months to attend a course for example. The vast majority of tenancies are brought to an end by tenants. I don’t understand your point at all here. You make the same mistake as Shelter when you argue for greater ‘security of tenure’ which usually means longer tenancies. It is landlords who would like this the most (as long as they can still evict for non-payment of rent or any other breach of contract) and tenants who would like it the least. I can get you the findings on this if you like.

Also, your statement that there has been a huge rise in unregulated landlords is unsubstantiated. I’ve just had to suck eggs doing the Rent Smart Wales assessment (I scored 100%!). Also, in recent years, all my student houses have had to have licences. There have also been more and more regulations introduced – standing at about 200 now I believe. While all the attention is on introducing ever more onerous regulation on landlords as a whole the ‘rogue landlords’ are left to carry on whatever they do with beds in sheds or whatever. I have no connection to these people who I do not classify as landlords, but rather as criminals.

With regard to your plan for landlords to be forced to sell to tenants, you say the ‘compensation’ would be less than the house is worth. What about when the house is in negative equity and/or the CGT means that there is effectively no equity? Also, do you honestly think that the majority of tenants would qualify for mortgages? Would students and young professionals in shared houses get this right to buy at a discount? How would that work?

Finally, you still refuse to answer the central and most important point in all of this, which is that Section 24 overturns the centuries-old, logical and rational precept that profit = income – costs. If this is not repealed the dangerous precedent is set that any business or individual can have this applied to them. I am sure you would not want it applied to the expenses you incur in your work. You wouldn’t find that fair, I am sure.

The Institute for Fiscal Studies have made their position very clear from the outset – that it is ‘plain wrong’ to tax a business on its profit but not allow the business to offset the costs of producing that taxable profit. I understand why you refuse to answer this, of course: you refuse to answer it because it is incontrovertible. Instead, you try to discredit ICAEW. That is not a logical argument.

By the way, a colleague has told me that you also believe owner-occupiers should face CGT. I am also really into the idea of a genuine level playing field, so to end on a positive note, we can agree on this one thing, at least.

All the best.

Ros

On 5 Jan 2017, at 17:52, Ros

Hi …

Here is my response to your replies

How are landlords responsible for other people’s tenures? We have no control over housing tenure in general, just the quality we provide in our own rental houses and tenants are very satisfied with that, as we have seen – more so than they are in the social sector. Also, I’m not responsible for other people’s lives and choices which have influenced the tenure they find themselves in. As the majority of landlords own only one property you could have a scenario where Nurse A had saved up for years and used their savings to buy a BTL house for their retirement (while Nurse B had spent their spare cash on the here and now) and after say 20 years of owning it, maintaining it. having the work and hassle of renting it out, Nurse A could be forced to sell it to Nurse B or anyone else – possibly someone from a far wealthier family who could meet mortgage requirements – gifting this person the deposit they had saved from their salary. Do you think that this kind of redistribution of wealth (through the expropriation of private property) is fair and the way to go? If so, who else in this country should have their property expropriated?

Typically it is not nurse A or nurse B. It is nurse A who can do nothing but spent her money on rent and see her debts rise, and landlord B who sees his wealth grow (Saville data). Private rents in Oxford are now so high that the hospital finds it very hard to get nurses.

Prices have begun falling in London. When the last happened and was prolonged, from 1989 through to the early 1990s it spread to Wales and the falls there was as big if not bigger than the fans in London.

You have a tenant paying £325 a month, or £3900 a year, and that is one of your tenants living in one or your lower value properties. Are you saying that all your rental income in total is less than £40,000 a year and you do no other work?

You also ask whether this will make me destitute or just a bit worse off. The answer is much closer to the former than the latter. You may think I can simply sell a house or two when I need some money and use the equity. I can’t as my mortgage lender will only let me sell all my properties at the same time, which is a piece of co-ordination impossible in the real world. My aim has always been to sell or remortgage as the term on each mortgage ended. If I am forced to sell earlier than this because of s24, my lender will send in the receivers and make me bankrupt.

Like you do above, I could say “‘I’m not responsible for other people’s lives and choices which have influenced the tenure they find themselves in.” but if I had worked harder in the past and been more clever I could have altered the financial authorities, in particular the FSA, to mortgage lenders operating in this way when that began and may have prevented you from being in this position. The FSA are extremely worried about loans such as yours which may be one of the influences that has resulted in the new taxation, to stop such things spreading.

As I say I don’t think we should have allowed things to get to this point. There are far more radical ways it could be tackled, for instance the nationalisation of her properties. But government is unlikely to consider that.

We can no longer afford as a country to have people living on rentier incomes in the way they have been and with the effect that has been having. Inflation is about the rise. Interest rates tend to rise when inflation rise, otherwise people will not save. However this is very very tricky to predict as the very low interest rates of recent years have been unprecedented, which is part of the reason we are in this mess (it was too easy for landlords to borrow).

How long do you think you could manage on a zero salary whilst being taxed as though you were earning £200,000?

I would sell as fast as I could.

I don’t believe that housing should be treated as a business, but you do. If someone is running a business and making a profit of £1 that business should go out of business.

I have a joint mortgage on the property I live in with my children. I have chosen not to own any other property. I have no car. I pay tax above the rate I could because I think we should be taxed higher and if I was to avoid tax in the many legal ways in which I could (I could start a company and claim many things as costs) I would be being hypocritical. I see no way in which my children will be well housing in future if private renting is allowed to carry on growing as it has and carries on operating under the laws that it operates under. I can just get by paying the mortgage. The private rent I would have to pay to live in the same house would be twice my mortgage and i could not afford it. I am a university professor, the house is average for Oxford and not in the wealthy half of the city which suits me as I grew up here.

I would be quite happy to have my salary cut in half if my housing costs were. The only reason I need the income I have is housing costs and food costs. So why are my housing costs so high? I think you can guess who has been buying up most of the property in Oxford and then charging so highly for it. We could pay a huge number of people far less if we could control housing costs. The private of unregulated private landlords is not the only reason for rising housing costs of course.

I think a housing crash is coming anyway. I think private renting in countries with decent regulations is socially useful. I first worked on housing as a researcher in 1989. I have had a few years to think these things through. My first report ion housing in the early 1990s was for the Treasury.

You also use the word ‘speculator,’ when I bought my last rental houses in 2007 and my first one in 1998 and have not sold any. Do you call this ‘speculation?’

Would you be complaining if house prices in Wales had risen more than they have? Would you have gone into this had you known what would happen including the tax changes that were to come? You speculated that they wouldn’t. You thought you were making a sensible decision – risk taking as you say. I think we should take the risk out of housing.

There may be a difference between what Mark Carney says in public and what the Bank of England, Treasury Analysis and FSA work out in private and then inform ministers of. They also have data available to them that is not in the public domain. I think it is worth you thinking why a Conservative government might be doing this. They may well know things which make them think that they have to do this now.

If all you say is true than why is private renting so popular and so much cheaper and of such higher quality in countries with much longer tenancies. By the way it is only long for the landlord. tenants can end it earlier in these countries. And this works, there are still private landlords.

Rent regulation.

They would switch to another landlord – often the council or hosing association that would then take possession of the home. This already happens in some cases for people with a mortgage who can become tenants and not loose their home when they can no longer pay their mortgage.

As I keep saying housing is a necessity, like health care and education, not a good candidate to be an unregulated business. Thing began to go wrong when rent regulation was abandoned by the Conservative government of the 1980s. It had served us very well for decades before that. Although before it was introduced people often lived in terrible conditions.

I don’t want housing run by business that make profit in this way. The tax rises make it likely that less will be in future. I would welcome a well regulated private rented sector. However in many ways with the degree of regulation I have in mind it would be wrong to call it ‘private’. This is the degree of regulation man other European countries have.

Yes – it would help end speculation by mortgage holders. It would encourage people not to try to buy the most expensive home the can thinking it will go up in value more and so on.

In short I would like my children and other peoples’ children in 20 years time to be living in a country with the housing options that many people on the European mainland have. This tax is one very small step towards that. I would not be surprised if government backs down. Rising interest rates when inflation rises and/or the London house prices falls spreading could have a similar impact.

All the best,

…

7.11pm, 6^th of January 2017:

Hi…
I am still concerned that you often do not answer my points with reasoned argument, but instead kind-of throw in a further point without having addressed mine. For example, when I present evidence of the massive regulation of the PRS, you put in the two words ‘rent regulation.’ I must accept therefore that you are unwilling to answer my points (and in the case of the central point I make about how s24 is ‘plain wrong’, you are of course unable to answer it) and so these areas of debate become closed off. Nevertheless, I will address your further points (they may be a bit disjointed but you will understand the gist) including what I assume to be your support of rent control. There is a good summary of this subject here, which you might have seen:

https://iea.org.uk/wp-content/uploads/2016/09/The-key-to-affordable-housing-PDF.pdf
And here is a segment where you are quoted:

‘However, no matter how popular they are, rent controls are not and could not be a solution to the UK’s housing crisis. This paper will reiterate the theoretical and empirical case against rent controls, and will then move on to suggest an alternative which would genuinely address the problem of escalating rents. It will use the CWU report as a starting point. Most authors who call for rent controls do not present a detailed policy argument. They merely describe the problem of high rents, and then present rent controls as a self-evident solution. They tend to see the case for rent controls as so obvious that it requires no further explanation, and assume that opponents of rent control are either acting in bad faith, or are just not interested in the problem (see e.g. Dorling 2014).

Moving then to your point about Nurse A not being able to afford to buy because all her money goes on rent, would you like me to ask in my network which landlords are nurses as you suggest it is impossible for a nurse to be a landlord? I already know one English teacher who has had to pack in her job because due to Section 24 if she had kept the job and her couple of BTL houses she would have faced astronomical tax bills. You also didn’t address the issue of whether it was fair for one person to be forced to hand over the money they had saved to another person who had had the same opportunities to save but chose not to.
You also say: ‘We could pay a huge number of people far less if we could control housing costs.’ Wages and salaries are set by supply and demand, not housing costs. So one’s salary does not go up every time the mortgage rate goes up. Also, why do you think that reducing tenants’ incomes would be a good thing? Good for whom?

Regarding you point about astronomical rents in Oxford, clearly rents are tied in with house prices and I assume house prices there are also extremely high. Coincidentally, I saw a programme about this which pointed out how in Oxford (or Oxfordshire) this was due to the NIMBYs thwarting all new housing development because (a) they didn’t want their views of fields impeded and (b) new developments would adversely affect their house prices. This is a powerful lobby group across the country, determined to keep house prices high. I think you should address your criticism in this direction.

Also, as you are aware, one of the reasons people can’t afford to buy is that often their wages are low and/or they are on zero hour contracts (another reason is that they are not interested in saving – I have a close relative who earned more than me in his 20s but chose to spend his money on ‘fun’ things instead). Also, whilst you may consider rents to be too high in Oxford and also in London, of course, do you believe national policy should be based on what is going on in a minority of areas? High rents and high house prices certainly aren’t a problem in many parts of the country, so we have to face draconian and destructive ‘solutions’ to non-problems.

In terms of London prices falling and this leading to price falls in Wales, I don’t think this will be very significant as our prices have been more or less static for the last 10 years or so, so the same factors are not at play (I don’t see why you are making this point though, other than to try and get me worried my houses might go into negative equity…)

You state: ‘I would be quite happy to have my salary cut in half if my housing costs were. The only reason I need the income I have is housing costs and food costs.’ In fact, if your salary and housing costs were halved you would be left with half as much to spend on food, clothing etc. for your family as you have now, so that doesn’t seem like such a good plan.

‘As I keep saying housing is a necessity, like health care and education, not a good candidate to be an unregulated business.’ Food and clothing are also necessities, but their prices are not regulated. Why aren’t you going on the radio to demand Tesco’s prices be ‘regulated’? In the pyramid of needs (or whatever it’s called) food is considered more necessary than shelter (for obvious reasons).

You also seem to suggest I was a bit dull going into BTL (despite the fact that it has provided me with an income for me and my family for the last 20 years and I have also paid a lot of tax to the Exchequer as well as providing a valuable and much-needed housing service). You ask would I have done this if I had known these tax changes were to come. You say I ‘speculated’ that they wouldn’t. The correct way to express this, I believe, is to say had I ‘foreseen’ this. In fact, absolutely no-one foresaw this as even a remote possibility until the few months prior to the Summer Budget of 2015. How could anyone have believed that the Government would depart from GAAP? There was no speculation because no-one foresaw it; there was no conversation (or indeed consultation) about it, because anyone who understood what so-called ‘tax relief’ was, knew that it was a misnomer, used to describe the ordinary deduction of finance costs in a business.

You also say that tenants ‘would switch to another landlord – often the council or housing association that would then take possession of the home’. So you go further than Jeremy Corbyn; instead of just giving tenants the right to buy in the PRS if they could raise the funds, you would give tenants the right to force a sale at BMV to a social landlord (assuming it wanted to buy, and could raise the funds) – a lot of assumptions here, of course. I think this would be the subject of a significant legal challenge if it ever came to pass. I think such a seizure of people’s private property by the state would actually lead to civil unrest.

In terms of your hope that private housing be nationalised in this way, can you even describe one instance of a ‘cottage industry’ being nationalised by anyone other than communists? Indeed, as I read some of your suggestions, I keep picturing Omar Sharif having to share his house with all and sundry in Dr Zhivago. Is that the kind of future you envisage? (we all know how that ended)

And to answer another of your questions, no, I am not saying my total rent on the portfolio is £40,000. I don’t know where you got that figure from unless you are confusing my profit with my income – as an average of 67% of rental income goes on costs, rental income and profit are two very different things. In terms of your question about whether I do no other work, my main and by far most important job since I gave birth has been to be a mother. As you will know this is the most time-consuming and under-valued work of all – when a mother shops, cooks, cleans, provides lifts and so on and tries to bring up her children to be good and decent people this is often seen as ‘non-work.’ It only becomes ‘work’ when someone else does the same thing. I also write books which I think are useful as they are aimed at helping people (I write under a pseudonym). As for my work as a landlord, if you are unfamiliar with the range of work we do, you could take a look at Appendix 5 of my report. I’ll put it here again to make life easier:

https://media.property118.com/wp-content/uploads/2016/10/6G0YKMd1Wf.pdf
It’s not an exhaustive list. In the last two years I have had to deal with the aftermath of two criminal tenants wrecking my houses by turning them into cannabis factories, for instance; indeed the first I knew of one of them was a call from the police that my house was on fire.

You say that low interest rates made it far too easy to borrow. That is probably the case for people who have recently become landlords. It’s not the case for those of us who bought when interest rates were high. I was paying interest rates of between 6 and 7% around about 2007. It didn’t break me as I have always made sure I have savings for contingencies. I was brought up to very careful with money and I still am.

As for your point about the country not being able to afford people being on ‘rentier incomes,’ I don’t understand the sentence as I don’t see how it is a matter of the country ‘affording’ anything – people pay for their accommodation whether it is via a mortgage or rent. I also don’t recognise the word ‘rentier’ as a description of me, with its derogatory connotations. If you mean, as I assume you do, that you want so see the PRS decimated, where do you think all the mobile workers, migrant workers, students, those who can’t afford to buy, those on benefits and so on will live if social housing providers do not step in to take over our stolen properties? Do you think the big corporations will want to build for benefit tenants and those on low wages – and build within their communities? They won’t because there is scarcely any profit in it, especially with the big risks in letting to tenants at the ‘bottom of the market.’ When do you think these alternative arrangements will be in place and through what mechanisms?
Anyway, what is this quest to see the PRS wiped out? Some kind of scorched earth, crash and burn policy? I think this kind of language and approach can be very dangerous. I already have cyber-stalkers on sites like ‘HPC’ who would like to see me burned alive, the filthy scum that I am. Your approach to landlords is feeding into this dangerous rhetoric against one occupational group. We have seen where this can go in terms of what female Labour MPs have faced – most atrociously in the case of Jo Cox. Do you want to be part of this politics of hate (disproportionately focused against women)? Incidentally, as I indicated in my previous email, this kind of attack on one group could quite easily later be perpetrated against academics. Think Cambodia.

In the meantime, how you can say renting houses should not be treated as a business and yet be taxed on not just its profit but its turnover ‘doesn’t make sense’ to quote Professor Philip Booth at the Treasury Select Committee following the Summer Budget. It’s simple logic: if we’re not a business, don’t tax us and also don’t regulate us, incidentally. Also, if you believe that self-employed landlords should receive no help from the state if at any point they are not making enough money to live on, do you extend this to any or all other self-employed groups? I expect that there are some other occupational groups you don’t like. As a business person, I know that it is quite feasible that in the ordinary course of events a business may do badly for a year or two but later pick up and do really well and pay a lot in tax to the Exchequer. Would you rather that all of these businesses go bust in times of difficulty and that the people running them go on the dole, at least in the short-term before finding a job that you consider to be worthy? Advertising executive perhaps? Or maybe academic? Would you have me teach and do useless research again (after I have evicted all my tenants to get vacant possession to sell)? Are you in favour of this extreme type of social engineering? Of course, you have also not addressed my point about how it is not a simple case of ‘just selling’ as fast as we can. You want to see it all as straightforward, but it isn’t. These are complex matters.

‘I don’t want housing run by business that make profit in this way. The tax rises make it likely that less will be in future. I would welcome a well regulated private rented sector. However in many ways with the degree of regulation I have in mind it would be wrong to call it ‘private’. This is the degree of regulation man other European countries have.’ You provide no evidence for your claim about many other European countries because it does not exist.

Also, regarding the international comparisons I can refer you to an article on this if you are interested. Suffice to say that the UK is going to be almost unique in its taxing of finance interest as though it were profit and other countries by far had more favourable tax treatment of landlords even before the introduction of this ludicrous policy. The expectations of tenants in other countries are also very different. In Germany they are expected to bring and install their own kitchens (I know this as it is what my German brother-in-law had to do); in the UK we get called out to change a light bulb. In Germany landlords also don’t provide a slug detection service or a mould-eradication one – tenants who are expected to install their own kitchens are assumed to be able to handle these other aspects of daily living also.

I also think it really strange – contradictory actually – that you should say private renting in other countries is socially useful, but it isn’t here. That makes no sense – how providing shelter in the private sector in other countries is good but in our country is bad. Of course one often thinks that things are done better elsewhere (this is usually based on a lack of knowledge about what goes on in these other places). You also repeat the idea that the PRS is unregulated when I have told you that there are over 200 regulations in place.

‘In short I would like my children and other peoples’ children in 20 years time to be living in a country with the housing options that many people on the European mainland have. This tax is one very small step towards that.’ Again, there is no evidence for the existence of this paradise in Europe and as s24 will reduce the supply of new-builds, the supply will be lower for your descendants to choose from. The large institutions being feted and given preferential treatment by the Government, who are exempted from s24, will happily charge your offspring exorbitant rents however.

I also don’t believe, as you do, that the Bank of England or Conservative Government have some secret information behind their attack on the PRS. If they had that they would be shouting it from the rooftops. I also don’t credit them with as much intelligence as you do. The so-called ‘worries’ over the instability of buy to let lending in comparison to owner-occupied loans are based upon lies:

https://landlordnews.co.uk/homeowners-twice-likely-arrears-landlords/

There is a section on this in my report.
As seen on the front page of the Times today, a Cambridge University study has also slammed the Treasury for its partisan and flawed work. The statements they have issued about s24, moreover, are so easy to refute that the employees there must be embarrassed every time they repeat them.

You also state: ‘The FSA are extremely worried about loans such as yours which may be one of the influences that has resulted in the new taxation, to stop such things spreading.’ If this were a problem then only applying s24 to new purchases would do the trick without making it retroactive and causing havoc in the PRS. Launching a massive fiscal attack on landlords is more likely to lead to the very thing the Bank of England purports to want to prevent.

You also make no reference to the several points I made regarding infinite tax rates being fair or reasonable. Clearly they are neither.

All the best.

Ros

8.57pm, 6^th of January 2017:

Hi Ros,

This list may help if you are interested in what happens in some other countries in Europe. For me the question is how to get towards this. I am not the government, but if they propose a policy which I think, on balance, is more likely to move us towards what other countries have which is better, I can hardly oppose it. You might also be interested in this very recent story about a landlord and his claims about being ‘like any other business’ and that 4 out of 5 landlords act like he does:

http://www.kentonline.co.uk/ashford/news/landlord-defends-no-battered-wives-118464/

I know you have lots of other questions, but you are not the only person who emails me and your list of questions gets longer and longer. This is good, it is what happens when people begin to question what they used to take for granted. I know that you find a lot of what I say odd.

By the way the example of the “cottage industry” that was nationalised before was hospitals and private doctors in 1948. Food and clothing are not asymmetrical goods. And, of course it is all very complex. One reason underlying many of the UK’s policy problems – such as having such bad housing policy, is economic inequality.

Almost all European countries both have lower income inequality than the UK and also ensure that by law tenants who rent their homes enjoy much longer tenancies than in the UK. To be able to do this they have to give tenants a degree of certainty about how much rents can rise during the time they live in a property, otherwise the landlord can easily evict them simply by raising the rent. This is why rent regulation is so important. It is the only defence against arbitrary eviction.

■ In Austria in Vienna the majority of the city’s residents live in subsidized apartments. Over a quarter are owned by the city. Christoph Reinprecht has surveyed attitudes in the city and finds that “There is a general political consensus that society should be responsible for housing supply, and that housing is a basic human need that should not be subject to free market mechanisms; rather, society should ensure that a sufficient number of dwellings are available.”[i] Around 80% of all housing in Austria, both publically and privately owned, receives state subsidies to aid its construction. Second homes and luxury apartments and houses are not subsidized.

■ In Germany half of all householders rent privately. Often they are renting via very standard leases, which are offered over their lifetime. “You can live in the property until you die,” [ii] according to Kath Scanlon, a researcher at the London School of Economics interviewed in 2016 by The Observer Newspaper. This compares to standard tenancy agreements in the UK that at most give you a right to stay for the first 12 months and then allow your landlord to evict you with just 2 months notice at any time. Tenants in Germany often both furnish their home and also decorate it, fit kitchens and cupboards and live very much like people with a mortgage live in the UK. Rent caps are enforced so that landlords cannot set whatever rent they wish for new tenants. Rents are also not permitted to rise at all quickly. Tenants groups organize to complain when landlords are not penalized for breaking the law.

■ In Sweden private sector rent levels are set through negotiations between representatives of landlords and tenants in a very similar way to how trade unions and employers negotiate over pay levels, rather than encouraging individuals to try to bargain individually about their pay. In 2014, the whole of Stockholm was limited to increasing rents by only 1.12% as a result of this. Just as in the UK, there are shortages of properties available in Stockholm, but of course the rent caps do not cause these shortages, just as not having rent caps in the UK doesn’t result in a great increase in good quality reasonably costed rental supply.

■ In the Netherlands the rent charged for any property is fixed by government. Government officials inspect it for quality and then fix the rents permitted depending on its quality. The factors involved in assessing quality include the amount of space in the property, outside of the property in any garden, and the quality of building – such as double-glazing. Location is not a factor in assessing quality. For prime properties, the large, well built and also very well maintained by the landlord there is no rent regulation imposed.

■ Denmark has two forms of rent regulation, one for properties built before 1991 and one for those built afterwards. Again worries are raised about whether rent regulation restricts the supply of housing but again when Denmark is compared to the UK or USA, it becomes clear just how much better people are housed which is one of the factors why children in Denmark fare so well as compared to children in most other affluent countries. Denmark also does not suffer homelessness on a scale that countries with a supposedly more ‘free market’ do. Free housing markets merely give a free rein to those with most money.

■ In France a new set of rent regulations came into force in the capital, Paris in August 2015. These regulations state that private rents “must be no more than 20% above or 30% below the median rental price for the area”. Of course “The rules prompted anger among property agencies and landlords, who claimed they would deter investment.” But again just look to more unequal countries to see how being able to charge whatever you like does not result in enough housing being made available.

[i] Bergren Miller, A. (2014) Public Housing Works: Lessons from Vienna and Singapore, Shareable, June 9th, http://www.shareable.net/blog/public-housing-works-lessons-from-vienna-and-singapore

[ii]Shane Hickey (2016) Would a rent cap work for tenants facing £1000 a month rises? The Observer May 1st. A copy can be found at the bottom of the page here: http://www.propertyinvesting.net/cgi-script/csNews/csNews.cgi?database=default.db&command=viewone&id=32624&op=t

I hope that helps – if you think there are other examples of other countries in Europe who have even better systems than we do please let me know.

All best wishes,

…

10.55pm, 6^th of January 2017:

Hi…

In fact, I am very aware of the international context with regard to Section 24. I will give you a summary here, as I believe you may not be aware of how the tax treatment of UK landlords is so much worse than that of nearly all countries on which my colleagues and I have found data.

Firstly, it is important to mention that the political atmosphere is highly divergent. Other advanced countries for example, acknowledge the essential role landlords play in providing accommodation for the population, and have tax policies which reflect this.

Even before the introduction of s24, UK landlords faced significant disadvantages compared to their counterparts in other countries. A report by Scanlon and Whitehead, published in June 2015 explains this discrepancy. They made the following points about the tax regime pre-s24, many of which set the UK apart from other countries:

Compared to several countries the income tax system in the UK is already substantially less favourable to landlords, especially in its treatment of depreciation and negative gearing.

Many countries permit landlords to depreciate their rental properties (either the entire value or the cost of the building only). This means that part of the cost of the dwelling is deducted every year from rents received before the tax is calculated. Countries which allow depreciation to be offset include: Australia, Austria, Germany, Ireland, Sweden, Switzerland and the USA. This is not permitted in the UK.

UK private landlords cannot offset rental losses against income from other sources (negative gearing); they can only carry them forward. Countries that allow rental losses to be set off against a landlord’s other types of income include Australia, Denmark, Finland, France, Germany, Norway, Spain, Switzerland and the USA (with limits).

UK private landlords receive no special subsidies.

Some countries have lower taxes on rental income than on other business income.

The report ended with the warning:

‘Finally, all changes in regulation which negatively impact on rents and yields and on risk and confidence can be expected to reduce supply and make it more difficult for new tenants to find the accommodation they want.’

As you clearly respect the opinion of Kath Scanlon, I trust that you agree with her and her colleague’s conclusion?

In addition, a report from the Department for Communities and Local Government in 2010, entitled “Promoting investment in private rented housing supply”, compared both income tax and CGT in England with Australia, France, Germany and the USA.

The report pointed out that CGT is higher in the UK than in the other countries and there are no concessions for holding property for several years. In the USA the rate of capital gains tax falls after one year of ownership and in Australia there is a 50 per cent reduction after one year.

Deductions begin after five years of ownership in France and liability is zero after 15 years. In Germany no capital gains tax is due after 10 years of ownership.

It also stated that in the large private rented sector countries, generous depreciation allowances have been very important in encouraging investment in the sector and promoting new building for private renting.

The authors recommended an increase in tax incentives for individual landlords in order to increase investment in the private rented sector in England. However, this suggestion was never implemented.

In the UK there has been a housing shortage for many years. BTL landlords have done much to alleviate this, increasing the supply by financing new-builds, by rehabilitating derelict properties, by converting commercial properties into dwellings and by converting over-large properties into more space-efficient HMOs.

In July 2015 the government’s English Housing Survey credited the private rented sector with 83% of the increase that steadily occurred in the number of dwellings between 1996 and 2013 in England alone (2.5m of the 3m increase).

If tax incentives had been available, landlords would have increased the supply even more.

Individual landlords in the UK do not benefit from any tax incentives, and in future they will be penalised for borrowing. Everybody except the Treasury admits that disallowing finance costs will not only stop the increase in supply, but will also affect tenants through an increase in rents and a rise in the number of evictions, with a resulting increase in the cost to the public purse of housing the homeless.

If the Government wants to solve the housing shortage in the UK, they should not penalise landlords, but rather grant them the same tax incentives that are given to their counterparts in Australia, the USA, France, Germany and other high-income European countries.

The former Chancellor’s argument about creating a level playing field makes no sense in the European context and runs counter to the Government’s aim to harmonise financial policies with other countries in the G7, an aim which George Osborne referred to in the more general observations in his Summer Budget speech. As these other countries allow landlords to offset the finance costs of running their businesses, this decision will only serve to ‘de-harmonise’ the policies. It will set the UK apart as a country with an anti-landlord, anti-business ethos.

As you are keen to emulate the systems in other countries, do you agree that the tax treatment of UK landlords should also be more closely aligned to these other countries?

All the best.

Ros

11.28pm, 6^th of January 2017:

Dear Ros,

You just typed this:

“In the UK there has been a housing shortage for many years. BTL landlords have done much to alleviate this”

I don’t think we are going to get much further – but I do now partly understand why you think what you think. because you believe a statement like that above.

If you really think the crisis of housing supply and affordability got better when BTL increased there is not much I can do to help.

But maybe imagine you had to write an essay at university with the title:

“Describe how and why the British housing shortage was alleviated by the growth of BTL landlords after the year 2000”.

I’ll give you a clue as to the kind of answer that we get high marks. A colleague in the USA sets her students the question:

“How and why does the United States have the highest life expectancy in the world due to its great health care systems”.

Maybe you can guess what secures the highest marks, but then you are not involved in printing private for profit US health care so you have more distance from that.

All the best,

…

10.06am, 7^th of January 2017:

Hi…

Yes, we are poles apart. You seem to think that if a private landlord funds new-builds they have had no role in creating new housing.
In fact, it was the commitment of BTL investors who bought off-plan which enabled developers to build many of the hundreds of thousands of new flats and houses on brownfield sites since the millennium. This commitment enabled the developers to borrow the money to fund the construction.

Landlords did not take these properties away from first-time buyers as they did not exist prior to landlords putting up the finance. You may not be aware that first time buyers will not put down deposits of tens of thousands of pounds 18 months or so before a development is complete and even before one brick has been laid; BTL landlords will. This had other positive knock-on effects as it facilitated the construction also of new homes, some of which were bought by owner occupiers who thereby freed up properties for FTBs, for example, in the cheaper second-hand homes market. The latter can still be purchased not far from me for around £50,000.

In addition, the developers had to build affordable housing on the same site, for housing associations and landlords’ financial commitment was also crucial to this positive development and in fact underpinned it.

If BTL landlords had not made this commitment, developers would not have been able to build and sell so many properties, or so quickly – as they would have had to massively scale down their plans. Therefore they would not have been able to start their next projects so soon. There would have been far fewer homes today, and rents would be higher.

In addition to the creation of new housing on brown-field sites, many landlords have also specialised in the conversion of commercial premises and/or gutting and renovating decrepit housing. You also believe that this giving a new lease of life to old buildings, investing tens or hundreds of thousands of pounds each time and bringing them into habitable state has not helped alleviate the housing shortage. I assume you would also think that when they purchase a large house in which perhaps one or two people have lived and they convert this into an HMO which houses 6 students or workers, that they have not also eased the housing shortage through optimising the use of current housing stock.

I’m thinking of the phrase ‘black is white.’

As my position and the evidence is crystal clear, I think you should write the essay and it should be on the theme of why and how my statements above are incorrect and/or flawed. I want a very tightly-argued case though – not going off on tangents about the health service or education.

All the best.

Ros

12.13pm, 7^th of January 2017:

Dear Ros,

You say “There would have been far fewer homes today, and rents would be higher.”

It made me wonder how we managed to build so many more homes each year in the 1950s, 60s and 70s have rents become much lower than they had been.

Of course rents were higher before then when there were more private landlords (before the 1950s), just as they are higher again as a % of income now, and there are more private landlords again.

Private landlords were driven out of business in the 1940s, 1950s and 1960s by government action.

I am sure that if you looked back to the 1930s, in the years after the 1929 crash, you could find examples of private landlords saying that they had done a great thing to make Britain as well house as it was in, say 1936. How without things would be worse. However we then largerly got rid of them and the quality of our housing improved.

And today – as far as I can see, no one writes lovingly of the private landlords of a century ago. Just as there is almost no positive press today about private landlords.

Government has massively subsidised private landlords to build some new built, but it did not result in enough. They are set to remove their subsidies on that by 2020 if not earlier (they have already announced the 2020 date).

You either don’t know about the government subsidises or you are selectively choosing what you want to tell me because you’d like to change by view with misinformation.

By the way: This all started because I said on etc radio that I approached of these tax changes. It has ended with me now understanding that if the tax changes don’t happen that will be because private landlords have successfully lobbied government to act in their interest. If the government does not go through with this all that story will need to be researched carefully and explained in publications in 2018 and 2019.

I would not have understood this without your emails so that you for them.

All best wishes,
…

7.28pm, 7^th of January 2017:

Hi…

In your initial comments you seem to be blaming landlords for the fact that the Government and local councils stopped building decades ago, just before they began to sell off social housing. Can you explain the causal link?

Also, as usual you have not answered my points, but gone on to a tangent about historical matters which do not at all disprove that landlords were creating new habitable units post-2000 – the period you chose to focus on (and of course landlords were also doing this before). I was hoping you might at least acknowledge the usefulness of us optimising housing by creating HMOs where an elderly person might have previously lived. I suspect you would tell me that you would in principle, but that you know that my HMOs, which are inspected by the council and have licences on them are really awful places and my tenants hate living in them and paying much lower rents than those charged by the University halls of residence and the institutions muscling into the market.
I also don’t know what your point is about the unpopularity of landlords – as though this proves that they deserve to be unpopular. Black people have been ‘unpopular’ amongst racists in Britain to one degree or another, especially since 1950; does the fact of their unpopularity mean they deserved to be unpopular? I’m not getting the validity of that at all as an argument for attacking landlords.

Regarding subsidies, you must be referring to successive Governments’ feting of institutional build to rent. That’s nothing to do with us ‘individual’ landlords. Indeed the Government has exempted this sub-sector from Section 24. So again, I don’t see what relevance this has to my previous email demonstrating ‘individual’ landlords’ massive contribution to housing supply. Of course, this will now stop as we would have to be mad to spend any more of our money creating new housing when our profit will be taxed without us allowing to deduct our biggest cost.

Where poorer people in need of rental housing from this point onwards will live is anyone’s guess (at a point when rental demand is predicted to continually grow). Council houses won’t magically appear overnight and these would-be tenants won’t be accepted by or be able to pay the rates being charged by the institutions who are not catering to this part of the market. Where do you think tenants on benefits will live? You must realise that potentially infinite effective tax rates being imposed on landlords means many are already evicting people on benefits as, to pay the future tax bills, we have to build a war chest and this means we need the tenants who can pay the highest possible rent. We won’t be ‘pocketing’ this – if you look at the case study I gave you, which is in my report, you will see how ‘Caroline’s enormous tax bill, leaving her with about £11,000 a year to live on and support her daughter with, has to be paid somehow and when a business’ costs rise so do its charges. If you study the report later on, you will see that she has already evicted tenants on benefits and replaced them with working tenants who can pay more.

One positive for us landlords when we no longer house people on benefits is that we won’t be any longer accused of ‘pocketing tax-payers’ money’ or ‘being subsidised by the tax-payer.’ Kate Faulkner is not the only person who is infuriated every time she reads this ridiculous misrepresentation of Housing Benefit, which is an amount paid to a tenant so that they can afford to put a roof over their heads. It is so tiresome to read Labour politicians and people from Shelter bemoaning this. Presumably they would prefer that the people live on the street if there is no council housing or private rented housing available for them.

You say: ‘You either don’t know about the government subsidises or you are selectively choosing what you want to tell me because you’d like to change by [sic] view with misinformation.’ On the contrary, I have given you nothing but good information, and experts’ opinions. I have studied this matter in great depth over the last 18 months, and although it is not very British to say this, I do not know anyone who knows more about it than I and my close colleagues do. One of the reasons I wrote the report was to share this expertise.

A further point: one of my colleagues has seen your email and believes that you may be calling the deduction of finance costs ‘subsidies.’ Surely that can’t be true? I have given you a comprehensive report that you seem reluctant to read, which would completely clear up this area of confusion for you, if indeed you don’t understand it.

A problem, I fear, is that you are also studiously ignoring what I tell you in these emails because you don’t want to learn. The likes of Kate Barker and Patrick Collinson have been big enough to shift their views on this when faced with the facts. Other very intelligent people such as Professor Philip Booth and Paul Johnson immediately saw it for what it was and were vociferous in their objections to it. Unfortunately you do not seem able to move from your intransigent position and you do the metaphorical equivalent of putting your fingers in your ears whilst singing ‘la, la, la.’

You then make the following comment: ‘By the way: This all started because I said on etc radio that I approached of these tax changes [sic]. It has ended with me now understanding that if the tax changes don’t happen that will be because private landlords have successfully lobbied government to act in their interest. If the government does not go through with this all that story will need to be researched carefully and explained in publications in 2018 and 2019.’ Well, I think I can handle that ‘exposure.’ I look forward to it, because it will mean our attempt to obtain justice has succeeded.
‘I would not have understood this without your emails so that [sic] you for them.’ So you are saying that you would not have understood that if a reversal occurred it would be due to lobbying by landlords? Who else do you think would get it reversed? You imply that to speak up for yourself when a perverse piece of legislation is passed is unethical. In fact, one would have to be mad not to try to overturn a lunatic policy. Richard Dyson at the Telegraph had the following to say about it:

‘We now have a tax that is applied at a rate of more than 100pc on investors’ returns. We now have people paying tax on zero income. We now have a tax regime that appears not to be able to distinguish between revenue and profit.

It is a tax from Alice in Wonderland, a truly bonkers tax, a tax you’d laugh at – if it were being applied in a Third World country by a lunatic dictator.’

Unfortunately, you won’t be able to absorb the logic of what he has said, because all you will see is that he writes for the Telegraph and that he has an opposing view to your own. As I have said to you time and again, debate should be focused on the themes and not on discrediting the source or, indeed, giving undue credence to others because of perceived status or credibility.

Finally, and going back to the main ‘theme’ as far as Section 24 is concerned, I have to say that you still haven’t specifically acknowledged that you understand and agree with the abandonment of GAAP leading to potentially infinite effective tax rates for one singled-out group. In fact, I don’t believe you’ve acknowledged anything I’ve said in this whole string of emails as you do a kind of side-step and move on to further tangential issues each time. It is like I am living in a parallel universe – where I must be communicating with someone else as the emails I receive back are so unrelated to what I have written.

All the best

Ros

10.48am, 8^th of January 2017:

Dear Ros,

I do realise you have spent 18 months looking at this from a particular angle and so you my find me saying that you need to look at the wider picture annoying. You are free to ignore my advice. One penultimate piece of advice that you are also welcome to ignore: Comparing the plight of black people suffering racism and private landlords being disliked for how they have behaved might not be a sensible road to go down.

Finally, this may be worth thinking about over what is likely to happen next:

“Mrs May, by contrast, identifies her key constituency as those who are “just managing” – and argues that they “don’t need a government that will get out of the way” but, instead, an activist state that will fight their corner.”

http://www.telegraph.co.uk/opinion/2017/01/08/pm-sets-path-brighter-future/

Painting private landlords as ‘just managing’ and not being able to pay their taxes might not be what Mrs May and her advisers have in mind. She may be planning to start to say that she is fighting tenants’ corner.

I really don’t have time to try help you further. But thank you for all the words you have typed. I have tried to send you things that might be useful off at some point in future you begin to doubt your case. That may of course never happen.

All best wishes,

…

3.40pm, 8^th of January 2017:

Hi…

You surprise me yet again. You seem to have misunderstood completely the reason why I initiated this ‘conversation.’ It was because your comments on the subject of Section 24 indicate that you have not grasped the absurdity of it; taxing people on non-income which has been paid out to lenders and is not profit, but a cost – meaning that as a landlord’s costs rise and their profits diminish they are taxed more. Anyone can see that this is an absurd perversion of normal accounting practices.

You have also not grasped what this will do the tenants of this country – through rising rents to cover rising costs and the consequent (for many) loss of their homes and even homelessness.
I have found as a person from a working class background who was involved in Labour Party politics and CND in my youth that it is very often ‘lefties’ from middle class backgrounds, often on large salaries and living in big houses (there were three such Communists in my local CND branch all living side by side in the largest and poshest houses in the area), who seem to want to compensate for their relative privilege by ‘protecting’ and advocating for ‘the poor.’ Unfortunately, they often don’t understand what the ‘poor’ want or need. A good example of this currently is the obsession by some over getting legislation to force landlords to grant long-term tenancies. Apart from the fact that this would cause the liquidation of many portfolios through breach of mortgage conditions, surveys have shown that the vast majority of tenants prefer short-term tenancies (let me know if you want a reference on this). Similarly, with the Left’s support of Section 24, they are completely misunderstanding what this will mean for the PRS.

I must say though that I have never before experienced the kind of ‘mis-communication’ contained within this chain of emails. It has been very weird as I am used to people at least trying to answer my points, even if many are ‘unanswerable.’ It has been interesting from a psychological perspective, but disconcerting. I have experienced a smaller degree of this in missives from the Treasury, which often fly in the face of rationality and common sense; but I did not expect this approach from an academic.

Regarding my point about black people’s ‘unpopularity’ not being proof of this being justified and my application of this to the point you made about landlords, I don’t see why you should warn me against this. I am not as fearful as you about mentioning a discriminated-against group for fear of appearing politically incorrect. The point, to reiterate it, is that the fact of one group’s unpopularity is not in itself justification of that unpopularity. If you prefer, you can compare landlords to White Zimbabwean farmers. Perhaps you would be more comfortable with that (although it doesn’t really matter which group you apply it to, it is the principle and logic I am addressing).

In terms of Theresa May’s point about ‘fighting corners’, the point I raised above about misguided attempts at advocacy is relevant. You are not fighting the corner of tenants when you support a policy which will see their rents rise and many of them evicted – all under the auspices of helping wealthier putative first time buyers gain a foot on the ladder. This betrayal by the Left of those with the least power in society is scandalous. I asked Campbell Robb to explain when Shelter made the policy decision to prioritise those in a position to buy property over and above those who will never be in a position to buy. I am still waiting for my answer. The tenants whose rents are already rising and those who are being evicted will not be thanking those who ‘fought their corner.’
As for your claim that you have tried to ‘help’ me, well that is rather disingenuous isn’t it? This is all a theoretical game to you. You are neither a landlord nor a tenant and as such you really have no stake in this and this has affected your ability to take on board even the basic issues at stake here. The only possible consequence for you personally is that if the Government-forced sales of a large number of rented houses occurs there could be a temporary ‘correction’ in prices, but house prices, including your own, are likely to recover over time.

I will agree with the one thing you mention, however, which is your belief that Section 24 is likely to be overturned. It is too absurd to stand. At least you will have the consolation of being able to then write a paper on it.

All the best.

Ros

4.18pm, 8^th of January 2017:

Ros.

I didn’t say I think it is *likely* to be overturned. So we don’t agree on that last point. And if it was as absurd and obvious as you say you would not be having to carry out your campaign.

I did say that I can see many Conservative politicians being sympathetic to your arguments, but I think those at the top of the party will have a problem doing the u-turn you want and carry on on with their rhetoric for who they claim to be looking after.

I don’t live in a large house. I have been a tenant of at least a dozen private landlords, but I don’t base my assumptions on my experiences with them.

It is often a mistake to base your assumptions on your own life as a person can have a biased few as to whether they are good at what they do.

And, of course, as a trustee of an Oxford college I am also a landlord, but not a private landlord.

All best wishes,

…

7.16pm, 8^th of January 2017.

Hi…

It is good that you have obviously been grateful for the existence of private housing as it enabled you to move around with your work. I also depended on it during work stints abroad and in London.

I wonder what we would have done without the existence of all this private rented housing. We would have faced considerable difficulties as would millions of other workers over recent decades. Hotels would have been considerably more expensive for stays of several months or years for example and might not have had the capacity. I had to stay in a hotel for the first few weeks of a contract in Madrid and the novelty soon wore off. I wouldn’t go as far as Shelter though in classifying staying in a hotel as being ‘homeless.’ Call me old-fashioned, but I don’t believe having a roof over my head in a warm building with a bed qualifies.

For the future though, in your utopia where private housing will have been nationalised and tenants will all have long-term, probably lifetime tenancies, where do you think all these workers who need housing flexibility will live? Are you envisaging some kind of Soviet-style short-term housing with short-term tenancies? I imagine this kind of thing must have existed and maybe still does in the former Soviet Union. You may know more about this than me.

I don’t know why you mention the size of your house though; that seemed a bit random. I know I mentioned the three Communists I knew living in large, posh houses. Did you see the word ‘Communist’ and think I was referring to you?

You also mention being a landlord. You must be very relieved you’re not classified as being a ‘private’ landlord; what would you be then? A social landlord? Does the University provide ‘affordable’ housing (although that adjective is often very loosely applied)? When I rented accommodation as an undergraduate in Cambridge I’m pretty sure I paid the going rate.

Finally, I found your point about people thinking they’re good at things when they’re not rather cryptic. You would have to be clearer if you want me to understand what you mean.

All the best.

Ros

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