8:15 AM, 6th February 2017, About 5 years ago 13
The housing charity, Crisis, has recently launched a campaign called ‘Home No Less Will Do.’
I have often written to Crisis since the campaign was launched against Section 24 of the Finance (no.2) Act 2015. Unhappily, I have never received an answer before now. They want our help now though. Specifically, they want private landlords to help them to house the homeless.
What I say, therefore, is: you help us and we’ll help you!
My correspondence with the Chief Executive, Jon Sparkes so far is as follows:
I notice that Crisis is now attempting to engage with landlords to support the above campaign. Could you therefore issue a statement showing that Crisis is against the Treasury attacks on landlords over the last 18 months? The most important thing by far is for you to state that you believe that Section 24 of the Finance (no.2) Act is going to lead to increased rents and a massive increase in homelessness and that you therefore oppose it. The evidence for this is in my report, so feel free to quote from it. I will paste the link below for ease of reference.
All the best.
Dr Rosalind Beck
Thank you for your email, and for drawing my attention to the Property 118 Landlord Groups’ research report. As you will appreciate I’m sure, my prime concern is for the impact of policy in homeless people and people at risk of homelessness.
The impact of the Section 24 changes to tax relief on finance costs should, in our view, be considered in the context of the wider operation of the housing market and the supply of housing for homeless and vulnerably housed people. We note that the tax relief changes will not affect all residential landlords and for those affected, the changes are being phased in, giving landlords time to adapt their businesses and to consider alternative strategies to cope with any increase in tax liability, if they are higher rate tax payers or if they become higher rate tax payers as a consequence of the changes. But we are monitoring the situation closely and will be urging the government to assess fully the impact of the changes on rent levels and homelessness, and to publish this evidence.
Interventions to minimise the impact of the changes for tenants of affected landlords will also be part of our conversation with government, building on our recommendations that government should:
· make available a dedicated funding stream for help to rent schemes and a government backed national deposit scheme to incentivise landlords to work with the homeless client group
· review the formula for setting LHA rates, ensuring these more closely reflect actual rents – helping to make it more economic for landlords to let to low income households.
We are working closely with partners at the Residential Landlords Association, National Landlords Association and the Association of Residential Lettings Agents to promote solutions for the private rented sector which support both tenant and landlord. If you wanted to find out any more about this work please contact our Head of Housing, Chris Hancock (email@example.com).
And my reply:
Thanks for getting back to me. I forgot to make some recommendations regarding specific parts of my report that should interest you. If you look at the case studies on pages 12-13 you will see how and the mechanism by which many landlords’ portfolios will be rendered unviable by Section 24 and if you then look at the bottom of page 42, into page 43 you will see how it is the tenants who will have to ‘adapt’ (to use the Treasury’s terminology) far more than many landlords will have to. The ‘adaptation’ consists of them adapting to being evicted.
As for landlords easily ‘adapting,’ this isn’t how it works for many of us. Many landlords’ mortgages for example do not come to term until various dates in the 2020s or 2030s. If a landlord tries to sell (or remortgage) just one of the properties then some lenders will immediately call in all the loans – as it is unlikely a landlord could find another lender within the 28 days usually given, the portfolios would go into liquidation. For other landlords there are massive redemption penalties and/or they would face CGT bills which at the moment they might not have the funds for. Many properties throughout the country are still either in or close to negative equity. For many of us we are in this business for the long-term and an unplanned extrication is not always possible.
Many people do not grasp the complexity of this when they think a 4-year phase-in of an appalling tax change is sufficient for mitigation. We have a new champion this week in David Miles, an eminent economist and former member of the Bank of England MPC who has declared that this is ‘a terrible tax change.’ He predicts massive rent rises; of course this was the consequence when a similar, but less extreme policy was introduced in Ireland. It is currently in the process of being ‘phased out’ there so that finance costs will once more be fully deductible as an expense, but not before having had catastrophic effects in the housing market in terms of rent rises and increasing homelessness.
To give a personal example, I have increased rents once so far on tenants in situ (purely in response to this legislation as I have never increased rents on tenants in situ before) – I did this in November 2015 following the refusal of the Government to abandon s24 and will now implement a second rent rise this month. I am doing this in stages in order to cover as much of the massive increase in my effective tax rate (I have joint finance costs each year of around £80,000 which are being redefined as profit on which I am to be taxed). I know that several of my tenants really struggle to manage – I have two tenants on the same street in the valleys who have paid £320 per month for many years and I didn’t even increase the rents during my first round of increases as I know it will be a great shock to them. I now intend to increase their rents this time to £335 and then in a year’s time to £350 and so on until I approach the market rent (the only similar house in the same street currently up for rent is being advertised at £395pm). This process is going on throughout the country. It is largely hidden from view and hidden within national statistics. Portfolio landlords such as myself who have charged below the market rent will no longer be doing so.
You state that you believe not many landlords will be affected. Well the Government suggests that ‘1 in 5 landlords’ will be affected. If we assume there are 2 million landlords in Britain, then that equates to 400,000 landlords (the RLA will be able to show you how this actually an underestimate). As this is a levy on finance interest it will affect those with the most finance interest. So to say that it affects however many landlords is to miss the point; I am sure you will agree that it is the number of tenants which matters more and this will clearly run into the millions.
So the people – apart from ‘individual’ landlords with mortgages – who will be most affected will be the very group Crisis is most concerned with; those at the bottom of the heap. You will see that from the example I mentioned on page 43 of my report – big rent rises and evictions when the tenants can’t pay and/or the replacement of tenants on benefits with working tenants who have greater means to pay the increased rents. How else are landlords expected to cover the costs of potentially infinite effective tax rates? There has been much confusion over this. Even Philip Hammond recently privately said that landlords would not be expected to pay more than an additional 5% on top of their normal tax rate; patent nonsense as the case studies (and the internal logic of the tax) demonstrate.
It is therefore kind of ironic for us landlords to see that Crisis wants to persuade us to take on ‘the homeless,’ just at the point when we are least going to be able to afford to. I would suggest it would be far more constructive for you to lobby the Government and attempt to get Section 24 overturned in order to prevent the inevitable big hike in homelessness that it will provoke, rather than make an appeal to landlords to house the ‘homeless’. I also think you need to abandon your ‘wait and see’ tactic, as when rents go up and homelessness increases the human misery caused will not be reversible. The damage will be done.
As an aside I would add that the people with the least means in society have always carried more risks – with rent arrears, damages, court costs and so on. As landlords we often face massive losses in any case when we take on this category of tenant. To do so at this point when the Government is hammering us from all directions does not make any business sense for us, so again, I think that appeals to landlords to take these risks and then suffer the consequences will likely fall on deaf ears. Better would be if you asked the Government to indemnify us against the cost of arrears, damages and so on if we were expected to take all the risks.
Over the last 18 months I have contacted Campbell Robb at Shelter but he always maintained his support of of Section 24. The same is true of several Labour politicians. They think that attacking landlords helps tenants; it most certainly doesn’t in this case however, as I’m sure you will agree.
I therefore urge you once more to look very closely at this issue and to be the first tenant-oriented organisation to come out against what is a destructive attack on the whole of the PRS.
Thanks and all the best.
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