Fair Rents (Scotland) Bill or Artificial state manipulation of free market rent?10:34 AM, 6th November 2020
About 4 weeks ago 36
The Joseph Rowntree Foundation (JRF) has once more commissioned work on ‘how to improve’ the private rented sector, using researchers from the Cambridge Centre for Housing and Planning Research. I have previously critiqued their work Click Here.
I find their latest report is a missed opportunity to sort out the mess that is of the Government’s making. It also unnecessarily complicates matters.
It is not my intention to offer a comprehensive critique at this stage (it gets rather tedious pointing out the problems with these reports, for example, when they suggest that the loss of a private tenancy causes homelessness; which is like saying the loss of a job causes unemployment – tautological nonsense), but feel free to give your opinions on other aspects of the report in the comments section below, if you like.
Just to add that I did send my previous critique to the authors and did not even receive an acknowledgement; however, even if they ignore us, I feel it is important not to let people simply ‘get away’ with publishing work on the private rented sector which is often biased and inaccurate.
My limited aim here then is to give my view purely on the proposals contained in the report.
The authors state:
‘This report sets out three possible policy options for using incentives to improve the private rented sector in England for people in poverty, drawing on an international review of policy interventions used elsewhere in the world.
The three proposed measures are:
‘The report shows that the costs of the three proposals is much lower than the £808 million annual increase in tax revenues by 2021–22 that the Government recently anticipated making from restricting finance relief for landlords to the basic rate of income tax.’
The key suggestion then seems to be that the money raised from what for some landlords with mortgages constitutes a massive, potentially infinite rate of tax (Section 24 of the Finance (no.2) Act 2015) should primarily be used to create limited incentives at the bottom of the housing market. Since it is Section 24, along with benefit changes that are leading to the increase in problems for those at the bottom of the market, surely it would be far simpler to remove the recent disincentives rather than bring in incentives aimed at combating the effects of the disincentives? (although we may be grateful for small mercies; at least they are looking at the carrot and not the stick for a change)
My personal view of their three incentivisation ideas outlined above is that they will not make many landlords more likely to rent to the riskiest clients. Guaranteeing a below market rent is hardly an attractive proposal in itself, but when coupled with no indemnification of landlords against damage to our properties, it makes for a very uninspiring proposal indeed.
It would have been more appealing to landlords, for example, if the researchers had at least put some onus on tenants who default on rent (spending Housing Benefit on other things) and who damage property to be held accountable for their behaviour and for third party deductions to be made possible – to ‘disincentivise’ poor behaviour. At least this would bring some justice into the proceedings. The combined total lost to landlords in arrears and damage when last calculated in 2014 was £9 billion. Much of this is never recovered and can be ruinous to landlords’ businesses. Such a move towards some restitution for landlords would make them more likely to take risks housing such clients, as they would know there was some recourse if things went wrong.
What they’re also not getting is that rental incentives will not impress the many landlords whose businesses have been rendered unviable by Section 24. Many full-time portfolio landlords depend on the profit from their businesses to live on and support their own families. According to the new tax regime under Section 24, landlords will still have to pay tax in cases where they have no actual profit because money they no longer have, having paid it to the lenders, will be deemed to still be in their bank accounts. Why didn’t the researchers come out against this unjust and bizarre tax levy? (they state that the Government will not reverse it, but then think that the Government will allow them to decide how the proceeds of the tax grab are spent. If the Government were willing to ‘hand back’ the money to the sector, that should obviously be done by reversing the policy)
It would appear that they don’t understand the fact that it is becoming increasingly impossible for landlords to take on the clients at the bottom of the market; the pressure on landlords now to evict the lowest-income tenants in order to replace them with tenants with greater means has been illustrated in one of the case studies in my comprehensive report on Section 24 here.
Landlords who have often specialised in housing those on benefits are in many cases finding they have to increase monthly rents by several hundreds of pounds merely in order to stay afloat. There is evidence that this is a particularly acute problem in London. Such damage done by the Government’s interference in the sector will not be mitigated by the few tweaks advocated in the report.
In any case, why would one want to bring in complicated policies which require setting up new systems and overseers when the solutions are far simpler?
In addition, rather than conduct their ‘international review’ and conveniently not focus on the fact that in other countries landlords can invariably deduct their finance costs when calculating profit and receive other valuable incentives such as tapering relief on capital gains tax, which incentivise investment, they could have simply looked at what happened in Ireland after they abolished landlords’ rights to deduct finance costs. Instead, they see Ireland as a ‘model’ to be followed (this was the message of their earlier report), and they don’t seem to be aware of the fact that the Irish Government is currently reversing their own version of Section 24 after it caused a drastic increase in rents and severe problems at the bottom of the market.
Simply put, they are ignoring the elephant in the room; namely, that many of these problems have been hugely exacerbated by the Government’s fiscal attack on landlords. They didn’t need to write a 40 page report, exploring ideas like ‘vouchers for low-income families,’ and producing various tables in an attempt to ‘blind us with science.’ We are not fooled for one minute.
‘Reverse Section 24 immediately. This will provide a huge boost in confidence to landlords who are likely to stop quitting the market, stop having to increase rents and/or evict and will also encourage more landlords into the sector to improve supply.’
We have been warning the Government, specifically the Treasury and organisations like Shelter and the JRF of the inevitable consequences, now coming to pass, of this unwarranted interference in our businesses. The Government will have to capitulate – as happened in Ireland – and reinstate landlords’ rights to offset finance costs just like any other business. The sooner they realise this, the better.
This article has been written by Dr Rosalind Beck in association with The Landlords Union
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