McDonnell’s distorted and dangerous version of Right to Buy

by Property 118

9:01 AM, 5th September 2019
About a month ago

McDonnell’s distorted and dangerous version of Right to Buy

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McDonnell’s distorted and dangerous version of Right to Buy

The think tank Centre for Policy Studies (CPS) has written an article for release describing Labour’s private sector ‘Right to Buy’ policy as dangerous and damaging.

This is superficially similar to a scheme proposed by the Centre for Policy Studies in October 2018, but is a damaging and distorted version of that policy.

‘From Rent to Own’, authored by Alex Morton, Head of Policy at the CPS (and formerly responsible for housing and planning in the No 10 Policy Unit), argued that landlords should be incentivised to sell to tenants, to redress the rise in buy-to-let and fall in owner-occupation in recent decades.

Commenting on the story, Robert Colvile, Director of the Centre for Policy Studies, said:

“It is gratifying that Labour appear to have been reading the Centre for Policy Studies’ recent work setting out a way to help renters buy their home, but they seem to have completely missed the point.

“The big story of the housing market in recent years has been a surge in private rental at expense of owner-occupation. It is vitally important to reverse that – for example by incentivising landlords to sell to tenants through CGT reliefs for both (a policy which our research has shown is practical, affordable and highly popular).

“But it is equally vital that this is done in a way that is fair to tenant and landlord alike. Labour’s proposed ‘right to buy’ for private tenants appears in effect, to be the expropriation of private property, and is likely to have all kinds of unintended consequences.”

“From Rent to Own’ proposed that the Government should turn the Capital Gains Tax payable by a landlord on sale of a rented home into a rebate shared between landlord and tenant creating an incentive for the former to sell, and giving the latter a significant contribution towards a deposit.

“This scheme, entitled Help to Own, would mean that for every £1 a tenant invested to buy the property they rent they would receive a total of £3 for their deposit.”

‘From Rent to Own’ Proposal by the CPS:

A fully costed policy which would actually raise substantial sums of money for the government while increasing the rate of home ownership substantially.

The report proposes that for a single year, the Government should turn the Capital Gains Tax payable by a landlord on sale of a rented home into a rebate shared between landlord and tenant – to the former as an incentive to sell, and the latter to contribute towards a 10% deposit so that they can purchase the home.

  • This rebate would be split 33% to the landlord and 66% to the tenant, capped at 6.66% of the property.
  • The landlord would receive 33% of their capital gains back.
  • All tenants would receive 6.66% of the value of their property toward a deposit.
  • There would be a mechanism to pool capital gains receipts, and further shared ownership schemes to help those whose landlords were reluctant to sell, or who could not afford the entirety of their property.

In order to ensure fairness, the tenant would have to contribute 3.33% of the value of the property to the deposit, although they would be given time to save or find this money. This would be a hand up on to the housing ladder, not a handout for nothing.

This scheme, entitled Help to Own, would mean that for every £1 a tenant invested to buy the property they rent they would receive a total of £3 for their deposit. For an average property worth £228,000, they would be putting in just over £7,000 and getting £22,800 back.

Now it would be interesting to hear what Landlords think of the above policy proposed by the CPS.



Comments

Mark Alexander

9:30 AM, 5th September 2019
About a month ago

The figures above might stack up in the CPS theoretical model but they will not do so in the real world.

Three identical properties, all worth the same amount, let's say £228,000, but could have been purchased at different times. All three tenants may well pay the same rent. One property might have a capital gain of say £100,000, another at say £30,000 and one might have actually depreciated having only been purchased in say the last 18 months.

If I have missed the point here, I would be delighted if CPS could explain to me how their model example would work in regards to the three above. Likewise, how they think the outcomes would be reasonable for the affected landlords and tenants.

Is the average mental age of a CPS think tank member actually above 6 years old? To be fair though, it is more logical than the Labour Party version!

Simon Williams

10:06 AM, 5th September 2019
About a month ago

As Mark has explained in his examples, the size of the incentive would appear to be rather random - and therefore unfair as between participants - if it is linked to the liability for CGT. Such things are often a recipe for unintended market distortions.As is often the case with these reports, perhaps the fiendish complexities of capitalism have not been understood by the authors.
Still, any help to put a spot light on the disastrous consequences of a McDonnell style proposal of forced expropriation is to be welcomed.
Two final points:
The vast majority of my tenants aren't buying because it doesn't suit their life circumstances to do so (students, overseas nationals, people who don't know if this year's job in London will be next year's in Birmingham etc). Affordability for them is not the issue. Flexibility is what counts for them right now. The PRS has grown because these groups have grown in size too. Landlords don't buy to keep properties empty.
Attempts to portray our PRS as some over-bloated monster are not borne out by international comparison. Our PRS is 19% and our owner occupation rate is 66%. By international standards, this is entirely unremarkable. If anything, our PRS is small by international standards. A PRS is vital for mobility of labour, which in turn is vital for a successful economy. In all advanced economies they have one, usually bigger than ours in fact.

James Barnes

10:23 AM, 5th September 2019
About a month ago

In my view, Labour have this the wrong way around. Instead of proposing to expand Right to Buy, they to be proposing to scrap it all together and pledge to start a massive new social housing building scheme instead. Councils can borrow money at much cheaper rates than developers and probably in most cases already own the land.
I'll probably come under fire for suggesting it but certain groups of tenant's need the security offered by social tenancies and would be much better suited to it, rather than private sector tenure.
Right to Buy whilst benefiting some has been really rather damaging to housing overall.

Devon Landlord

10:25 AM, 5th September 2019
About a month ago

My main concern with this poroposition is that the 'Right to Buy' conflicts with my right 'Not to sell'. I see my property as part of my on-going business plan. My business is to provide homes, not to deal in them. This legislation, if it were to come to fruition, would, I believe, impinge upon my human rights and in so doing take away my right of ownership of property. The next move by this MARXIST philosophy is that all property will belong to the state and the state will have an overarching right to take your property away from you at next to no cost.

If my tenant wants to buy one of my properties and I see it as being in my best interests too, then I will have no problem with progressing the sale but I will have real issues if I feel that I am being compelled to do so against my wishes. Of such things rebellion is made.

Laura Delow

10:30 AM, 5th September 2019
About a month ago

I agree with Mark - in theory a great idea but in addition to the variations mentioned i) one landlord may have spent less in SDLT at the point of purchase than another landlord who bought when SDLT rates were higher ii) during ownership one landlord may have spent X amount improving the place which further reduces the CGT liability vs another not iii) another may have already used his/her CGT personal allowance vs another not, or iv) the property is jointly owned with 1-2 others each having a CGT personal allowance to reduce the CGT liability vs the same value property elsewhere is owned only by one person or a Ltd Co v) one landlord may have originally lived in the property & be entitled to Principle Private Residence Relief plus vi) purchase costs for one landlord may have been cheaper than another landlord paid & so it goes on. Then of course there's leasehold thrown in to the mix in that 2 properties might both be worth £280,000 but one is long leasehold or freehold & the other only has e.g. 55 years left on the lease which also begs the question how a sitting tenant could get a mortgage on a short leasehold property.
However, in every idea however much it initially might appear unworkable, is the bone of a good idea.
The worst that could happen though is John McDonnell's idea comes to fruition of R2B at a forced discounted price in the PRS. What about Landlords with little to no equity? Would Landlords stop extending leases as shorter leases would weaken a buyers ability to get a mortgage, and would Landlords split the Title on multi unit properties & grant short leases to themselves thus again making it difficult for a tenant to buy? If PRS property is sold to sitting tenants at a discounted price, not only are landlords severely penalised but tenants lose out too as there will in the future be less property to rent. Developers would stop building as much as they do now as there will be no more landlords buying which means fewer developments of which currently 35-50% are for affordable housing. Would it create a massive sell off by Landlords? If it did, not only would BTL properties crash in value but they would drag down existing homeowner property values too, and when homeowners lose confidence due to their home going down in value, they stop spending on unnecessary's which in turn effects the success/survival of business which in turn effects employment & down we spiral in to a recession self inflicted at a domestic level by the Labour Party. Yet again an ill thought through idea.
If only people like McDonnell & the type of people that support his views stopped trying to make their lives better by stealing money from those who have over the years been careful with their money (most people who are landlords today came from basic not grandiose backgrounds & worked hard & sacrificed much to crawl their way up the financial ladder) This just smacks of the green eyed monster - envy. If instead these hard workers & savers who in many cases sacrificed a lifetsyle to invest in their future (in some cases at great risk) were commended for their efforts, then maybe we'd bring back a society of people that were proud to be part of a nation that allowed & encouraged people to do well. But no....the likes of McDonnell would rather try & pull these people down to their level & make everyone less well off. If the Labour party discourages a desire to earn & discourages people to invest in their future by threatening to ultimately steal it from underneath them, the only result will be fewer & fewer people will try to succeed, less tax will be collected, more people will be reliant upon help but there'll be less in the coffers to help.

The Forever Tenant

10:36 AM, 5th September 2019
About a month ago

I also do not see how Labour's scheme could possibly work. it is ridiculous to even consider taking a property off a private individual to satisfy a need that the councils and government should have been dealing with for the past 3 decades.

JohnCaversham

11:06 AM, 5th September 2019
About a month ago

So if an incoming tenant asks "how long you've owned the property?" Be very afraid!.....

JJ

11:24 AM, 5th September 2019
About a month ago

Like the majority of private landlords I don't own many properties.

With council houses I believe that you have to have lived in the property for a period of time before you get the right to buy. If labour's proposal is that you get the same rights in a private rented property then presumably the tenants would have to be there for a period of time before they had that right (otherwise this would be discriminating against private sector landlords). If right to buy came in, or it looked as though a labour government or labour coalition were going to introduce it, I would have to get rid of my current tenants before they had any such 'rights'. A very high number of landlords would be in the same position.

There was a review of some of labour's recent proposals here

https://life.spectator.co.uk/articles/how-will-labours-proposed-tax-grab-affect-your-home/

One of the proposals was to get rid of inheritance tax and replace it with a £125,000 annual allowance with everything above that being taxed at your marginal rate so you couldn't leave your family home to your family - maybe one you bought through right-to-buy - without being hit hard. My assumption was that before they came out with their policy they crunched their numbers and decided that it would not presently affect many of their voters.

What makes these policies stupid is that in this country it's not just how many people own their own home it's how hard they had to work to own it and also the number of people who *aspire* to own their own home that counts. One of the reasons why people in this country tend not to deliver labour-landslides is that a high proportion of people in this country have a stake in society and therefore a lot to lose from a left-wing government.

And if you start out in life thinking you're going to work hard and one day, finally own your home, perhaps after several decades of work paying off a mortgage, it's not a particularly smart message for a party to be saying, "...after you've done all those decades of work we're going to take all that off you anyway."

Hardly the recipe for a hard-working, aspirational and productive economy is it?

Oh sorry...I forgot. That was a New Labour idea. The present lot are still in the 1970s.

My mistake.

Paul Essex

12:09 PM, 5th September 2019
About a month ago

The first unintended consequence - I have two properties that I was about to upgrade, one a replacement kitchen and a victorian terrace that has solid walls so needs insulation. Both of these are now on hold until we can be sure this compulsory purchase will not happen.

JJ

12:48 PM, 5th September 2019
About a month ago

Reply to the comment left by Paul Essex at 05/09/2019 - 12:09
That's right. Not sure whether you're the first but you won't be the only one.

The majority of private sector landlords hold property as a long-term investment. If you are holding a long-term investment you might be considering improving the insulation of a property or doing other things that would make it more rentable, saleable, or otherwise desirable not just for the short term, but for the long; so you are looking at a long term investment in a long term investment.

And you're just not going to do that if your investment is going to be handed over to your tenant. You're going to hold off. Like holding off investing in your Business because a bunch of monkeys in Parliament are putting their parties and their careers ahead of doing their job which also has unintended consequences, one of which could be a recession.

So one unintended consequence is increasing CO2 emissions because you are going to be dissuaded from investing in your property for the long term.

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