Tax break to help the housing crisis is making things worse

by Property 118

11:24 AM, 1st August 2019
About 4 months ago

Tax break to help the housing crisis is making things worse

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Tax break to help the housing crisis is making things worse

New figures released today by leading flat and house share site SpareRoom, reveal that the Rent a Room Scheme tax threshold increase, introduced in 2016 to encourage more people to let out their spare rooms to lodgers, has actually done more to boost the short term lets market.

The Rent a Room Scheme tax threshold was increased from £4,250 to £7,500 per year on 6th April 2016, following a six-year campaign by SpareRoom, backed by Shelter, Generation Rent and the National Landlords Association. There are around 19 million empty bedrooms in owner-occupied properties in England alone – if just 3% of these (570,000) were let out on a residential basis, it would unlock housing equivalent to a city the size of Liverpool.

Yet the failure to restrict the scheme to residential lets has meant a boost in short term lets rather than residential. According to SpareRoom data, there were 68,604 new lodger adverts in 2017 – 8% lower than the number in 2016 (74,684). This decline, which came on the back of seven years’ consecutive growth, continued into 2018, as demonstrated in the table below.

At the same time short term lets via holiday sites like Airbnb have seen a huge spike, rising 200% in ten UK cities between 2015 and 2017[1]. In London particularly, there has been a fourfold increase in Airbnb listings since 2015, this reduces residential housing supply and pushes up rents for people looking for long-term homes[2].

Matt Hutchison, SpareRoom Communications Director, comments: “These figures clearly show that the benefits we hoped to see from the government’s Rent a Room Scheme have been undermined by a new surge in short-term rentals. Given the fact we’re not building new homes in anywhere near the numbers we should, we have to do more to better use existing stock. The UK has a housing crisis, not a hotel room crisis.”

A chart showing the changes in the number of listings on SpareRoom from homeowners looking for a lodger

[1] According to the Residential Landlords Association, Airbnb listings in ten UK cities increased by almost 200 per cent between 2015 and 2017 https://www.citymetric.com/business/regional-english-cities-are-suffering-rise-short-term-rental-services-airbnb-4177

[2] https://www.theguardian.com/technology/2019/may/05/airbnb-homelessness-renting-housing-accommodation-social-policy-cities-travel-leisure 



Comments

Whiteskifreak Surrey

13:14 PM, 1st August 2019
About 4 months ago

We rent a spare bedroom for a long term let - our lodger has been with us for nearly 5 years, before that we were letting to PhD students for a slightly shorter terms (1/2 year or the whole year). That increase has been a blessing for us, as we no longer need to pay tax on the rent. We do not want the hassle of AirBnB in our own home. My worry is that the government will start meddling into lodgers rentals too and will start charging CGT on the time we had a lodger, treating that as a business. Who knows what will they do? In that case most home owners will evict immediately and - since these people do not have much money - there will be another lot of homeless people on the streets.

Ian Narbeth

14:18 PM, 1st August 2019
About 4 months ago

Shock, horror! A Government scheme relating to housing didn't work as planned. Gosh, who'd of thunk it?

See also this story https://www.property118.com/55-of-arla-agents-witness-landlords-increasing-rents/
and if the new Housing minister continues the insane "passporting deposits" idea (AKA letting a tenant use one deposit to fund the next one before it is known if the landlord has a claim against the tenant), the position for tenants, particularly impecunious ones is going to get even worse.

JJ

15:08 PM, 1st August 2019
About 4 months ago

Reply to the comment left by Whiteskifreak Surrey at 01/08/2019 - 13:14
A lot of those people lodging are doing so for work or study reasons. You are right that if that attracted a CGT charge on your PPR (principle private residence) most people would have no option but to kick their lodgers out. Most won't be homeless (some will) but will still need to find accommodation and so will be competing with it for other people that need it. That will further drive up rents and reduce the availability of accommodation.

Whiteskifreak Surrey

15:16 PM, 1st August 2019
About 4 months ago

I hope not. But I heard there are plans fo GCt being applicable to maun residential homes which rent to airbnb. Makes you wonder what next...

JJ

15:23 PM, 1st August 2019
About 4 months ago

I just took a look at the figures again. It seems to me that you can't conclude that the rise in rooms let via AirBnB is necessarily due to the change in the rent-a-room allowance. AirBnB is a phenomenon that was taking off anyway. I just hired an apartment in Spain for a week via AirBnB for a holiday. I believe the owner had several. That's got nothing to do with HMRC's rent-a-room scheme. I think that the author of this article may be confusing coincidence with causation.

Ian Narbeth

15:32 PM, 1st August 2019
About 4 months ago

Reply to the comment left by JJ at 01/08/2019 - 15:23
Post hoc, ergo propter hoc as Boris might say

JJ

17:09 PM, 1st August 2019
About 4 months ago

Reply to the comment left by Ian Narbeth at 01/08/2019 - 15:32
Could be post hoc fallacy: Maybe it's just an indication that SpareRoom is losing market share to someone else and not really anything to do with the HMRC rent-a-room scheme per se. It doesn't follow from this that the rent-a-room scheme is a bad policy.

Jay James

19:34 PM, 1st August 2019
About 4 months ago

"There are around 19 million empty bedrooms in owner-occupied properties in England alone."
Add in the spare bedrooms in the non-owner occupied residences and we have far more accommodation than needed to house those without a home. Imagine the amount of natural resources that can be saved and payment of builder's profits that can be avoided. Brilliant.

Luke P

23:24 PM, 1st August 2019
About 4 months ago

Having seen what incentives/disincentives can achieve and by how much they can affect the number of rooms available…now massively incentivise LLs to bring an empty/rundown/non-existent property into use for the PRS and you’ll house more people, more quickly than any building scheme would ever manage. But they can’t bring themselves to do it because it will mean they also make profit (booo, hiss).

Ian Narbeth

10:42 AM, 2nd August 2019
About 4 months ago

Reply to the comment left by Jay James at 01/08/2019 - 19:34
A lot of people who live in HMOs don't want to live with the owner. When they do, the house is not their home but the landlords. Also a lot of the "empty" rooms are spare bedrooms for when relatives come to visit. In may cases it's for when children of divorced or separated parents have the children to stay.
Second homes which are only used for holidays and the occasional long weekend are a cause of housing shortage and high prices in certain parts of the country, particularly coastal towns. However, the solution is to build more houses, not to compel people with spare rooms to rent them out.

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