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Blog: Leave landlords alone and lead like Lyndon

Written by: James Staunton
James Staunton considers the consequences of the Stamp Duty surcharge on buy to let and the answer to the housing crisis

In a bid to lower purchase prices for first-time buyers, the government is trying to make the buy-to-let sector less attractive to investors. Landlords have become the government’s whipping boy for high house prices and appear to be taking the flak for the chronic lack of property in the UK. The removal of most mortgage interest relief for landlords announced in the July Budget and the 3% Stamp Duty surcharge for the purchase of buy-to-let properties announced in the Autumn Statement demonstrate the government sees the sector as a problem rather than as an essential part of the country’s housing supply.

Fortunately, the increase in Stamp Duty for second home owners and landlords will not, on its own, destroy buy to let; this is a tax on investment, not continued involvement in the sector.

But it will have consequences.

First, government figures show that, of the 3m new dwellings created in England between 1996 and 2013, 83% were private homes to rent.  Developers have come to rely on investors buying “off-plan” to fund new homes. No one else is going to drive building. The flood of foreign money has turned to a trickle. Buy-to-let investors can’t be expected, Atlas-like, to carry the world of new build on their shoulders while George Osborne repeatedly stabs them in the back – and chucking billions directly to developers to build “starter homes” for first-time buyers is not a sustainable, free market solution.

Second, this will nudge rents upwards as landlords who do expand their portfolios seek to recoup extra Stamp Duty costs. While landlords can only charge what they feel the market will bear, regardless of the tax, that should go up a bit as the supply of rental property starts to shrink in relation to demand – which, as we saw above is now less likely to be met by new building (the promised 400,000 new homes cannot be built overnight and affordability will still be an issue for Generation Rent, despite the Help to Buy Isa and other schemes).  This will increase the pricing power of landlords who stay in the market.

Housing policy is dominated by consensus; we all agree house building is too low.  And we all agree on the solution; we need to build more.

Why is this not happening by, say, ripping-up our much maligned planning laws?  A lack of credible leadership and political will is to blame.  Housing Ministers are irrelevant.  There have been four housing ministers in four years.

We need a Lyndon B Johnson figure. Johnson was ruthlessly effective at getting legislation passed.  When President Kennedy submitted a civil-rights bill to congress in June 1963, it was met with strong opposition.  By contrast, as President, Johnson actually got the job done.  Civil rights bills signed by Johnson banned racial discrimination in public facilities and the workplace; and the Voting Rights Act banned requirements in southern states used to disenfranchise African Americans.  How did he succeed where Kennedy failed?

Johnson was renowned for his domineering, sometimes abrasive, personality and the “Johnson treatment”—his aggressive coercion of powerful politicians to advance legislation.  Contemporaries talked of an incredible blend of badgering, cajolery, reminders of past favours, promises of future favours, predictions of gloom if something didn’t happen.

Johnson might have been an unpleasant piece of work – but by God he got stuff done.

The answer to this country’s housing crisis is a politician effective enough to make the changes we all agree need to be made. Until then, increasing Stamp Duty on buy to let is not the answer.

James Staunton, partner, Instinctif Partners Limited

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