What's behind the lack of private rented stock - and how do we fix it? [+ podcast]
Some tenants need to rent and are struggling to find a home - so how did we get here and what can be done to improve the situation? Greg Tsuman, Lettings Director at Martyn Gerrard, explains.
Back in 2016, two fundamentally important initiatives were launched, which have had a lasting impact on rental stock levels across the UK. The first was the additional stamp duty that landlords have to pay when buying second homes; the second was changes to tax relief on interest payments on their mortgages, which means that no matter how much tax you pay, you can only claim tax relief at the basic rate of tax.
George Osborne introduced these strategies to deter landlords, because it was felt that that would encourage property ownership. We can all agree that property ownership is a great goal, and we want people who are able to get on the housing ladder to do so. However, we need to be realistic about those who can't. For some people renting is a choice. For others, it's a necessity and we need to cater to both groups.
Few landlords have added to their portfolio since those measures were introduced in 2016. In the past, if a landlord sold up, another would buy it and the supply would roughly stay the same. We've slowly seen a reduction of that whilst the tenant demand has approximately stayed the same, creating an imbalance.
Adding fuel to the fire
Brexit and the pandemic have accelerated this. It was a perfect storm. In London - where housing trends are normally an exaggerated version of what happens UK-wide - tenants left at rates never seen before. This artificially inflated supply levels in 2020. Landlords who chose to benefit from the Airbnb phenomenon with short-term rentals were unable to let, because there was no flow of tourists coming into London. As a result, they were putting their properties on the market to let as well. All of a sudden we saw supply levels spike, with fewer tenants looking to rent.
However, this spike was short-lived. Some landlords wanted to take advantage of the stamp duty holiday to add to their portfolio, but found that 25% deposits weren't enough. When rents were falling, that affected mortgage lenders' stress testing. So all of a sudden landlords were asked to part with considerably more than 25% deposits and the savings they would make in stamp duty didn't always cover that - so new properties weren't snapped up to let out. Then tenants started coming back and demand soared once again.
Dealing with the stock problem
As a result, I've never seen stock levels this low. And that is a problem that the government did not fully consider when implementing those initial measures. So, how can we fix this?
Rent control is not a solution, and neither is abolishing Section 21. These will just compound the situation, deterring more landlords. We need to attract landlords to the sector. The government has many potential solutions to consider. A break on taxation, for example. A reversal of the limit on interest rate relief would go far. A temporary stamp duty holiday to attract landlords in the sector could also be an answer. A way to tax short-term lets to ensure that we're not taking long-term homes away from the local community has already been announced, and is a step in the right direction to avoid creating endless hotel villages. Unfortunately, we are not the decision makers and, until those who make those decisions are prepared to listen and understand the different proposals and their consequences, I think we are going to continue to struggle with this.
Even if we were to get rid of the additional stamp duty now for landlords' let income, get rid of the stress testing, encourage house builders to build more, simplify planning permission - there will still be a lag. We're not going to be able to provide housing to those who perhaps want to buy, but can't afford it. They need to rent somewhere.
The role of agents and landlords
That's where agents and landlords can really work together. Agents are there to support landlords around legislation, shoulder that burden so landlords can do their part in boosting housing supply. Landlords shouldn't be put off by what's happened over the last five years. Investment in property is a long-term investment. Over the last century, property prices have continued to trend upwards. Yes, there are some peaks and troughs, but overall it's proving to be a good investment for your children, for your pension. It gives you a regular income, particularly if you can protect your rent through services like Goodlord's Rent Protection.
With the backing of a good agent, landlords should still see the potential of letting out their property. It's the agents' role and responsibility to help encourage and support landlords to make this decision to help the supply problem in the short term - while the government hopefully creates policies that can make being a landlord an even more attractive proposal again in the long term.
Please note that some legislation discussed may have changed or progressed since this podcast recording took place in December 2021.