There is general doom and gloom around the UK property market. You don’t need to spend much time on social media to read about issues about lack of supply, forecasts of huge reductions in capital values, shortages of property and rising rents and problems with poor-quality housing.
I have read several articles about some of the different policies the UK could adopt to fix the broken housing market and the rental market UK. All seem quite farfetched and would require radical change for the UK to implement them. While these radical changes are of interest, it seems more sensible to focus on actions that will increase the housing supply, reduce pressure on property prices and increase the quality of rental stock.
Here are the simple things I think could be done to achieve these objectives.
#1 Section 24 exempt for new build property
Since the introduction of section 24 in April 2017, the number of annual property transactions in England and Wales has reduced by 8%, the average house price has increased by 25%, and average rents have increased by 10% (based on ONS data, the reality is much higher). Whatever s24 was designed to achieve, it doesn’t seem to work.
Rental Market UK
Increasing costs for landlords mean they are selling up, impacting the overall supply of rental property or increasing the rent to offset their increase in costs. Most of the costs being passed on to tenants are because of tax changes rather than inflation. The elephant in the room is that most are yet to factor in higher interest rates; highly geared landlords will have to significantly increase the rent to cover an increase in the rates.
The New Zealand government introduced rules in 2021, like s24, with one major difference. New build property is exempt. This has major advantages; it encourages those who want to participate in the buy to let market to buy new build, increasing the supply and quality of new housing.
#2 Limit the number of properties that can be sold offshore
One of the major complaints of offshore investors is that they overheat residential markets. But the reality is that most multi-storey housing schemes simply would not go ahead without pre-sales. International investors are far more likely to purchase at the early point in the development cycle. They are critical to getting new developments off the ground.
Both Australia and New Zealand have introduced rules limiting what type of property can be purchased by offshore investors. Each is slightly different. However, they both effectively limit offshore investors to purchasing new build apartments and cap the amount of a development that can be sold to offshore investors to 50% of the building.
This means that international capital is focused on adding to the overall housing supply.
#3 SDLT Surcharge on new build
In a recent study undertaken by LSE, the SDLT surcharge was an important factor for 65% of buy to let investors. We have already seen the impact of SDLT holiday on the housing market during the Covid crisis. If new build property was exempt from both the Higher Rates for Additional Dwellings and non-resident surcharges, it would make the UK more competitive from an international perspective as well as further encourage buy to let investors to purchase new build. We’ve several articles associated with tax on UK property which you can find here.
The Western Australian government has recently created a 75% rebate on foreign purchaser surcharges on new build property, noting the impact it had on the creation of new housing.
#4 Rental charter & tenancy tribunal
The UK has one of the worst-regulated rental markets in the world. It is expensive and time-consuming for landlords to evict delinquent and anti-social tenants. Some tenants have tremendous issues getting landlords to deal with simple repairs and maintenance issues. The tenancy deposit protection scheme covers issues at the end of a tenancy, but it is vague and takes a long-time to get anywhere.
In New South Wales, Australia it takes just 3 weeks for a landlord, agent, or tenant to have a matter heard by the NSW Civil and Administrative Tribunal (NCAT). You can apply online, and it costs $54.
The UK could establish the following:
- Rental charter – a specific set of rules surrounding standard maintenance like boilers not working, etc. And have system fixed penalty system or spot fine system whereby the tenant would be entitled to reduce the rent by a % which increased if the issue was not dealt with.
- Tenancy Tribunal – a tenancy tribunal created specifically to deal with AST’s.
#5 CGT relief/amnesty
Many accidental landlords are sitting on properties they once lived in or inherited. They never intended to be a landlord and are now stuck in a catch-22. They have increasing costs, and increasing taxes, but there is no real incentive to sell up and exit the market. Many would take advantage of the opportunity if they were not subject to CGT if they sold. If second-hand property was subject to s24 but new build was not those homes would likely be sold to owner-occupiers.
#6 Depreciation of improvements
The UK’s housing stock is currently in relatively poor repair. However, for squeezed landlords any costs incurred to change, upgrade or adding to an existing property is not tax efficient. These costs cannot be depreciated against future income, just simply offset against CGT liability in the event the property is sold.
If landlord’s had the right to depreciate capital improvements against future income there would be a much bigger incentive for them to improve their properties.
#7 Agent licensing
The UK is one of the few real estate markets worldwide where anyone can buy, sell, and rent property without any qualifications. You literally just need to fill in a few relatively straight forward documents. The consequence is that some agents provide poor advice to sellers, purchasers, landlords and tenants. Having a straightforward licensing process whereby people were required to undertake formal training to deal with real estate would significantly improve the market.
Are you thinking about buying an investment property?
If you are thinking about buying a property in the UK, you need to make sure you do your homework before you buy. Mistakes made investing in property are very expensive to fix.
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