On Monday 8 October 2018, Onward published a new policy paper on the private rented sector in England. It argues for a new route to ownership for private renters and greater incentives for landlords to offer long-term tenancies.
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The paper, authored by Will Tanner and Guy Miscampbell, argues that Ministers should give Britain’s private renters a new Chance to Buy their rented home by rewarding landlords who sell to long-term tenants.
Under the proposals, Onward’s proposals:
- Existing buy-to-let properties would be eligible for 100% capital gains tax relief if the property is sold to a sitting tenant who has lived there for 3 years or more.
- The gain from this tax relief would be split evenly between the landlord and the tenant, giving the landlord a windfall when they sell and the tenant thousands of pounds towards their mortgage deposit.
- Onward proposes that the Treasury should pay for this policy by tightening other tax reliefs for buy-to-let investors, including reducing the Private Residence Relief period from 18 months to 6 months and abolishing Lettings Relief of up to £40,000.
Onward’s modelling estimates that 88,000 households would take up the relief each year, meaning nearly half a million households could benefit over 5 years. Accounting for multiple-person households, this would support the transition of a million people from the private rented sector into home ownership by 2023.
The average gain per property would be £15,000, meaning the average first time buyer could expect to benefit by £7,500. Because the gain is affected by property prices and their historical growth, this rises substantially in some parts of the country, with the average buying tenant in London receiving £19,500 under the scheme.
If the Government wanted to go further to incentivise longer-term tenancies, Onward argues that they could make other allowances, such as Wear and Tear Allowance, conditional on the properties being offered on a tenancy agreement of 3 years or more. The changes could be introduced alongside or instead of the Government’s proposed introduction of fixed 3-year tenancies for everyone.
The report comes amidst growing political interest in the changing nature of Britain’s private rented sector, with Ministers recently consulting on proposals to bring in mandatory three-year tenancies.
- In the last two decades, the private rented sector has doubled in size, with more than 20% of homes, or 4.7 million households, now rented privately.
- The average length of residence in the private rented sector is 3.9 years. In 2016-17, half of renters had lived in private rented accommodation for more than 5 years, compared to fewer than a fifth in 2008-09.
- Households pay a greater proportion of their living costs towards rent per month than previous generations. From the 1960s to the early 1980s private renters spent on average around 10% of their income on rent in most of the country, and around 15% in London. Today those figures have increased to over 30% and nearly 40% respectively.
- Unsurprisingly, the vast majority want to own: nine in ten people prefer home ownership over renting. 65% of 18–40-year-olds who currently do not own a home hope to
do so one day.
This has considerable political implications. Research shows the political challenge facing the Conservative Party amongst private renters, including in marginal seats, in particular:
- According to Ipsos Mori, private renters were significantly more likely to vote Labour (54%) than Conservative (31%) at the last election and the Labour Party’s lead amongst private renters grew by 12 points.
- Recent polling for Shelter showed the Conservatives trail Labour by an average 22 points amongst private renters in the 60 most marginal constituencies. 61 per cent of voters in those seats do not have confidence in the Government’s housing offer.
- Onward research published in the Sunday Telegraph has shown that by 2022, there will only be 88 parliamentary seats where homeowners comprise more than 70 per cent of all homes, down from 330 in 2001.