Friday, Jan 02, 2015

Chances of this happening any time soon sqrt(naff all) but some good points

Torygraph: Buy-to-let tenants should be able to 'rent for life'

"Think tank Civitas argues tenants need the same level of security as owner-occupier, meaning the ability to stay in their property as long as they wish"
A fair regulation would be along the lines of local water water monopolies, i.e. cost plus normal profit. Land has no cost of production so only amortised construction, maintenance, marketing and insurance plus maybe max 20% profit. Housing is an essential for life, it should not be subject to price gouging. Alternatively the right to build should be granted to all private renters on any public land - absolute chaos would ensue but at least the monopoly would be weakened.

Posted by mombers @ 10:40 AM (3706 views)
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21 Comments

1. Colly_wolly said...

"...with rents linked to inflation"

We have that rule here in Spain. Problem is the government manipulates the figures, so you get +2% inflation, while in reality your wages are going down -7% (in the public sector). "Rents linked to wage inflation" would be better.

Friday, January 2, 2015 11:19AM Report Comment
 

2. enuii said...

I was surprised by the figures in a Times article posted on the forum a couple of days ago. 'Of 2.9m new homes built since 2000, 2.5m (i.e.86%) bought by landlords, 400k by owner-occupiers as home ownership plunges to lowest since 1988.' Firstly the thought again occurred to me regarding some time in the future when massive numbers of private renters hit the age when with inadequate pension provision they are unable to meet rent payments in the private sector. Secondly figures themselves scream out about how distorted the new housing market has become in favour of BTL property speculation. Not sure that rent controls are the answer as the market is structurally driven by the lob-sided tax advantages that underpin the financing of BTL.

Friday, January 2, 2015 12:48PM Report Comment
 

3. sneaker said...

And just exactly how does one pay a rent once retired?

Sure one can move to a cheaper part of the country, but what about social links, being near children and all the other parts of life that actually make this mortal coil worth living in the first place?

Friday, January 2, 2015 12:50PM Report Comment
 

4. reticent said...

@enuii

Well said.

Friday, January 2, 2015 01:03PM Report Comment
 

5. mombers said...

@2 I second, well said. Luckily the grey vote has insulated the elderly from stuff like the bedroom tax, leaving the working age population to get even more shafted.

Friday, January 2, 2015 01:37PM Report Comment
 

6. hpwatcher said...

The first thing is to ensure that Landlords are paying the correct income tax.

Personally, I think a large number would go bankrupt....

Friday, January 2, 2015 03:28PM Report Comment
 

7. mombers said...

@5 absolutely, HMRC has dropped the ball. It's trivial to identify 99% of properties being rented out, and matching them against tax records. I've written to my MP and she's passed it to HMRC, let's see what they have to say about their dereliction of duty.
Regarding some going bankrupt, in theory none should because they would only pay tax if they were making a profit, especially since they are allowed to deduct 10% of rent for maintenance, regardless of whether they do anything or not. This is laughable, maintenance costs pretty much the same across the country, it should be a flat £/sq m deduction or itemised with invoices in the unlikely event of a landlord actually spending significant sums on maintenance

Friday, January 2, 2015 04:52PM Report Comment
 

8. mombers said...

@5 on second thoughts some could indeed go bankrupt as they could be spending the rent money on drugs etc then get to the end of the year and figure out that only mortgage interest not principal is deductible. Although I think most BTL are interest only as amateur landlords can't do the tax sums very well :-)

Friday, January 2, 2015 04:56PM Report Comment
 

9. hpwatcher said...

@5 absolutely, HMRC has dropped the ball. It's trivial to identify 99% of properties being rented out, and matching them against tax records. I've written to my MP and she's passed it to HMRC, let's see what they have to say about their dereliction of duty.

They will get taxed - it's too good not to. Plus, UK government really needs the money.

The forces against are quite large though, as most MP's are BTL landlords and won't want to pay it - corrupt bunch that a significant proportion of MP's are.

Friday, January 2, 2015 05:13PM Report Comment
 

10. hpwatcher said...

Regarding some going bankrupt, in theory none should because they would only pay tax if they were making a profit, especially since they are allowed to deduct 10% of rent for maintenance, regardless of whether they do anything or not.

I am thinking more about those who haven't paid anything, for many years - and so will need to pay retrospective tax on earnings; I think the number will be very large. Of course those who are well organised, will probably be okay.

Friday, January 2, 2015 05:18PM Report Comment
 

11. libertas said...

A similar thing occurs with commercial rents if you purchase a leasehold.

The issue is, that this also occurs with residential Leasehold ownership. Fact is that leasehold owners make a massive upfront payment whereas renters only make a tiny deposit. To treat renters like leaseholders, indeed, better than leasehold owners, would massively skew the market, actually reducing the availability of rentals because nobody will want to offer it. Yes, you have this in France and Germany, but there, you get shortages of rental properties and have to send a CV and compete for properties in interviews with the owner. Do we really want that kind of socialism?

Better still, eliminate capital gains tax on rental properties. Most long term landlords hang onto the properties long after property is the right asset for them because the capital gains means that they stand to loose pretty much half of what they own if they sell, again, skewing the market.

Friday, January 2, 2015 05:56PM Report Comment
 

12. libertas said...

Actually, here's a solution, give right to buy to tenants of a certain tenure, and in turn, eliminate capital gains tax to landlords who sell to their tenants, but pass on a discount to the buyer similar to a Right To Buy discount.

Friday, January 2, 2015 05:57PM Report Comment
 

13. britishblue said...

Interesting how it would be 'the final straw for landlords'. This makes the assumption that tenants have endless free cash to spend if interest rates go up and the poor landlord should pocket the paper gains on house appreciation but never lose on speculating on interest rates remaining at post 2008 emergency levels for ever. Given that in areas like London there is a housing shortage, one could assume that rents are already close to the maximum that people can afford.

Friday, January 2, 2015 07:09PM Report Comment
 

14. pete green said...

Rents are by definition always at their maximum (Damn its Ricardo's Law again) although some posters here reckon its just a theory by some bloke - a bit like evolution...

If the landlord could get more rent they would, no matter what their costs. rent is determined by the competition for the land and ability to pay. The landlord absorbs any costs and cannot pass them on.

This is why a land Value Tax is such a good idea as it is taken only from rent and thus makes land cheaper and cuts the costs or production and will increase wages, funnel money into true capital; investment and greater efficiency and make Britain more competitive on the world stage.

Saturday, January 3, 2015 12:06AM Report Comment
 

15. khards said...

@10 Libertas - "To treat renters like leaseholders, indeed, better than leasehold owners, would massively skew the market, actually reducing the availability of rentals because nobody will want to offer it."

Fantastic, because this would force landlords to sell up and stop competing with FTB's in the market putting downward prices on bottom end housing and crushing rental yields too (thuis putting downward pressure on rents).

Landlords selling up scares assets is a win win. Why are you against it?

Saturday, January 3, 2015 09:57AM Report Comment
 

16. libertas said...

Taxation funds government activity, it is not a good regulator of markets. Taxation creates scarcity and does not solve market problems and it has complex feedback loops that are rarely understood, i.e. sometimes a tax cut generates more tax income by stimulating economic activity. Government would have zero income if taxes were 100% because either nobody would do anything or all activity would be in the black market or pushed overseas.

The way to boost markets is to reduce taxes and regulations. You are trying to crack a nut with a damp rag by trying to regulate markets by introducing new taxes that would act as fiscal drag for the housing market.

My main proposal for balancing the BTL market is to end capital gains tax because landlords who have owned places more than ten years can never sell because any capital gains would be lost to tax. Thus, and it is counter-intuitive, reducing the tax on selling BTL properties would increase the incentive for BTL investors to sell portfolios and move into other markets when the time is right for them. Yes, some additional investors would be drawn into the market, but the additional supply of rental properties coming onto the market would make the market far more dynamic and affordable for everybody.

Scrapping capital gains would also make it easier for landlords to sell to their tenants. Indeed, I propose a trial run where landlords allow tenants to purchase properties on a hire purchase or "right to buy" style exchange whereby the capital gains is forgiven in exchange for a discount given to the purchaser.

Saturday, January 3, 2015 03:05PM Report Comment
 

17. libertas said...

Also, stamp duty needs scrapping, because right now, nobody will move house for a slightly better job somewhere else, because the stamp duty makes it not worthwhile. Thus, scrap stamp duty and again, more people sell more homes, creating a more vibrant and affordable market for everybody. Scrapping it would result in more taxes coming to the government because increasing labour mobility of the most educated segment of society would boost GDP significantly.

Saturday, January 3, 2015 03:08PM Report Comment
 

18. stillthinking said...

Should be forced to rent for life, more like.

Saturday, January 3, 2015 04:07PM Report Comment
 

19. khards said...

@libertas - I disagree on your point that scrapping stamp duty would improve GDP.

the government absolutely love unaffordable housing where you work because it forces people to commute and consume lots of fuel that they pay hideous amounts of tax on.

The last thing wants is people moving close to work, communing to collapse along with GDP showing their unsustainable deficit for what it is.

The last few years has been a war with the government against the people trying to pump up GDP via all kinds of schemes like bedroom tax, forcing thickos into work for 8 hours per week etc.
The government at this stage will do ANYTHING to make GDP look better, even it it's at the expense of common sense and voters. The childcare system where you pay shit loads of tax whilst getting a rebate so someone can look after your kids for you is an excelet example of this.

IMO this GDP/debt targeting is the crux of the current regime and the quicker it tumbles the better.

Saturday, January 3, 2015 08:59PM Report Comment
 

20. libertas said...

Scrapping stamp duty WOULD improve GDP by vastly increasing labour mobility of those most important to the economy, i.e. homeowners, who tend to be highly educated with sought after skills more than those who rent. Most top managers and engineers at the top of their game own their home.

Thus, if they did not have to spend £5-10k to move house on taxes, they will have more ability to up-root to chase better paying jobs, i.e. move to where there is demand in the economy for said skills. That would vastly improve productivity and result in higher GDP. It would also allow more flexibility in firm location because presently, companies must HQ near the labour pools, whereas without stamp duty, staff would be more likely to move to where the work is, helping shift emphasis away from London.

Sunday, January 4, 2015 07:48AM Report Comment
 

21. libertas said...

Given that the hard work of said employees is leveraged by the activity of their business and industry, the higher productivity from greater labour mobility would result in far higher tax receipts in income tax and corporation tax than stamp duty recieves.

FOR EXAMPLE, Joe Bloggs decides to move from London to Manchester for a £3k pay rise. With a stamp duty fee of £10k it would take 3yrs. He changes his mind and stays put. RESULT: No stamp duty receipts and the pay-rise was in the 40% bracket. Government would have got £1,200 a year. Assuming that Joe Bloggs has another 10yrs of work ahead of him, government has missed out on £12k income tax from him plus lower corporation tax receipts because a business that needed his skills has been forced to go without.

Not only that, but him not vacating this less skilled job has meant less labour mobility for Jim Bob, who would have got a pay-rise and promotion had Joe Bloggs moved to Manchester, also moving him away from under-deployment.

A similar analogy would be to say that in Soviet Russia, when you needed State approval to move job and house and when people did not shift around the economy, it did not do so much good for the economy. Stamp duty has the same effect as said Stalinist restrictions on the freedom of movement.

Stamp duty also encourages BTL because Joe may decide to move and rather than pay stamp duty, rent his house out to Jim Bob, who is deprived of home ownership, but the opportunity cost of stamp duty makes becoming BTL more attractive. Joe Bloggs owns most of his house so can afford to do this but may not choose that option if the sale did not have stamp duty. Yes, Joe does not pay the stamp duty on sale, but has to sell his house for less than he would had there been no stamp duty.

Stamp duty has a massive downwards affect on prices because you cannot borrow to pay for it. Thus, that cash comes out of savings and your deposit. Normally deposits can be leveraged by between 20 to 10 fold. Thus, if I pay £10k stamp duty, I can buy £100k less house. This vastly reduces liquidity in the housing market resulting in less homes being built.

Sunday, January 4, 2015 07:58AM Report Comment
 

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