Azara Blog: Chartered Institute of Housing wants to steal money from landlords

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Date published: 2007/06/24

The BBC says:

Tax changes to discourage people buying property to let it out have been called for by a housing body.

The Chartered Institute of Housing says there is a crisis in affordable housing in the UK.

It blames the tax relief given to buy-to-let landlords on the interest paid on their mortgage.

Landlords say the crisis is caused by a shortage of new homes and ending tax relief would force many landlords out of business.

Paul Diggory, president of the Chartered Institute of Housing, told BBC Radio 4's Money Box programme: "Our main concern is the acute lack of affordable housing across the UK.

"We've got many examples now in many cities where properties are being secured on buy-to-let mortgages but are being kept empty."

Although empty property does not get any tax relief, when a property is rented out the cost of the interest on the mortgage can be deducted from the rent before tax is calculated.

That effectively gives tax relief on much of the cost of the mortgage, costing taxpayers an estimated £2bn a year.

Around 175,000 of the 1.3m homes sold with mortgages in 2006 went to buy-to-let landlords.

Paul Diggory said: "Buy-to-let owners [have] a financial advantage over those trying to buy their first home, pushing prices even higher - further out of reach. Why does the government still offer tax incentives to those who buy simply to rent?"

But the National Association of Landlords told the programme that any change in the tax situation would be disastrous.

Vice chairman John Socha told Money Box that buy-to-let purchasers have to find much bigger deposits than owner-occupiers and pay capital gains tax when they sell the property.

Buy-to-let is effectively a business. Businesses get to deduct business expenses from sales before paying tax on the rest (i.e. the profit). Interest on a mortgage is a business expense. Landlords can also deduct other business expenses (e.g. building insurance, maintenance, etc.). This is so trivially obvious that it's amazing anyone would even suggest otherwise. Indeed, should the government follow the advice of the Chartered Institute of Housing then you can what landlords would do is to just make their buy-to-let officially a business (which would also give them capital gains tax advantages). Well, because of the capital gains tax, existing landlords might not do so, but new ones would. Of course it is new landlords that Diggory is aiming at more than existing ones.

Further, what Diggory is saying is that the government should arbitrarily change the rules which landlords have used as a basis for their financial planning. In other words, the government is being asked to steal £2bn pounds a year from landlords. If you spread that over 20 years (so a typical mortgage length) with a 10% discount factor then that is 17 billion pounds in total. This kind of arbitrary change of rules is what gives governments a bad name. Of course governments always do this kind of thing, and Gordon Brown did it in the past with pensions, so is perfectly capable of doing it in the future with landlords. Although the government ought to like landlords, because they have to pay capital gains tax (unlike people on their own residence, which really is unfair).

And Diggory fails to recognise that some people do want to rent. For example, Cambridge has a large transient population, and for them, rental makes much more sense than buying. And, as it happens, the overall percentage of rented housing in Britain has stayed fairly constant the last few decades, the main change has been that there are now more buy-to-let and less corporate landlords.

Finally, as Diggory also fails to recognise, the main reason house prices have gone crazy is not buy-to-let but the lack of new houses being built, down to the lack of building land being made available. Indeed, around 40 years ago the proportion of the cost of a building due to the price of the land itself was around 15-20% and now it is over 50%. As much as Diggory would like to blame landlords, the real villains in the piece are the ruling elite, who refuse to allow enough housing to be built.

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