The Impacts of Government Policy on the UK Rental Market in the Last 14 Years. Written by a Tory.
- Site Admin
- Jun 2, 2024
- 6 min read
Updated: Jun 3, 2024
As we exit the first full week of the General Election campaign, it is an opportune moment to consider the policies of the last 14yrs of Conservative led government. In that time we have had 16 housing ministers and the media have not been shy in coming forward with their criticism of a party who appear to have done nothing to solve the “housing crisis”. Yet those of us in the sector are acutely aware of what impact Tory party policies have had on the residential market. Sufficed to say it would be difficult to discuss each and every policy change and its impact in one article, however we can look at various sectors one at a time, I will start with the rental market.
Notes to readers: If you are familiar with the various changes enacted over the last 14 years you can easily skip the next section which provide an element of detail for those less familiar, and skip directly to Opinion and Conclusion.
The UK rental market has undergone significant changes over the past 14 years, influenced by a series of government policies aimed at balancing the interests of landlords, tenants, and broader economic objectives. These policies, driven by factors such as immigration, taxation, regulation, and corporate investment, have collectively shaped the dynamics of the rental sector. This essay explores the key government policies affecting the rental market, their impacts on landlords and tenants, and the interplay between corporate investors and pro-tenant lobbying groups, in an attempt to understand the question; Why the Conservative party would prioritise the creation of a hostile environment for private landlords, in favor of tenants rights, when there is seemingly no electoral benefit in doing so?
Immigration and the Rental Market
Immigration has been a significant driver of demand in the UK rental market. Since 2010, the UK has seen substantial net migration, peaking at 606,000 in the year ending June 2023. This influx has intensified the demand for rental housing, particularly in urban areas where employment opportunities are concentrated. High levels of immigration have often led to increased competition for rental properties, driving up rental prices. This demand pressure is compounded by limited housing supply, further exacerbating affordability issues for tenants.
Stamp Duty Land Tax (SDLT) Changes
Increased Regulation and Costs for Landlords
Corporate Investors and Pro-Tenant Lobbying
Political Dynamics: Using Pro-Tenant Advocacy as Political Cover
Impact on Private Landlords and Tenants
Opinion. Conspiracy or Coincidence?
For many of us working in the property market, the consistent and sustained attacks on Private Landlords was in part a mystery. Why would a Conservative government set about to apparently alienate their natural voter base, in an attempt to attract tenants, a group who in broad brush terms were never likely to vote for them? What’s more the result of these apparently pro tenant policies are in fact higher rents, which of course have a double impact. Firstly, they exacerbate the very issue pro tenant lobbying groups have been trying to curb (rising rents). Secondly, they either slow or in many cases stop tenants being able to save the much-needed deposits required to become first-time buyers, thus placing increased demand on the private rental sector. And so, the vicious cycle continues.
When I first started to theorise on this topic a few years ago, it felt that I was playing into a murky world of conspiracy theories. However recent stories released in the press seem to corroborate the direction. Bill Huges the Global Head of real assets at L&G was quoted in the Telegraph in early May in an article titled “Britain would be better off with fewer buy-to-let landlords”.
"You have got owners of rental property who are not managing them well. Unscrupulous landlords who are taking people’s deposits and giving them a bad experience... We‘re here to reset standards of quality that renters should expect. That’s one of the things that institutional capital can do... You’re there at scale and very long-term and you know that your reputation matters so you’re not going to run the risk with it.” Bill Huges Telegraph 5th May 2024.
In addition other large funds have been on a buying spree, not least in the student housing sector. Greystar’s 2022 acquisition of Student Roost for £3.3bn was subject to a Competition and Markets Authority review which ultimately concluded when they agreed to divest sites in Birmingham. Blackstone with its overt relationship with the Tory party has multiple investments as one might expect, including an £819m purchase from Vistry back in late 2023 as well as its commitment of £3.5bn in Sage Homes.
Delving deeper it appears that the drive to entice institutional investors into the rental market started with the 2012 Montague Review a “Review of the barriers to institutional investment in private rented homes”. Following on from its conclusions the UK Government put in place various incentives, including a £1bn Build to Rent fund and a £3.5bn Debt Guarantee Scheme. With such support it is not surprising that demand has grown with over £4.6bn invested in 2023. It is also worth mentioning that the Montague Review contains a section entitled “Yeilds- the concerns”. In this section the report highlights the concerns from institutional investors that the 3.5% returns historically generated by the sector were too low. It concludes: “A change of paradigm to a long-term residential investment market dependent only on income returns is therefore likely to require higher rents, or lower land, construction and management costs, or some combination of all of these”.
Conclusion
It is perhaps here that we can start to understand the “Why” posed at the start of this article. In 14 short years the Conservative party have completely altered the private rental sector in the UK. They have, using taxpayers’ money, enticed global institutions to invest in the B2R sector. At the same time, they have changed the rules to create a hostile environment for the natural competition of the institutional investor, private landlords which has also led to an increase in rental values, helping improve returns for institutional investors. Unfortunately the same rental increases simply increase the tax payable for private landlords, due to the changes in the 2015 Finance Act, which ultimately means private landlords pay tax on their turnover not their profit.
To add insult to injury, by their very nature asset management and corporate investment firms set about to mitigate their tax exposure. Indeed many of these investment firms are registered in low tax jurisdictions, thus enabling them to extract rental income from the UK economy and transport it away from the coffers of the exchequer, thus depriving the UK of much needed tax income. This if of course in stark contrast to the majority of private landlords who do not own stock in corporate structures let alone corporate structures in low tax jurisdictions. All the while this has been going on, the likes of Shelter and Generation Rent have been used to provide the political cover required for the Tory’s to enact changes which ultimately lead to a greater consolidation of the property market in the hands of corporations driven by profit. It seems like they may recently have realised their error, as they desperately rebut claims that landlords might exit the market.
Darren Baxter-Clow of the Joseph Rowntree Foundation claimed in an interview with the Big issue in May last year that,
“Far from an exodus, we’ve actually seen a quite significant influx of investment in the private-rented sector in recent years so those claims just don’t seem to have any real credibility,” Darren Baxter-Clow Big Issue May 2023
A year on from this fanciful and somewhat misdirecting comment, it was revealed that in the 2022/23 tax year that over 151,000 properties were disposed of by landlords. Ben Twomey the Chief Executive of Generation Rent even went so far as to say that landlords selling up didn't matter, in an interview with the Guardian only last month.
“Long term, if landlords sell up it makes little difference to the housing market. Bricks and mortar do not sink into the ground, and the home could be bought by another landlord, a first-time buyer or even repurposed for social housing … The short-term issue is that tenants have an appalling lack of protection when landlords choose to sell up.” Ben Twomey Guardian May 2024
Tenants would do well to question how sage those speaking on their behalf are, if their words and actions are leading to higher rents.
Of course there may be many reading this who are pro institutional ownership of the UK rental market, indeed I was a champion of the B2R sector when it first started to gain momentum. The desperate shortage of housing stock required a serious solution and it appeared that this was part of it. However to attack private landlords with ever more creative red tape and taxation seemed counter intuitive, why give with one hand whilst taking away with the other? Most private landlords only held at best a handful of properties which ultimately would be contributing to their pensions thus reducing their potential for reliance on the state all the while providing both taxable income as well as much needed rental stock.
On an island with limited resources and an increasing population, selling off the farm to corporations located in tax havens is in and of itself hardly cause for celebration and is far from conservative. To discover that this has apparently been encouraged by Tories is even more disturbing, particularly given one of the last actions of this government, the Leasehold and Freehold Reform Bill passed on the 24th May, which was a passing attempt to address the historical issues created by the vested interests of large private or corporate ownership of swathes of Britain’s housing and land. So as it turns out far from being idle, the Conservative party has been very busy meddling in the property market over the last 14 years. However, misdirection has meant that only in the years to come will we truly be able to measure the impact of their insatiable appetite to move property ownership away from the hard working people of this country, into the hands of corporations from another land. We should all watch with interest where various Tory MPs end up post-election.
I'll just leave this here...
Comments