Landlords selling up in response to tax changes have made no difference to rents, Generation Rent has found.
Despite warnings from the property industry that the curbs on buy-to-let investors would lead to rent hikes due to the decline in supply, rents have in fact fallen in real terms.
Dan Wilson Craw, director of Generation Rent, said: “Despite scaremongering by the property industry, renters have little to fear from a housing market that is no longer a playground for speculators.
“If homes leave the private rented sector then so do the private renters who are now able to become home owners. The balance of supply and demand is unchanged and so are rents.
“Policymakers should therefore worry less about the impact of reforms on landlords’ investment decisions and focus instead on introducing the kind of regulation the sector so badly needs.
“Any efforts to boost home ownership must be matched by reforms that protect tenants whose landlord wants to sell.
“We need to put an end to landlords evicting without a reason and cushion the blow for tenants who are forced to move through no fault of their own. Requiring landlords to compensate tenants would achieve this while encouraging sales with sitting tenants.”
A 3% surcharge on stamp duty for additional properties, and a phased removal of higher rate tax relief on mortgage interest payments were announced by George Osborne in 2015 to give first-time buyers the edge over investors in the property market.
Since the stamp duty surcharge was introduced in April 2016 the private rented sector has shrunk – by 111,000 in the second quarter of 2018.
But real rents, adjusted for inflation, have fallen by 2.8% in the same period. There is therefore no evidence that a reduction in the supply of rented homes has pushed up rents.
Generation Rent said this is unsurprising since homes moved out of the private rented sector tend to be matched by a family moving from renting to owning. Consequently the supply of rented homes and the demand for them move together, leaving the balance – and the rent – unaffected.
If measures to improve tenant security caused more landlords to sell, this would therefore raise home ownership and improve the experience of renters while having no impact on the level of rent.
Generation Rent is part of the End Unfair Evictions coalition with ACORN, London Renters Union and New Economics Foundation calling for the abolition of Section 21, which allows landlords to evict without giving a reason.
To mitigate the hardship of unwanted moves, and encourage sales with sitting tenants, Generation Rent proposes that landlords be required to pay compensation to a tenant they evicted on “no-fault” grounds.
The number of first-time buyers per year has already grown by 21% since Osborne’s first announcement on landlord taxation in July 2015, to 366,000 in the year to June 2018.
The tax changes were one of two recent shocks to the size of the private rented sector that Generation Rent explored in its report: the other was the surge in demand for private rentals after mortgage lending on low deposits evaporated in 2008. In this case real rents also fell.
Growth in the private renter population, as measured by the Labour Force Survey, rose from 182,000 per year between Q2 2005 and Q2 2007, to 321,000 per year between Q2 2007 and Q2 2010. In the three years from January 2008 rents fell by 6.7% in real terms.