Leeds estate agent HOP has written an open letter to Michael Gove urging the government to address the chronic shortage of rental properties available in the private rented sector (PRS), which is placing upward pressure on rents.
The letter to the Secretary of State for Levelling Up, Housing and Communities, follows a consultation with HOP’s landlord clients, tenants and other industry professionals working in the PRS.
As well as addressing the current challenges, the letter offers recommendations about how the Government could slow the exodus of landlords who are selling investment properties and exiting the market.
HOP, which manages a rental portfolio worth more than £245m, predicts that rents will increase by another 7% in 2023, which follows a 10% rise in 2022.
The company’s recommendations include:-
- Removing the 3% additional homes stamp duty and instead charge landlords selling additional homes the 3% stamp duty levy, to incentivise landlords to purchase new buy to let (BTL) properties.
- Incentivising the transfer of BTL property into limited company ownership by removing the 3% stamp duty levy for a 12-month period. This would enable landlords to pay tax on profit rather than revenue and would help to professionalise the industry further.
- Providing more certainty over upcoming rental reforms and streamlining and simplifying the Section 8 eviction process. This would enable landlords to evict bad tenants and ease their concerns about the removal of Section 21s.
Luke Gidney, managing director at HOP, which has offices in Leeds city centre, Horsforth and Pudsey, explained: “Legislation, red tape and tax changes that were all designed to make buy to let (BTL) properties less appealing to landlords, have had a bigger impact on the rentals market than anyone could have imagined. Unfortunately, Chancellor Jeremy Hunt had an opportunity to address this in the Budget but failed to do so.
“We’re now in a position where demand for rental property is higher than it’s ever been, and tenants are finding themselves in fierce competitions for available properties and having to pay record rents, which comes against a backdrop of sky-high energy bills and the cost of living crisis. Plus, tenants now often find themselves stuck wherever they’re living and are moving less regularly, for fear of not being able to find and secure another suitable home.
“More housing stock in the private rented sector would give tenants more choice and ease the burden on rents. It’s a critical situation and although we primarily represent our landlord clients, it’s also important that our tenants, and thousands like them, have a voice as well. We hope the Government will listen to the views of the industry, as well as our recommendations, and take steps to ease the problem.”
The open letter reads…
Open letter to Secretary of State for Levelling Up, Housing and Communities regarding the private rented sector in the UK.
Dear Michael Gove,
I am writing to you as the managing director of one of Leeds’ largest letting agents, which manages a large property portfolio in the area.
Although we manage these properties on behalf of our landlord clients, I’m actually writing on behalf of our tenants, and millions of people like them in the UK, who live in the private rented sector.
In recent years the raft of legislation, red tape and tax changes designed to make buy to let (BTL) properties less appealing to landlords, combined with upcoming rental reforms, Section 24 tax, changes to capital gains tax thresholds and EPC legislation, have had a profound impact on the rentals market, with huge numbers of landlords selling their investment properties.
Although this was the aim of these changes, and some former tenants have had the chance to get on the housing ladder as a result, the shortage of available homes in the private rented sector has now reached a critical point.
Research from estate agency data specialist, TwentyEA, shows that during 2022, supply volumes reduced by 8% year-on-year and 25% since 2019. Analysis of HMRC data by chartered accountant, UHY Hacker Young also found that the UK lost 116,000 BTL properties in the last year alone, and as landlords face being squeezed by rising mortgage costs, we can already see that this exodus will continue in 2023.
Eroding landlords’ margins has had the desired effect and made BTL a far less appealing asset class, but tenants are suffering as a result. This includes the many people who live in private rented property, either because they specifically want a short-term home, or enjoy the freedom it offers, or they don’t have a deposit to get on the property ladder.
Tenant demand for rental property is up by 10 to 12% nationally according to Rightmove, and this has pushed rents up by 10% annually in recent years and we’re forecasting that they’ll increase by a further 7% in 2023 in West Yorkshire alone.
Potential tenants now regularly have to bid against each other to secure rental properties, which is driving rents up further, and it’s a similar story across the UK.
Plus, when all this is combined with soaring energy bills and the cost of living crisis, it’s likely that more tenants could slip into arrears and find themselves in financial hardship.
The problem is predominantly due to a chronic undersupply of private rental stock due to landlords leaving the industry. Void periods between tenants are now just five days on average in West Yorkshire and tenants are generally staying longer in properties and moving less, for fear of being unable to find a replacement property. Approximately half of tenants now report being worried about the difficulty of finding a home to rent.
This huge imbalance in supply and demand is also allowing unscrupulous landlords to get away with letting out poor quality homes and generally leading to a decline in the quality of rented housing, as landlords don’t need to upgrade properties in order to secure suitable tenants for their properties.
If there was more housing stock available in the private rented sector it would give tenants more choice and ease the burden on rents.
A petition is now calling on the government to reverse the Section 24 tax changes for BTL landlords, which prevent them claiming mortgage interest against their tax liability. However, after consulting with our team and landlord clients, we have an alternative and potentially more workable recommendation.
One immediate way to stem the tide would be to remove the 3% additional homes stamp duty and instead charge landlords selling additional homes the 3% stamp duty levy. This would incentivise landlords to purchase new BTL properties.
I would also recommend incentivising the transfer of BTL property into limited company ownership by removing the 3% stamp duty levy for a 12-month period. This would enable landlords to pay tax on profit rather than revenue and would help to professionalise the industry further.
As well as this, landlords would benefit from more certainty over upcoming rental reforms. Streamlining and simplifying the Section 8 eviction process so that landlords can evict bad tenants would help to remove the concerns landlords have about the removal of Section 21s.
Finally, simplifying the planning process so that small builders and developers can build more homes would also benefit and support tenants and buyers, alongside whole swathes of the wider economy.
I hope you find this letter constructive and look forward to hearing of any progress made and of course, if you, or any of your colleagues, would like to discuss further, please feel free to contact me.
I imagine the government are happy with the CGT windfall they are receiving along with the possible support of tenants is if they bring draconian regulations in,
This Government is only thinking short term.
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It is unfortunate our “bone head” politicians have caused and continue to cause irrepairable damage to the PRS. The conservative party use Thatcher as their role model but love her or loath her she was far more intelligent than the conservative crew now in power. The current Party seems to be one of mental illness intent on self harm. Indeed, their policy of bringing in the Red Wall voters was quite inspired given the woke brigade ( a small proportion of people who seem to get more press than they deserve) that seems to rule. They have allowed left wing extreme charities to be the conservative policy makers in a believe there are more tenant votes than landlords (based on Thatchers right to buy ethos). They have abandoned to small business mentality that made this country with their assination of the small private landlord. The damage they have caused go well beyond taxation, removal of S21 etc falsely manipulated as the “No Fault Eviction”. Evictions were rarely no fault; S21 was used as it was quicker and more certain outcome than that of S8. Good tenants were rarely evicted for no reason. If they were evicted there was a sufficient supply for them to be housed elsewhere. What we are seeing, and is less easy to stop, is the loss of trust by investors in any political party. In effect the same “Liz Truss Effect” had on the corporate markets. You have other politcial parties with the same attitudes to the people who have invested their life savings in residential property investment have been “shafted” by the popularism of rent free and landlord responsible for all the ills in society, according to the Bone Head Politicians. Whilst landlords inovate the Bone Heads try to legislate and make more of a mess. The Red Wall gains will be lost as Johnson’s unfulfilled promises to control borders has failed miserably. A conservative party that has failed its electors, a conservative party that has failed its traditional small business men and women and guided by left wing extreme charities. What the politicians have achieved is such a deep distrust in the Housing Market exaggerated by lack of investment and sale of social housing that it will take years for investors to forget how crass the politcians of the last 10-20 years have been. Yet the other poliutical parties all have the same or more extreme rhetoric and policies like rent control. The market has been wrecked as the politicans before them wrecked in the 1970’s with The Rent Act and similar legislation. The 1988 Rent Act brushed away that negatively and a PRS was re-born and thrived but now we are in reverse bringing back negativety to the previous failures in a slightly different guise. Rant of the Day over and food for thought to those who are not Bone Heads and are capable of free thought. A perspective of a nobody small landlord.
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While you are correct, it should be recognised that its the conservatives in England but they are lagging behind the Labour run government in Wales and SNP in Scotland. I have said this before, the problem lies in the permanent secretaries in the civil service. All politician’s come and go but they are advised and frankly told what to do. Remember “Yes Prime minister”.
You can expect a mass exodus of landlords in England. This has already happened in Wales and Scotland and is getting worse. It is reported by insider politicians (not corroborated) that over 50% will have gone before the end of the year.
How many self managing landlords in PRS are still in the dark? Thousands (tens of?) haven’t a clue what is going to hit them but you can be sure the tenants will jump on the money train.
A word of warning for those asking horrendous over valued rents. FFHH will be the tenants weapon of choice. Top dollar requires top standards.
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