NRLA Autumn Statement submission: a deep dive
Ahead of next month’s Autumn Statement the NRLA has submitted its calls to the Treasury. The association is calling for positive action to increase the supply of homes and encourage investment. Eleanor Bateman, senior public affairs officer takes a deep dive into the detail.
While few disagree that the country is facing a severe housing shortage, there is far less consensus on how the problem can and should be tackled. What’s clear is that there is no ‘quick fix’ and that the scale of housebuilding required will take years, if not decades, to get underway.
But what if there was a ‘quick fix’ available? One that could make a tangible difference in reducing the numbers of households stuck in temporary accommodation and ease affordability pressures within months amid an enduring cost-of-living crisis.
If the Government is serious about tackling the chronic under-supply of homes and stabilising housing costs, the Chancellor must recognise the value of the private rented sector and use his Autumn Statement to roll back some of the policies that have led us to this critical juncture.
The private rented sector plays a vital role in providing homes, particularly given the historic failure to deliver sufficient housing to meet growing demand across all tenures. Yet government policy has intentionally weakened investment in the sector, resulting in a significant shortfall of private rented properties. Zoopla’s most recent data suggests that the number of available homes to rent is 30% below the five-year average, while demand is 51% above it.
Unintended consequences
Policies like the Stamp Duty Land Tax (SDLT) surcharge and the removal of Mortgage Interest Relief (MIR) were intended to constrain the growth of the private rented sector to free-up property for those moving into homeownership, yet the Government’s mistake was to view the two as mutually exclusive.
In reality, these policies have constrained supply and driven up rents, making it harder for renters to purchase their own homes. The private rented sector serves a vital function in enabling homeownership with almost twice the number of private rented households making the leap into homeownership in 2021/22 compared to those moving out of their family home. A thriving private rented sector therefore helps, rather than hinders, homeownership.
For those unable to buy a home, an alarming number of households are trapped in temporary accommodation, unable to access the private rented sector due to the supply shortage and consequent pressure on rents.
An opportunity not to be wasted
Rather than focus policy on driving good landlords out of the private rented sector, the Government must urgently look to secure landlord confidence, boost the supply of private rented homes, and improve choice for tenants.
The NRLA’s submission to the Treasury ahead of the Autumn Statement, which is expected on 22 November 2023, outlines the ways in which it can achieve this.
Firstly, the Government must rebalance the tax system and assess the impact of its policy on the sector. This should include a review of changes to Mortgage Interest Relief (MIR), the additional Stamp Duty Land Tax (SDLT) levy and the introduction of pro-growth tax measures.
Modelling commissioned by the NRLA has demonstrated the alarming outcomes of the Government’s MIR policy change, which was introduced to dampen investment in the private rented sector.
Between 2010 and 2016, the stock of private rented homes increased at a rate of 3.7% per year. However, between 2017 and 2021, when the changes to MIR were implemented, the sector grew by just 0.4% per year.
This not only suggests that there could have been 1.2 million more properties available to rent in 2021 than were available, but it also means that the Government lost out on £1.5 billion of tax revenue.
Further modelling found that a reintroduction of MIR in full would mitigate the erosion of private rented homes from the sector by 110,000 and reduce losses to the Treasury by £0.5 billion per year.
The SDLT surcharge on additional home purchases, introduced in 2016, further curtailed growth of the private rented sector and contributed to the supply shortfall. Removing the additional 3% levy could increase the private rented housing stock by nearly 900,000 over the next decade, contributing £10 billion in income and corporation tax over the same period.
More than tax reform
While changes to tax policy are likely to slow down divestment in the sector, it’s essential to recognise that they won’t address all the challenges it faces. It is equally important to provide support for vulnerable tenants.
When first introduced in 2008, local housing allowance (LHA) rates were based on median local market rents. However, in 2010, rates were lowered to the 30th percentile, meaning housing benefit would cover just the lowest third of local market rents instead of half.
Over the years, various other reforms to LHA have made it increasingly difficult for some households to access the private rented sector.
Most notably, the current period of elevated inflation coupled with the supply shortage has caused LHA rates to deviate drastically from actual rents.
Just 5% of rental properties advertised on Zoopla in June were affordable for LHA recipients.
By May of this year, 61% of LHA recipients living in the private rented sector in England and Wales faced a shortfall between their housing benefit and monthly rent. This is a staggering 52.8% increase since April 2020, leaving more than 800,000 households to fill the gap by other means.
Not only does this test household finances to their limits, but it also undermines landlord confidence in the welfare system. While the Government’s commitment to outlawing blanket bans on renting to benefit recipients is noteworthy, it fails to recognise that the very households it seeks to protect are being penalised by government inaction on LHA rates.
Furthermore, the LHA freeze also places additional, indirect pressure on the private rented sector by stifling the supply of social housing. Like private landlords, social housing providers need long-term certainty on rental income to sustain their plans for investment, and the continued LHA rate freeze erodes that certainty. It is imperative to realign LHA rates to at least the 30th percentile to provide immediate relief to recipients and safeguard future housing provision.
Managing expectations
Though the Chancellor has sought to manage expectations and rejected pleas for tax cuts in the short-term, it is worth noting that government borrowing is nearly £20 billion lower than projected in the first half of the financial year.
Moreover, the Chancellor has indicated a potential relaxation of fiscal policy in the medium-term, as the Government endeavours to build a “lower tax economy”.
The Government’s caution may be understandable as it grapples with persistent inflation and the threat of recession, but the challenges facing the housing sector are bound to worsen without decisive action.
Yes, we do need to build more homes, and we need far greater investment in affordable and social rented accommodation.
But while the Government flip-flops and prevaricates over planning reform, funding infrastructure and release of public sector land, the private rented sector is rarely considered as part of any solution.
This must change, and the Chancellor shouldn’t waste the opportunity of harnessing the potential of private landlord investment in a sector that already supports millions of households when other housing tenures have failed them.
More information
To download a copy of the full submission click here.
