As the Guardian has noted this morning:
Britain's buy-to-let mortgage market has surged to levels not seen since the 2008 financial crash, prompting fears that a prolonged period of cheap money is setting off an unsustainable housing boom.
Lending to landlords topped £5bn in the past three months, a period that preceded the Bank of England's pledge this week to keep interest rates low for the next three years. More than one in 10 mortgages are now being handed to a would-be landlord while first-time buyers are still struggling to get on the housing ladder.
The land of milk and honey continues to flow for rentier Britain whilst the young, the unemployed, those working hard on minimum pay, those suffering a cut in benefits, the sick denied those benefits and the disabled continue to suffer.
Tax justice could solve this. It would firstly tax the gains on rented property as income and not capital gains. Secondly it would deny tax relief on loans for rented property, just as it is denied to owner occupiers and thirdly it would mobilise the resources - the extra people HMRC need - to make sure that all those who rent property pay tax on it.
We don't do those things now. The result is that the vulnerable suffer as the rentier profits. And that's a choice that is being made by this government because it could do the three things I suggest, but doesn't. And for that we need to hold them responsible.
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How can you suggest giving no interest deduction when it is a totally legitimate business expense? I assume that you would also decline to tax the rental income seeing as you suggest taxing landlords on a totally different basis to income tax (or corporate tax) – in other words you are moving away from taxing an enterprise on profits.
Secondly, why tax gains on disposal as income as opposed to capital gain – are you suggesting, for the sake of parity, that homeowner occupiers should also pay capital gains?
Your suggestion is nothing more than an abuse of the tax system for desired social consequence.
Interesting comments
First, all tax systems reflect desired social consequence
Second, why give a tax subsidy to those who rent rather than those who buy? The latter is clearly considered inappropriate, so why not the former?
Third, there are plenty of business expenses that are not deductible for social reasons
Fourth, I am saying tax capital gains
Fifth I am suggesting taxing rents on the same basis as, say, interest for an individual, where a cost offset for creating the asset giving rise to the income would not be allowed. There’s nothing radical in that. It’s just not what we do now.
So no abuse. Just an honest tax proposal that will create social benefit
How does a lessee get a tax subsidy?
The landlord does
How can this abominable stupidity go on! Anyone with any nous would have avoided this like the plague! Buy-to-let should be massively disincentivised as it is the main bubble vehicle. The public are in an hallucinatory haze as the prize of ‘own your own home’ is dangled before them without people realising that they don’t ‘own’ it but are entering debt peonage. Even after the the last disastrous bubble, the hallucination goes on. For a brief feel good factor for a few house buyers the whole economy is being sold down the river again. Social housing is next on the list -after this bubble the resentment towards those in social housing (who will be the only ones not in debt peonage) will be even greater and the Government will say social Housing is unfair to those sweating even more with the loss of value of their labour. Social housing will then be sold off so everyone can be in debt peonage to banks and landlords. It is so transparent yet the public are queuing at the abattoir gleefully!
Simon
Don’t you think that the majority of people – certainly the middle class – can escape what you term “debt peonage” by borrowing responsibly? Anyone leveraging themselves to the eyeballs at the moment is insane and irresponsible given the probability of interest rates rising within the next 5 years. Anyone with a sensible-sized mortgage that they can afford isn’t exactly in “debt peonage”, they are simply buying an asset by using that asset as security for relatively cheap (at the moment), long term debt.
Helen – for many there is no such thing as a ‘reasonably sized mortgage’ and many are in interest only deals with no clarity about the capital payments. In my view, the fundamental problem is using housing as a hedge against inflation/pension devaluation. Since the 1950’s land values have risen about 2,000 percent compared to about 400% rises in building costs. It is economically disastrous to pursue housing as investment. For the last 30 years or so banks have massively invested in real estate causing housing bubble after bubble. I can remember, in 1987, selling a house a year after I bought it making a profit of 12,000 for doing NOTHING! I gained while the general well being of others worsened as the value of their Labour decreased. Much of the financial gain goes to land owners and property investors and causes misery on a large scale. It is utter lunacy to use housing as an investment yet the addiction continues. As karl Denninger (a founder of the Tea Party -just to prove this is not a pure ‘leftie’ idea)’ a house is a place to live’ and that’s it! The money that goes to credit creating banks in whose interest it is to create bubbles is money vacuumed from our communities and goes to the 0.1%. When will we wake up to this daylight robbery and scam of scams?
With respect, the middle class hasn’t woken up to the fact that the direction of political travel is to soak everyone for the benefit of the few. It started with attacks designed to impoverish the most vulnerable, the vast majority of the unemployed and the disabled, and, as that target becomes exhausted, moves on up the food chain…..and reaches the middle class, many of whom are already under attack.
Your argument fails because you seem to imagine that the “responsible” middle class will be able to maintain its current overall advantage over the peons below. As long as equality of opportunity remains unaddressed, I find it impossible to believe that the middle class can retain its advantage for very much longer. Big dog will continue to eat small dog while it continues to look down on small dog as inferior until, one day, only a handful of big dogs are left looking at each other for their future sustenance.
How will a ‘stealth tax’ on landlords benefit the young, the unemployed, those on minimum pay, those with benefit cuts, the sick and disabled? I use the term stealth tax as it will hit once and then drive landlords out of the market (or to ruin in many cases) thus reducing the tax receipts for the future. Even if the tax is collected it could possibly prop up the benefit system for a while but how would this be sustainable help to the groups you mention longer term – many could not get a mortgage anyway? I guess your point is that it would drive down rents making housing more affordable right? But the losses that will result for landlords and banks would be a massive hit on the economy, which in turn pulls everyone down.
Short-term I can see the tax kicker but long-term this would be very damaging to our economy in my view at least.
Funny enough, offering tax breaks for creating more housing might actually be a better alternative – it would stimulate much needed investment in new housing and would be an expansive policy that would actually increase tax receipts in the long-term (via rental profits and corporation tax) plus would increase housing supply, so more naturally and gradually normalise house prices and rents. We need to stimulate growth not curtail it and this will in turn increase government tax receipts.
Richard
So we transition the withdrawal of relief – I can live with that. We did it on MIRAS
So we could limit the relief to basic rate tax
Or to a proportion of value or rent
That would reduce shock if you like but the signal would be given – stop buying to speculate backed by state subsidy, because it is that which is causing the harm
And we do not need to give subsidies to build new houses – we need local authorities to build them under the Green New Deal
Richard
Richard
I don’t think you answered the question as to how you think it would benefit the groups you mention IN THE LONG TERM.
I appreciate there is more than one way of doing it and it I could be persuaded a limit of the claim or perhaps a reducing balance type arrangement such as with capital allowances may be more preferable. Either way, a reduction in the interest offset will dissuade any new entrants to come into the market and would lead to higher rents for those that are left in order to absorb the costs. Using the Green Bank (I presume you mean) is still government debt and is not ‘free’ and unlimited either. I could be persuaded that some LA building would also be useful, especially for social housing.
I did not expect a u-turn on your views but we can see that yours equal increased taxes and increased government debt, whilst mine equal increased taxes and no increase in government debt.
The conclusion surely has to be: investment from all quarters (be it private and public) with the decision of whether increasing taxes short-term or reducing them leads to an expanded economy, where we seem to differ the most.
It will benefit society by making housing policy relate to providing homes
And by reducing the price of housing so more can afford it
And my then making sure there is space for social housing in which social is emphasised, not speculation in housing, as now
There’s always a ready supply of targets for “the public” to vent their anger on.
The “work shy” (in a country where people buy all their consumer goods from abroad, thereby guaranteeing their own lack of employment eventually)
The “benefit cheat” (while happily getting their windows/cars/carpets cleaned, cars serviced, and gardens maintained…for cash)
Next will be the elderly…
The genuinely sick (their own fault etc etc)
Travel passes (most of the rural sevices get a very large chunk of their income from concessionary fares….but don’t mention it, especially to the gobby drivers)
Obviously social housing will come along as a major villain at some point….probably in the lead-up to the next election….there always has to be a manufactured villain to distract the people from doing any serious thinking.
Although you will note an undercurrent of blame linking immigrants and social housing, since the linking of pregnant teenage girls has failed to gain any headway.
Obviously, an eton education has not prevented ageism, racism and lack-of-a-large-bank-balance ism from becoming deeply rooted within the political system..
Social housing is already being demonised as the mortgage obsessed public are being fleeced and feel anger at not being significantly better off than those in social housing. Schadenfreude makes our world go round!
https://www.youtube.com/watch?feature=player_embedded&v=ygpM-ZTDeYs
Yes
Tony Benn was right, as is so often the case
Benn reveals the whole psychopathology of our culture in thirty seconds!
An interesting blog commnet:
” Did George Osborne end the “balance sheet recession” by goosing up the housing market, thereby providing a massive helicopter drop of net wealth to the credit-constrained private sector? (I’ve seen estimates that Help 2 Buy will boost house prices by 30%.)”
http://uneconomical.wordpress.com/2013/08/08/nominal-recovery-does-not-happen-naturally/
So you take away tax relief for lending…..but not of course for Housing Associations?…..Or for commercial lending in Business?
Just for private letting….because you don’t like them or the social consequences that result.
Looks a bit specific as a tax policy, not inspired by economic policy but vindictiveness!
Housing associations serve a totally different social purpose
So of course the tax rules can be different
They’re not for profit for a start
And to sue tax for social policy is a key element in tax design
I’d suggest that the real vindictiveness is in a financial system that relies on real estate exploitation to destroy communities and impoverish the majority by vacuuming up their wages.
I don’t think any thinking person would disagree with that .
Just use plain English , our failure to provide affordable and decent housing for our population in one of the richest societies in the western world is the biggest indictment of our moribund society. It is a stain on social progress and will eventually lead Britain into third world status, something that is rapidly approaching for the 99%. The 1% being social and emotional cripples, psychopathic deviants who neither care or need the majority to support their life style. Lets hope that the rest get educated fast.
*
Sounds like Britain is well overdue (as is Australia) for a property market crash. Most of these property investors, buy property more for the capital gain than the cash flow that comes from these investments. It’s based on the “greater fool” theory, i.e. Someone down the track will buy the property from them at a far greater price. But what happens when that confidence falls out? Better still, what if we pull out the tax advantages? Suddenly property investment would become a riskier investment for these people.
We’ve already had a slow motion one of those in the vast majority of the country.
Currently houses are back at approximately 2002-3 prices.
See the Nationwide Building Society average house price figure:
2003 Q1: £167,129
2013 Q2: £167,294
http://www.nationwide.co.uk/NR/rdonlyres/7E5472DA-A8BF-4796-8FCE-5E09FEC546B9/0/UK_house_prices_adjusted_for_inflation.xls
Unless you play silly games such as ignoring inflation.
That is true, for the vast majority of the country
But economic policy is run for the benefit of London
And that’s the problem – because London has had 50% rises since 2008 – itself a peak
And elsewhere access to funding prevents people buying
According to Mark Wadsworth’s blog (http://kaalvtn.blogspot.co.uk/p/valuations-and-potential-lvt-receipts.html#2) “the figures quoted by Nationwide and Halifax of around £160,000 are misleading, the mathematical average is far higher than that at around £230,000, as Acadametrics explain. HM Land Registry’s price paid data referred to above also shows that the average price paid for all homes in 2012 was £230,000.”
We need a crash bigger than that! house prices at 2003 rates is still too high!
They are still unaffordable for many.
Anything that discourages speculation in the FIRE sector is worthwhile!
http://www.bbc.co.uk/news/business-23668507
Try using their housing calculator to see where you can afford to buy….after getting 0% you may see the reason for help-to-buy…
With rising inflation, considered by many to be 50% higher than that touted by government, and falling wages, the amount of people getting “0%” is getting higher every day. Considering, by any calculation, that the country is still in recession.
Housing Associations is social housing in all but name. The “tax breaks” which Housing Associations get don’t really exist – the government could make them pay more tax but then it would have to give them more subsidies.
Given the lack of enthusiasm for replacing a shed load of taxes with Land Value Tax (or Domestic Rates or whatever you want to call it), a reasonable second best had to be more social housing, a lot more. Keep building the stuff until rents come down to sensible levels and then private rents – and hence private house prices – will come down accordingly.
Under a purist LVT system, everybody also gets a Citizen’s Dividend or personal allowance, so you can see “below market” rents in social housing as being the market rent minus the Citizen’s Dividend (not as good, but getting there).
Final bonus – the banks can’t make ever more money every time social housing changes hands! The council takes out a loan, pays it off, end of discussion. It’s not like private housing where the banks make ever larger sums of money from the same tired old stock.