The government has been attacked by a former member of the Bank of England’s Monetary Policy Committee for its “incoherent” approach to the private rented sector.
David Miles, now a professor of financial economics at Imperial College London, argues that there are “few signs” that tax increases on the sector have benefited those hoping to become homeowners.
Instead, he believes that the tax hikes have led to “reduced choice” in rental stock, thus placing upward pressure on rental values “as supply gradually shrinks”.
In recent years, the government has introduced measures to restrict mortgage interest relief on the PRS to the basic rate of income tax, imposed a stamp duty levy on the purchase of new homes to rent out, and scrapped the ‘wear and tear’ allowance for furnished properties, with a view to helping first-time buyers gain a foot on the housing ladder.
But the government’s strategy of clamping down on buy-to-let investment has led to “squeezing the supply of rental property and driving rents up”, which does not help first-time buyers.
He said: “[There is nothing] intrinsically wrong with people being in the rented sector for an extended phase of their life. We should want to avoid a situation where people feel pressurised into taking big mortgages relative to their income early in life because the rental option is so poor.”
He added: “In a world where house prices might be consistently higher relative to incomes than in the past we might naturally expect the period in which people are in the rented sector is longer.
“And there are good economic reasons for believing that in a country with a rising population and where real incomes tend to increase over time house prices might well rise at least as fast as incomes. To have then introduced measures that reduce the supply of rented property is perverse.”
David Smith, policy director for the Residential Landlords Association, agrees with Miles, insisting that he “hits the nail on the head” with his views.
Smith commented: Choking off the supply of rental properties does nothing to help aspiring home first-time buyers who need somewhere to live now.
“It is time to change tack and recognise that we need more homes to rent as well as to buy in order to meet growing demand and have policies that support investment.”