Penalising landlords does not push up rents, new study says

The Generation Rent pressure group has found no association between tax increases on buy-to-let investors and rents

Making life more difficult for landlords more does not tend to hurt renters, new research has found.

Lobby groups have warned in recent years that increases in stamp duty designed to penalise buy-to-let landlords and other fiscal obstacles thrown in their way risk pushing up rents.

But the Generation Rent pressure group has found no association between tax increases on buy-to-let investors and rents, suggesting that the lobby’s argument is spurious.

The 3 per cent stamp duty surcharge introduced by the previous Chancellor, George Osborne, in 2015 has coincided with a 2.8 per cent decline in inflation-adjusted average rents.

The group argues that economic theory supports this empirical finding, since any landlord who sold a property due to higher taxation would be selling to either a first-time buyer moving out of renting, or to another landlord, leaving the overall supply and demand for rental properties, and therefore the cash level of the rent, unchanged. It sees the new residential let market as competitive, meaning that landlords have no power to pass on additional costs to tenants.

“Despite scaremongering by the property industry, renters have little to fear from a housing market that is no longer a playground for speculators,” said Dan Wilson Craw of Generation Rent.

“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.”

The group also found no evidence of an increase in rent in the wake of a drop in loans for buy-to-let after tax changes in 2016.

In recent years, amid a backlash against the growth of buy-to-let and discontent from private sector renters, the Government has adopted a range of measures to tilt the market in favour of first-time buyers.

As well as the increase in stamp duty for buy-to-let investors, it has partially withdrawn their mortgage interest relief and restricted allowable tax deductions for wear-and-tear.

At the time of the 2015 stamp duty hike, the mortgage lender Kent Reliance predicted it would lead to £55 a month increase in the rent charged on a £220,000 home.

Earlier this year, Simon Rubinsohn of the Royal Institution of Chartered Surveyors said: “While it is understandable that the government wanted to provide a lift for first time buyers, this may well come at the cost of higher rents as the appeal of buy to let diminishes.”

According to the latest English Housing Survey 20 per cent of households now live in the private rented sector, up from 12 per cent in 2006-07.

Data from the Financial Conduct Authority shows that bank loans for buy-to-let purchases shot up from 6 per cent of gross advances in 2009 to 22 per cent in 2016.

More recently, research suggests that buy-to-let investors have been withdrawing from the property market, particularly in London.