UK policy discourages affordable rented housing

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Picture: Getty
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Current rules penalise private landlords, says Andrew Bradford

While affordable rented housing is provided mostly by the social sector (council housing and housing associations) it is also supplied, in significant quantities, by the private rented sector (PRS).

Picture: PA

Picture: PA

Many don’t realise it, but this is especially the case in rural areas where a majority of landowner landlords, rather than seeking rent-maximisation, take a longer-term approach and strive to provide affordable rented housing to support communities and to house those in local housing need.

The result of this is that the private rented sector is the largest provider of affordable housing to rent in small rural communities and private tenancies, which often average as little as 18 months in urban Scotland, average over seven years.

As just one example, my medium-sized estate provides 67 homes, of which 62 are at affordable rent – four times the social housing provision in my area.

Governments must help resolve housing crisis

It would be reasonable to expect governments to involve all housing providers to help resolve the housing crisis. You might expect the activity of those private landlords who do provide affordable housing to be encouraged. What you would not expect is for governments to seek to undermine such activity. Unfortunately that is the ultimate result of the current fiscal policy.

Any privately owned business must, if it is to endure, transfer across the generations. Inherited transfers are encouraged for trading businesses through the provision of relief from Inheritance Tax (IHT). Private landlords are not so favoured and must pay tax of nearly 40 per cent of the open market value of their portfolios every 30 years or so. I don’t think a single housing association would long survive that sort of drain on its capital.

Current UK fiscal policy is a disincentive to the provision of affordable rented housing by the private sector: it forces landlords to terminate tenancies to sell houses to pay IHT, reduces the supply of affordable housing, increases the demand for state provision of such housing and encourages the private sector to operate at the short-term, maximum rent level of the market.

As policy goes, this is about as destructive as it gets. Yet, it could all be so different. Governments should engage with the private rented sector so as to encourage, rather than deter, continued provision of affordable rented housing.

We have proposed to HMRC to allow Conditional Exemption from Inheritance Tax for affordable housing. The conditions would be that the landlord is registered, accredited and that the rent is, and remains, affordable. Additionally, exempt property portfolios should be eligible for roll-over relief from Capital Gains Tax (CGT) – so that a landlord can release funds for the upgrading of other exempt properties in the affordable rented portfolio.

The outcomes from this scheme would be fourfold:

• to lock in most existing affordable PRS housing rather than force it to disappear;

• to encourage private landlords to lower rents, creating more affordable rented properties;

• to encourage self-catering properties to be let as full-time affordable accommodation creating yet more affordable rented properties;

• to encourage private investment creating still more affordable rented housing.

Some landlords might not wish to participate; in which case the current fiscal provisions should apply. Landlords who join the scheme and then fail to observe the conditions would have to repay the tax forgone.

Some are fundamentally opposed to inheritance but I don’t hear many of them arguing for the abolition of business property relief with consequent loss of tens of thousands of jobs. It would seem wiser to utilise inheritance to provide affordable rented housing than to use inheritance tax to destroy that supply.

I and a great many other private landlords believe in providing much-needed affordable rented housing, working to support local communities in a sustainable way that does not rely on public money to survive.

To have government fiscal policy so diametrically opposed to that activity, as it has been over successive governments for decades, seems illogical. Unfortunately, the biggest losers of all are those who cannot access affordable rural housing.

• Andrew Bradford is chairman of the Housing & Communities Group, Scottish Land & Estates

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