There has been a clear policy direction over the past decade or more by governments of all colours at both Westminster and Holyrood seeking to reduce the size of the private rented sector in the UK. This began from the simple premise that landlords buying up properties for rent were preventing young people getting on the much vaunted “housing ladder”.
Since then there has been a succession of changes in regulations and tax which aimed to meet this implicit goal. Some of these changes have been welcome. Responsible landlords want to see increased standards and professionalisation of the sector, to rebuild the reputation of a sector which has been historically poor.
However, many of the changes to the tax regime for landlords, such as ending the ‘wear and tear’ allowance, increasing tax on mortgage interest and the blanket increase on tax for additional homes no matter the reason for purchase, seem punitive and excessive especially when considered as a package.
What has to be admitted, however, is that these measures have been successful. The size and future effectiveness of the private rented sector is, indeed, under threat with more and more of our members telling us they are considering leaving the sector.
These are not massive organisations who might own hundreds of properties, these are individuals with one or two high-quality properties which they manage in the same way another individual might operate any small business.
I know it is hard to make anyone feel sorry for landlords – but just for a moment consider, what if all of these changes are based on a false premise?
What if reducing the number of landlords has not freed up houses for purchase by first time buyers? Should landlords be taxed differently from other small businesses, on income rather than profit? What if all that has been achieved is to allow faceless house builders to build hundreds upon hundreds of ‘build-to-rent’ accommodation in the wrong locations and to punish a small business sector providing much needed flexible accommodation in cities?
That is certainly a contention that the Scottish Association of Landlords would argue. Whilst tax changes drive out landlords who own properties in major cities where flexible accommodation is essential for further and higher education and economic growth, new build-to-rent properties are being constructed in suburbs of cities where traditionally more affordable homes would be available for purchase.
We know there is a housing crisis in Scotland, as well as public concern about the number of homes available for private purchase. However, in many parts of Scotland, the only people buying properties and modernising them are private landlords who then make them available for rent which is often the most desired type of housing in these areas.
Even with the massive investment in house building and moves to reduce planning constraints to free up more land for building, the latest figures show that Scotland is around 7,000 new houses a year short of what is needed. Driving out landlords with one or two properties cannot come close to bridging that gap. So, what strategic goal does increased tax on landlords serve?
The most recent move by the Scottish Government to increase the Additional Dwelling Supplement (ADS) by 4 per cent when a house is purchased is just the latest in a move that seems to be tactical rather than strategic, although I am sure voters will welcome another “hammering” of landlords and those with second homes.
We have already seen the tax take from ADS more than double over the course of 2018 so this latest increase risks landlords being seen as a cash cow for government, which they most certainly are not. Our members operate their businesses on very tight margins so any increase in cost is likely to lead to a decrease in investment.
We want to see the right balance of housing across Scotland, be that new build, social housing or the private sector to effectively tackle the housing crisis. The risk is that by taking politically expedient and easy action, our members will be driven out of the market and, far from solving the housing crisis, we will see less of the right types of homes in the right locations across Scotland.
John Blackwood, chief executive, Scottish Association of Landlords (SAL).