Wednesday, 9 July 2014

No, it's never too late.

Emailed in by MBK from The Telegraph:

Glancing down the list, published on this website today, of the multifarious tax breaks afforded to buy-to-let landlords is rather startling. None of the information is new – it is just that reading all the concessions at once is an accosting reminder of their sheer breadth and generosity.

There were a few things missing off the list, which I added in the comments:

1. There is no National Insurance on rental income, so landlords actually pay half the tax rate which their tenants suffer on their salaries.

2. The 10% wear and tear deduction (which gets the effective rate down to 18% or 36%)

3. Over £10 billion of housing benefit payments go to "private" landlords, many of whom are renting out council housing sold at crass undervalue a couple a decades ago.

4. The fact that we tax incomes in the first place instead of just taxing land values.

Moving on…

The Intergenerational Foundation, a left of centre think tank which argues that wealth is unfairly concentrated among older property owners, estimated that private landlords claimed £13bn in allowable expenses last year. The value of tax sacrificed by the Exchequer was approximately £5bn, it believed.

No, the IGF is not left of centre, it is not left or right in the traditional sense.

Reducing the "unfair" appeal of buy-to-let, the argument follows, would rebalance power. It would create downward pressure on rents and hold back house price rises, allowing the young to climb on to a property ladder being steadily pulled out of reach in the south of England.

Yes, that's the general idea.

Regardless of whether you approve of buy-to-let, or its tax breaks, this is surely an unlikely solution to Britain's housing crisis. The radical reform needed to make buy-to-let unappealing would alienate a large section of the electorate, thought to be more than a million people, and so is politically unpalatable – certainly for a Conservative or centrist government.

OK, so one million vote against it, but about three or four million working tenant households would welcome it, because...

And even if it was [sic] a vote-winner, the consequence of tens of thousands of buy-to-let landlords selling up might be grave. Just who is expected to buy these houses? With ever-stricter controls on mortgage lending and the difficulties young people face in growing savings, a rush of property sales could severely damage the housing market and, consequently, Britain's economy.

Duh. We know what would happen if we partly reinstated the old system which enabled the Baby Boomers to "get on the property ladder" so young and so cheaply.

Prices would of course come down, and most working tenant households would be able to afford to buy. More owner-occupiers, less mortgage debt, isn't that what they always say they want?

If there were more sales, then that is good for the housing market, the more liquid it is, the better and the more efficient the price discovery system (transaction taxes like Stamp Duty or Capital Gains Tax go against the grain, they are bad taxes). Don't these people always say that lots of people moving home is good for the economy because of the knock-on boost to furniture, carpet, bathroom and kitchen shops/fitters?

The alternative might be a mass renationalisation of housing by local councils, returning the country to the post-war days that preceded Mrs Thatcher's Right to Buy scheme. That would be inordinately expensive for the state, which would have to raise taxes, borrow or print money to fund the project.

Why would it be "expensive"? If BTL landlords can make a profit i.e. cover their interest costs, then the government or local councils would do twice as well out of it as they can borrow at virtually zero cost - especially if the government or the council were buying at the new lower prices. And if banks have to write down some of the mortgage debt of people who bought at the old higher prices, the government can reimburse them out of the rental profits.

Just as with record low interest rates, which will be kept low to support profligate borrowers, the Government has allowed policy to drift to a place from which there appears no return.

Ah, the ultimate Homey argument, "we can't turn back now, it's too late - while we accept that further house price rises would be bad, price falls are worse; while we accept that stealing the wealth of savers is bad, making mortgage borrowers pay a bit more would be worse" etc etc.


mombers said...

The 10% wear and tear deduction is particularly puzzling. At the very least this should be capped at a reasonable absolute level unless the landlord 'itemises' to show that they've indeed spent £10k on repairs in a year on £100k of rent. I budget £3k a year for my house, that seems a reasonable cap.
Of course the solution is of course LVT because then rents less LVT is the landlord created value, which they can then keep if income tax is abolished

Mark Wadsworth said...

M, the solution is usually LVT.

As to landlord's tax relief for mortgages and expenses, fair enough, those are minor issues.

If we are to maintain the pretence that land rents are normal business profits (albeit taxed at half rates, no VAT either) then that is how you have to do it.

Rich Tee said...

There's another article in the DT about those teacher landlords with the 1000 properties (can't remember their names).

Apparently their yield is only 6 per cent. Hardly worth the bother. I know of bond funds with an annual dividend more than that without any of the hassle of being a landlord.

They're also 60 per cent mortgaged. Heavily in debt for a 6 per cent return. BTL, you can keep it as far as I'm concerned.

Ben Jamin' said...

So, according to this DT chappie, the more subsidies and tax breaks afforded to landowners in general, and landlords in particular, the better the housing market functions?

And he gets paid to write this?

Mark Wadsworth said...

RT, the Wilsons were maths teachers, they did their sums and gambled on interest rates staying low, in the end they went down, so they are laughing themselves silly.

BJ, yes, that is the ultimate Homey defence "These subsidies and tax breaks are bad, but removing them would be worse."

And he gets paid to repeat it over and over again. The banks and landowners have deep pockets and they pay well for this stuff.