Suppressing landlord activity won’t automatically improve first-time buyer prospects

Even with the dust settling somewhat after the Budget, it still feels like a number of measures announced – and the approach taken in some areas – by the government are somewhat confusing and, dare we say it, point to a new administration that hasn’t really got its head arounds the needs of the UK housing market, and business in general.

We’ll park some of the more general business points to the side – increasing employers’ National Insurance contributions (NICs), for example.

Instead, let’s highlight the increase to stamp duty on additional homes, which has to be seen as a further shot across the bows to landlords, and a belief that fewer homes available to rent will deliver more people in owner-occupation.

As I think has been proven over a number of years, the market doesn’t work like this, and the ‘punish landlords/reward first-time buyers’ narrative that has been peddled by all recent governments fails to acknowledge how important the private rental sector (PRS) is, and will be, in terms of meeting this country’s housing needs. 

They may not like the fact, but it doesn’t stop it existing.

When you add up all manner of fundamentals – house prices still rising, wages not moving at the same rate, increased mortgage rates, etc. – you should be able to understand that making it more costly for landlords to buy is not a fool-safe means to get more people onto the housing ladder.

Tackling supply in its widest possible sense will of course help, and if the government can get anywhere near its projected one-and-a-half million-plus new homes over the course of the next Parliament, then this will have an impact.

Building enough homes in enough time will be a mammoth task 
But let’s not kid ourselves that it will make all the difference. Countless years of running way behind the number of new homes needed leaves us with a massive gap to close.

Add in the significant increase in population numbers over the last couple of decades alone and you can understand why the supply gap is so acute, which should reinforce the importance of the PRS. 

However, it is still apparently regarded as the enemy rather than a necessary part of our market, which requires nurturing and understanding in order to make sure that rents do not continue to rise at the levels we have seen over the past 12-18 months. 

Because who does this ultimately hurt more than anyone else? It is the would-be first-time buyers who the government is trying to prioritise because more of their income is taken up with housing costs and therefore the time it takes them to save for a deposit grows longer and longer. 

At the same time, we of course have higher rates, which lead to higher affordability barriers to overcome – an issue not just impacting first-time buyers, but landlords as well. 

Equally important cogs in a machine 
You can see the interconnectedness of all these ‘worlds’ and the need to ensure they can dovetail together, rather than attempts to hammer them into place by the government, or indeed hammer them into a much smaller piece of the market. 

It should not be forgotten that our current housing market situation did not happen overnight. This has been the direction of travel for many years, and it leads us to this situation.

It leads us to a point where many people can’t get on the housing ladder unless they have a Bank of Mum and Dad to call upon for help with the deposit, or to act as a guarantor, or indeed both. 

But those who can’t go calling at this particular family financial institution invariably have to keep on renting while they save. As pointed out above, a lower supply of rental properties, with heavy tenant demand, increases rents, which makes it a longer road to travel in order to secure a deposit.

The people the government is suggesting will benefit the most from this are the very people who might ultimately have to wait longer to buy because of the increased costs of their current housing needs. It feels slightly balmy and is clearly exacerbated by a housing supply shortage, which is chronic for all tenures.

Advisers are often left picking up the pieces of such decisions, having to explain to would-be purchasers how their financial situation isn’t right for what they’d like to achieve.

If rates do continue to fall, it makes the conversation easier, but there are no guarantees and, in the meantime, the situation is likely to continue for some time.