What's happened
Recent UK Budget measures increase landlord income tax by 2%, prompting warnings of reduced rental supply and higher rents. Critics argue the policy may backfire, worsening housing affordability amid rising rents and legislative changes. Experts predict a decline in rental properties over the next two years, impacting tenants nationwide.
What's behind the headline?
The recent tax hike on landlords will likely accelerate the decline of the rental sector in the UK. Landlords, facing higher costs and legislative restrictions, are expected to sell properties, reducing rental stock. This will intensify rent increases, especially in London where rents already surged 11.5% last year. Critics argue the policy is counterproductive, as it aims to address housing affordability but will instead tighten supply and push rents higher. The absence of a thorough impact assessment suggests policymakers underestimated the sector's elasticity. The move benefits property owners with multiple units who can absorb higher taxes, but it disproportionately hits small landlords and minority communities, notably the Asian landlord demographic. The predicted reduction in rental properties over the next two years will likely exacerbate housing shortages and affordability issues, making it harder for tenants to find affordable homes. Overall, the policy risks creating a vicious cycle of higher rents and fewer rental options, undermining the government’s housing goals.
What the papers say
The Independent reports that the tax increase is seen as the 'last straw' for many landlords, with some describing the sector's decline as 'death by a thousand cuts.' Industry voices warn that the policy will lead to fewer rental properties and higher rents, especially as landlords sell off assets before upcoming legislation takes effect. The impact assessment's omission of supply effects has been criticized, with experts like Ben Beadle of the NRLA emphasizing that the policy will 'drive up rents.' Meanwhile, the Renters' Reform Coalition condemns the government's refusal to increase housing allowances, arguing it worsens homelessness and housing insecurity. Contrasting opinions come from Generation Rent, which questions the assumption that rents will rise solely due to tax hikes, highlighting that many landlords already pay less tax than tenants and are exiting the market due to regulation. The recent DOJ settlement with RealPage, a US rental software provider, also underscores concerns about market manipulation and rent inflation, illustrating how technology can influence rental prices. Critics argue that both policies—tax hikes and technological market control—contribute to rising rents and reduced competition, ultimately harming tenants.
How we got here
The UK government recently announced a 2% increase in income tax on rental income as part of a broader tax-raising package. This follows years of regulatory changes affecting landlords, including restrictions on eviction rights and the end of mortgage interest deductions. The impact assessment failed to consider effects on rental supply or affordability, raising concerns among industry experts and tenant advocates.
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