Buy to Let

Choke buy-to-let to help deliver home ownership for young voters

When Margaret Thatcher met Mikhail Gorbachev they argued about capitalism. Gorbachev accused the then UK prime minister of only being interested in society’s “haves” and neglecting the “have-nots”. She hit back, saying that what she was trying to do was create a whole society of “haves”, not just a small class of them.

Thatcher’s project to create a popular capitalism of small share owners and homeowners changed the face of Britain. But for more than a decade now, home ownership has been in rapid retreat.

The children of baby boomers are missing out on the opportunities their parents had: over the past 10 years, the proportion of 16-34-year-olds owning their own home fell from roughly half to a third. Baby boomers were 50 per cent more likely to own their own home at age 30 than millennials (born 1981-2000).

Adding to the sting for young people, the tide of popular capitalism is not going out for everyone. Home ownership among over-65s continued to increase over the past 10 years, defying the overall decline. Many young people feel they are on a cruel treadmill, spending fortunes on rent, enriching their landlords, but meaning they can never save up a deposit for a home of their own.

For young families, being locked out of home ownership means a lot — from not being able to decorate to delaying having children. It means still living with parents in your late 30s, or sharing a flat like a student in your 40s. For the country, it weakens communities, and means fewer young people feel they own a stake in society. As Thatcher recognised, you cannot maintain support for capitalism if ordinary people cannot build up capital of their own.

Successive governments have tried to address falling home ownership by increasing housebuilding. This is vital, but not enough on its own. The problem is too big. Since 2005 the private sector built about 165,000 new homes a year. But the number of owner-occupiers actually declined, because 195,000 more homes have been bought up to let out each year.

Compared with just a decade ago there are 1.8m fewer households headed by under 44-year-olds who own their own home. This is a huge amount of ground to make up, just to get back to where Britain was 10 years ago. Even if we build tens of thousands more houses each year, we will never undo this huge decline unless we also halt the growth of the private rented sector at the same time.

Instead of older, more affluent people piling up increasing numbers of properties we must spread ownership to more young people. The generational imbalance that has built up is the result of government skewing the market, as well as not building enough housing.

Recent decades have seen the invention of the buy-to-let mortgage, and the subsidies for home ownership like mortgage interest relief (MIRAS), have been scrapped. But the tax treatment of letting has remained highly favourable compared with other investments. That, plus relentless house price inflation, has made investing in buy-to-let a no-brainer.

Reforms by George Osborne two years ago trimmed some of the tax advantages of investment in property. The government could trim further. But many small landlords would protest that they have worked and saved hard to be able to buy properties, and have made investments on the basis of current tax policy.

So, rather than increasing tax on renting out properties, it would be better to limit new letting and ensure that the flow of new housebuilding goes to increase ownership. That means limiting or ending new buy-to-let mortgage lending. To prevent cash buyers simply replacing buyers with mortgages it would also mean increasing taxes on properties that are let out for the first time. Money going into unproductive housing speculation, which just inflates prices, would instead be diverted into investment in growing businesses.

On the other side of the generational divide we could tax cuts and deregulation to spread ownership. We could cut stamp duty for first-time buyers; or consider re-introducing a targeted version of MIRAS to help young, lower-income people to own their own home. Making mortgage payments tax free for younger people could be a signature policy and would mean more young people could afford to buy.We should cut the cost of 95 per cent mortgages for first-time buyers by deregulating or extending guarantees.

But above all we must restore the hope of home-ownership. Young voters only want what previous generations enjoyed. Unless we make that possible, they will turn to populist politicians offering fake solutions.

The writer is the Conservative MP for Harborough and a former adviser to Theresa May and George Osborne

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