May 9, 2023

Over-taxation of landlords reduces rental supply

Over-taxation of landlords reduces rental supply

Tax and regulation are strangling the rental market by driving landlords away.

The more you tax something the less you get of it. That's as true of landlords and rental properties as it is of everything else.

Unlike other businesses landlords can't offset all of their mortgage interest costs against their rental income, forcing them to pay more tax. When they sell their property they are charged a higher rate of capital gains tax and forced to pay it on the illusory inflationary gain. They are also subjected to a 3% stamp duty surcharge. The automatic wear and tear 10 per cent tax deduction for furnished lets to cover repairs was also scrapped and replaced by a requirement to detail actual expenses on repairs.

This anti-landlord taxation policy was introduced by George Osborne at the end of his time as Chancellor and phased in over a period. Back in 2020, John Stewart, policy manager for the Residential Landlords Association,said that “all the evidence shows that growing numbers of landlords are looking to sell properties as a result of the increased tax burden on the sector.” He has been proven correct.

Landlords are also now threatened by government plans to prevent them from ending tenancies. It is thus not surprising that many more are now selling up. As a consequence many fewer rental properties are available.

So of course rents are increasing. In parts of London they have gone up by 30% already. This will push up inflation. Zoopla says demand for rental properties, against a five-year average is up 51 per cent, with the number of available rental homes down 33 per cent, with rental inflation for new listings on the Zoopla platform now at 11.1 per cent.

Taxing landlords to excess and harassing them with regulations will restrict supply & increase rents. All this is just basic economics and entirely predictable and understandable.