Inaction means housing gap is bound to widen

12 July 2010

The change to Capital Gains Tax in the emergency Budget shows the folly of attempting to second-guess a government, particularly one which has to steer a course between the wants and needs of the Conservatives and Liberal Democrats.

Industry commentators who were going crazy with the thought of a potential dramatic hike that would hit higher rate taxpayers and warning landlords to sell their properties as soon as possible have been shown to be foolish. about a rise to 40% or 50% was just that, and one suspects lobbying Tory backbenchers got their way. In fact, there was a CGT increase of just 10% and an extension of the entrepreneurs’ relief rate of 10% up to £5m.

So now we have a CGT rate which is likely to have little impact on the buy-to-let sector unless you are a speculative investor looking to make a quick buck.

The fact is that buy-to-let is no longer a market for this type of investment. It is - and essentially always has been - a market to invest in for the longer term and anyone thinking otherwise is in the wrong game.

But the Budget has left us in a situation whereby the private rental sector has never been so important.

The government has effectively decided that it will not be providing more housing in future.

There is no fresh influx of rental properties, while potential investors are unable enter the market

It is leaving it to private home builders who are clearly unable to build in sufficient numbers at the moment. Taylor Wimpey recently revealed that sales were down in Q2 2010 and that it is continuing to run its business on what it calls a cautious basis.

Confidence is not high in the house building sector and this situation is unlikely to change anytime soon.

So it is being left to the private rental sector to attempt to fill the housing gap.

And this gap can surely only get wider when you consider issues such as social mobility and the rising number of single-person households compared with the number of properties available.

But as the demand for private rental properties is increasing, supply is not keeping pace.

There is no fresh influx of suitable properties coming onto the market, while many investors who would like to enter the sector are not in a position to do so.

While we are in an age of austerity the government may have to think about providing tax breaks to get more big boy investors such as pension funds involved in the sector.

This is clearly not going to happen in the short term, and neither is the extension of the Special Liquidity Scheme to lenders such as ourselves.
The latter move would help satisfy some of the demand for buy-to-let mortgage finance that clearly exists.

So the market is being left to fix itself, which means we’ll have to live with an unsatisfactory status quo for some time to come. We must get used to a growing housing gap.

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