By John Goodall, chief executive of Landbay

Over the last few weeks, I have read multiple articles highlighting that rents are rising significantly, particularly in large cities like London. Many commentators have tried to explain why this is and rightly point to a lack of supply. 

Before I focus on supply, I am also surprised that commentators don’t also seem to realise that rents are not immune from inflation. (And the biggest cost for landlords is interest payments and they are only moving one way). Rents have traditionally moved in line with nominal earnings.  

However, aside from inflation, I have not seen one article that highlights the biggest reason for this lack of supply, and one that was totally predictable. 

Slowing down the growth of BTL 

In early 2016 George Osborne introduced two measures in an attempt to specifically slow down the growth of buy-to-let, by bringing in imposing additional costs for landlords. The first measure was the extra 3% in stamp duty that landlords have to pay when they purchase properties.   

Secondly, the removal of higher rate tax relief on mortgage interest payments where those properties were held directly in an individual’s name – thus intentionally penalising and deterring landlords that may own one or two properties (a significant part of the UK market).  

Then, in a rare display of co-ordinated economic policy, that would be welcome in combatting inflation, the Bank of England also introduced minimum underwriting standards for BTL. 

Outcome was predictable 

At the time, many participants within the BTL mortgage market, including lenders and brokers, made it clear that over time this would lead to higher rents as it would negatively impact the supply of rental property.  

Who would have thought that a government policy specifically targeting the private rental sector would actually work? Did no-one in the treasury consider that this may have an impact on rental prices? You would have thought that someone in the Treasury would understood Economics 101 (the name many universities use for their introductory undergraduate economics course) and know the rules of supply and demand. 

Government policy needs to change 

The private rental sector is a crucial part of the housing market, and it would be good if the new Prime Minister and government recognised this. They should understand that by not penalising and overtaxing the sector, then those tenants who are renting properties (including potential first-time buyers that are saving up for a deposit) may actually benefit.  

Affordable and high-quality rental accommodation is crucial for any economy that aspires to grow. Bashing and taxing landlords may be popular – but hopefully the new Prime Minister realises that this won’t help renters or the economy at large. 

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