Labour Party Proposals for the Property Market

The Labour Party has outlined their proposals for the property market should they win the election.  These proposals are as follows:

·         The “Mansion Tax”

·         To reduce the number of empty homes

·         To build 200,000 homes a year by 2020

·         To tackle the problem of land banking.

·         To build a new generation of New Towns the Garden Cities

·         To ensure that local people are able to buy properties within their local area

·         To scrap stamp duty for first-time buyers on homes up to £300,000

·         Reform of the Private Rental Market

The “Mansion Tax”

The Mansion Tax attacks worth over £2 million whereby owners of these properties will have to pay a tax of around £250 per month (£3000 per year). Those property owners who are unable to afford this, will be given the option of deferring payment until the property is either sold or on the death of the owner. The Labour Party are proposing this policy as a way to finance the NHS anticipate the tax raising around £1.2 billion per year although it is known as for that they have not provided any detail as to how much the scheme will cost to administer. Properties worth over £2 million can range from a two-bedroom luxury apartment in London, to an ordinary-looking semi-detached or property in a highly sought-after area in London as well as the luxury multimillionaire mansions associated with areas such as Knightsbridge. To those owning the multimillionaire mansions, and additional annual tax of £3000 per year is likely to make varied very little difference, however those pensioners who have lived in their properties for decades and have seen them rise in value, for example under £100,000 to £1 million plus due to the upgrading of the status of the area in which they are situated will be heavily penalised. It is interesting to note that a rich property investor with several properties each worth for example £1 million will not have to pay the Mansion Tax where as a pensioner living in the family home which has risen in value through no intervention by them, will have to pay the Mansion Tax. Many property market pundits see that the Mansion Tax is likely to turn highly sought after areas becoming the preserve of the wealthy property investors whilst ordinary families are forced to move out of the area. Another anticipated effect is a crash of the higher end property market, and indeed anticipation of the Mansion Tax has already seen this market grind to a halt.

To reduce the number of empty homes

Labour have stated their aim to clamp down on an increasing trend of leaving houses empty which is an increasing issue in London, where foreign investors are buying up properties for investment purposes and leaving them empty.  The clampdown may be in the form of giving the councils more power to charge higher rates of council tax on properties that are left empty. Currently councils do have the power to charge an extra 50% on Council Tax in respect of properties that are being left empty; Labour plans to extend this power to enable Local Authorities to charge even more and to reduce the amount of time the property have to be empty before attracting the higher rate to a year or less, whilst at the same time closing a “loophole” whereby investors avoided additional council tax by furnishing the property often with just a table and a chair.

To build 200,000 homes a year by 2020

This is considered by many pundits in the property market as being overambitious pointing out that the Labour Party have not explained how they will overcome the obstacles of the lack of funding for development on such a scale, and the shortage of building supplies and skilled labour that is currently dogging the construction industry.

To tackle the problem of land banking

The Labour Party aim to tackle land banking by giving Local Authorities the power to force developers to begin developing on the land within a limited period of time, once planning consent has been granted or lose the land altogether.

The first obstacle in implementing “use it or lose it policy” is the time it takes for planning consents to be granted which can be several years. Indeed, as Conveyance as it is common to come across new build properties where the Planning Consent is granted several years after the developers have purchased the land with the planning documents evidencing the several stages of negotiation between the Local Authority and the developer and then of course there is the public consultation process.

Investors and financial institutions have pointed out that the “use it or lose it” policy misses the point as it is not the large housebuilders that own most of the “land banked” many large institutional investors such as pension funds who hold a large amount of rural land as part of the property portfolios; if pension funds are forced to sell off land at a loss, this may have a knock-on effect on the value of people’s pensions. Most large housebuilders such as Barrett and Crest Nicholson, will only bank land for a maximum of three and a half years, as it is not an efficient use of their resources as turning the land into a site of several hundred homes which can be sold at a profit has a much higher return. It is only the land which is costly or difficult to develop, that will remain unused for any length of time.  

A lion share of undeveloped land within the UK is in fact owned by the public sector, often in rundown areas in which properties are unlikely to achieve a particularly high market price.

To build a new generation of New Towns the Garden Cities

In 2013, Labours’ Shadow Housing Minister pledged that within the first five years of a Labour Government they would build five new towns in an attempt to “recapture” the spirit of the post-war surge in housebuilding under the Attlee government in which 11 new towns were built.

To enable communities to expand by giving them the “right to grow” to overcome the current blocking by neighbouring local authorities

To ensure that local people are able to buy properties within their local area

Labour also proposed to introduce regulations to ensure that new homes are advertised in the UK first, not overseas bringing to an end the practice whereby whole developments are advertised in countries such as China, Hong Kong and the Middle East with local people finding that all the properties within the development are sold before they are even aware that they were completed and available for sale.

Under Labour’s proposals new properties will have to be offered firstly to first-time buyers who have lived in the area of more than three years before being sold on the open market.

To scrap stamp duty for first-time buyers on homes up to £300,000

This is perhaps the most criticised of the Labour Party’s proposal in that it is seen as a measure which is likely to cause house prices to rise, as it increases demand without addressing the current shortage of the supply at a time when the greatest obstacle facing a first-time buyer is the need to raise a minimum of 10% deposit. With the average house in the south-east, for example being over £200,000, the saving on stamp duty pales into insignificance, when the first-time buyer is struggling to raise the £20,000 deposit at the outset. In London the value of the moratorium on stamp duty in respect of homes up to £300,000, is unlikely to make much of impact when the average house price across London is over £300,000. Property Market pundits have pointed out that buyers outside London will save around £242 on stamp duty, under Labour’s new proposals, whereas the saving for a first-time buyer in the country as a whole (including London) will be just £937, and not the £5000 that Labour are claiming.

Labour have put forward a number of proposals to reform the private rental market these being:

·         A change in the law to make three-year Tenancies the norm instead of the 6 or 12 months short-term tenancies.

·         To put an upper ceiling on any rent increases within the three-year period of the tenancy so that within that time rents could not be raised above the rate of inflation.

·         To make landlords and letting agents disclose the rent paid by previous tenants.

·         To outlaw letting agents from charging fees to tenants and to introduce transparency to the fees charged by letting agents to landlords.

·         To introduce a national register of landlords in an effort to cut down on tax avoidance by landlords

·         To reduce the tax relief currently given to landlords to cover the upkeep of furnished properties in the event that the property is found to be substandard.

Labours proposed reforms of the Property market have been seen by many as misguided and showing a complete misunderstanding of how the rental market works. The National Landlord’s Association has pointed out that around two thirds of landlords don’t increase the rent during the tenancy in any event. Capping the annual rent increase for the three years is only likely to cause landlords to hedge their bets by introducing a rent which is higher than they would otherwise charge so as to build in protection against increases in inflation and mortgage interest rates. The policy to reduce tax relief on substandard properties were very much depend on what criteria is being used for judging whether a property is substandard and if it is to work, will require substantial increase in the recruitment of environmental health inspectors the costs of which is likely to significantly offset any increase in taxation gained. This is particularly so as there will have to be an appeals process as well as an enforcement process which again is likely to result in costly and lengthy litigation.  

The Royal Institution of Chartered Surveyors (“R ICS”) are concerned that the three-year fixed rents will force landlords out of private rented sector and affect the quality of the properties offered for rent that remain; this again will increase the gap between demand and supply continues to rise making it even more likely that the rent negotiated at the beginning of the three-year period will be significantly higher than rents being charged today.

The restraints on rents is also likely to hit the small landlords which make up the majority of rental markets currently on the market and who will have invested in “bricks and mortar” for their pensions at a time whereby the low interest rates offered by banks are eating away their savings.

The fixed three three-year terms are unlikely to be welcomed by Mortgage Lenders whose risks will be significantly increased.

Even Generation Rent, a left-wing group representing private tenants criticise Labour’s rent control policies saying that they will make very little difference, contain “pretty scary” loopholes are likely to see vulnerable people evicted from their homes. Alexander Hilton of Generation Rent makes the point most landlords who are good landlords will continue to be good landlords and the tenant/landlord relationship will continue as before. It is those tenants,  exploitative landlords and who are the most vulnerable tenants (those, for example who were unable to provide references, a large enough deposit or who have mental health issues which deter landlords from taking them on as a tenant) who are likely to be affected by the new proposals.

Another criticism aimed at Labour over their rent control policies is that they present a false image of the current private rental market as being “the wild West” where greedy landlords are able to arbitrarily put up rents and do so with relish, when the reality is that there is existing legislation in place to prevent landlords increasing rents. Landlord cannot increase the rent during the term of the tenancy (thus for 6 months tenancy the rent cannot be increased to 6 months and in a 12 month tenancy not the 12 months) unless there is a provision for earlier rent review written into the tenancy and agreed between the tenant and landlord. Further, if the tenant does not agree with the rent increase they have the right to have the rent reviewed by an independent committee.  The housing charity Shelter fear that such rent control may result in a contraction of the market and possibly contribute to a property crash and it has always been those that can least afford housing that suffer the most during a property crash.

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