David Miles, former member of the Bank of England’s Monetary Policy Committee and now a Professor of Financial Economics at Imperial College London, has said the government’s approach to the private rented sector is “incoherent”.
Miles has argued that contrary to the government’s stated aims, there are “few signs” that tax increases on the sector have benefited those hoping to become homeowners. He argues that they are, meanwhile, “left in a rental sector with reduced choice and where rents are likely to be higher as supply gradually shrinks.”
Since 2015 the government has introduced measures to restrict mortgage interest relief on the private rented sector to the basic rate of income tax and imposed a stamp duty levy on the purchase of new homes to rent out.
In his exclusive article for the Residential Landlords Association Professor Miles attacks the government’s approach which has sought to cut investment in the rental market to support aspiring first-time buyers. He argues that such buyers “are hardly helped by squeezing the supply of rental property and driving rents up.”
He goes on to say that there is nothing “intrinsically wrong with people being in the rented sector for an extended phase of their life. We should want to avoid a situation where people feel pressurised into taking big mortgages relative to their income early in life because the rental option is so poor.”
Professor Miles added, “In a world where house prices might be consistently higher relative to incomes than in the past we might naturally expect the period in which people are in the rented sector is longer. And there are good economic reasons for believing that in a country with a rising population and where real incomes tend to increase over time house prices might well rise at least as fast as incomes. To have then introduced measures that reduce the supply of rented property is perverse.”
David Smith, Policy Director for the Residential Landlords Association, said: “Professor Miles hits the nail on the head. Choking off the supply of rental properties does nothing to help aspiring home first-time buyers who need somewhere to live now.
It is time to change tack and recognise that we need more homes to rent as well as to buy in order to meet growing demand and have policies that support investment.”