The Centre for Policy Studies is publishing on Monday a comprehensive report on how to significantly increase home ownership at no cost to the Treasury, by giving tenants and landlords a rebate when a rented property is sold by the landlord to a sitting tenant.
The report, which has been shared with key stakeholders including Government, provides a comprehensive blueprint for how such a scheme could and should work – showing why the idea is reportedly being taken extremely seriously by Government.
The UK needs an ownership revolution. There has been a collapse in home ownership across the country, particularly among the young. Britain now has the fourth lowest rate of home ownership in the EU. The proportion of young people on average wages owning their own home has shrunk from two thirds in the mid-1990s to only a quarter, during which period house prices have risen by 160% in real terms while young people’s incomes have grown by just 23%.
Yet while we need to build more homes, we also need to ensure that more people are owner-occupiers, not renters.
In recent decades, millions of first-time buyers have been kept off the property ladder by the rise of private renting, and forced into the private rental sector. This was not just a product of house price rises: changes introduced under Labour produced incentives worth a cumulative £220 billion that pushed people towards buying second homes. The result was a housing market for the few, not the many.
In its new report, ‘From Rent to Own’, the Centre for Policy Studies puts forward a fully costed policy which would actually raise substantial sums of money for the government while increasing the rate of home ownership substantially.
The report is written by Alex Morton, the CPS’s Head of Policy and former No 10 adviser to David Cameron on housing, one of the most experienced and respected housing policy specialists in the country. It will be followed by in the coming weeks by a major series of policy announcements in the CPS’s priority policy areas of tax, business, welfare and housing.
The report proposes that for a single year, the Government should turn the Capital Gains Tax payable by a landlord on sale of a rented home into a rebate shared between landlord and tenant – to the former as an incentive to sell, and the latter to contribute towards a 10% deposit so that they can purchase the home.
- This rebate would be split 33% to the landlord and 66% to the tenant, capped at 6.66% of the property.
- The landlord would receive 33% of their capital gains back.
- All tenants would receive 6.66% of the value of their property toward a deposit.
- There would be a mechanism to pool capital gains receipts, and further shared ownership schemes to help those whose landlords were reluctant to sell, or who could not afford the entirety of their property.
In order to ensure fairness, the tenant would have to contribute 3.33% of the value of the property to the deposit, although they would be given time to save or find this money. This would be a hand up on to the housing ladder, not a handout for nothing.
This scheme, entitled Help to Own, would mean that for every £1 a tenant invested to buy the property they rent they would receive a total of £3 for their deposit. For an average property worth £228,000, they would be putting in just over £7,000 and getting £22,800 back.
The report, published on Monday but available here, contains detailed modelling which shows that the levels of capital gain across the rented sector have been sufficient to pay for this scheme – and shows how, by putting in place highly generous caps on the payments to any individual tenant or landlord, the scheme would not only cross-subsidise other first-time buyers but produce revenue for the Treasury. It would also offer landlords a substantial incentive to sell, rather than punishing them for having made rational financial decisions.
If just one in 10 landlords took advantage of this policy this would allow over 1 million people to move in to home ownership – a massive shift in a single year. If one in four landlords took advantage of this rebate and offered it to tenants it would allow 2.5 million people to move into home ownership, more than the entire first decade of Right to Buy.
Robert Colvile, Director of the Centre for Policy Studies, said:
“The housing crisis is one of the great public policy challenges of our age – the Prime Minister has called it her ‘personal mission’ to reverse falling home ownership.
“A fully costed policy to increase homeownership which requires no increase in spending by Government is therefore something of a policy holy grail in the current political climate.
“By implementing this policy, the Government would be giving private renters up and down the country the help to own that they so desperately need. Like the original Right to Buy, this would promote mass ownership and be welcomed by those who need, want and deserve homes of their own.”
Alex Morton, Head of Policy at the Centre for Policy Studies, said:
“The great transformation in the property market recently has been the rise of private renting and the collapse of home ownership among younger people.
“This report shows how landlords can be incentivised to sell to tenants at a discount, promoting mass home ownership in a way that is fair to everyone – and at no cost to the Treasury.
“It is highly encouraging that the Government is reported to be taking this proposal seriously.”
An embargoed copy of ‘From Rent to Own’ is available on the CPS website – the final version will be published at 0900 on Monday.
For further information, or to book Centre for Policy Studies spokesmen, please contact the Centre for Policy Studies Press Office on 07876 161196 or email [email protected].
NOTES TO EDITORS
- No cost to Government: Because this creates a huge number of transactions and then taxes them, this does not cost the Government in the short term. In the longer term any losses in CGT receipts will be outweighed, as our calculations show, by a fall in housing benefit.
- Shared ownership: This is a scheme which already exists, allowing the tenant to purchase a property with a body like a housing association and the tenant pays rent on the share they do not own, usually set at 3% of the capital value of the property.
- Changes worth £220 billion: This is the cumulative impact on tax changes around pensions and mortgage interest relief.
- Every private renter who wants to move into home ownership could benefit: Under the ‘Help to Own’ proposal, tenants would also be able to swap with another tenant if they both wanted to purchase a different property. Those who could not buy outright could buy the property as a shared ownership home, meaning every tenant whose landlord wanted to participate could take part – and there would be added help for those whose landlords wanted to retain their properties (as they are perfectly entitled to do).
- This scheme ensures fairness for tenants and landlords: This scheme is not just a tax break to landlords. It makes it fair and easy for landlords to sell, and guarantees via a system of revenue-pooling that all tenants will receive enough that – if they save a limited amount themselves – they can get a 10% deposit. This element of fairness will be crucial if the Government is to take the policy forward.
- The Centre for Policy Studies is one of Britain’s leading think tanks, and the home of a new generation of conservative thinking. Its mission is to widen enterprise, ownership and prosperity. It will shortly be announcing a series of major policy initiatives in the fields of tax, business, housing and welfare.
Date Added: Monday 15th October 2018