How the government squeezed out small housebuilders & landlords. Now, city investors are making a land grab.

In times to come, when the dust has settled, and people reflect on what has happened politically over the last 13 years in the UK, history will probably judge this period of conservative governance as the worst ever in political history. In particular, the period between 2010 & 2016 under David Cameroon. Having won the general election in 2010, they set about introducing one policy blunder after the other, the aftereffects of which will be felt for many years.

From introducing austerity and cutting school budgets by the largest amount in 40 years (we have schools collapsing), cutting the number of police officers by 30% (we have prisoners escaping prisons by strapping themselves to a lorry), NHS waiting lists are up from 2.5 million to 7.5 million as a result of £37 billion cut in NHS budget since 2010, increasing university tuition fees to a maximum of £9,000 and mis-selling student loans meaning students having to pay way more than initially proposed and then the Brexit referendum taking us out of the single largest trading block in the world. If this wasn't enough, they turned their attention to housing.

Introducing Help-to-Buy and Section 24?

Both these policies introduced under the Cameroon government in 2013 and 2015 were aimed at increasing the profits of big homebuilders and favour big corporates, allowing them to enter the private rental sector by introducing a tax system that was unfavourable for smaller landlords and favoured corporates significantly, more on that later but first what did help to buy achieve?

Government ministers will argue that help-to-buy was a massive success by telling you that it helped 350,000 first-time buyers get onto the property ladder. But the truth is that it cost the taxpayer huge amounts of money as some homeowners found themselves in negative equity, and the scheme inflated house prices artificially, giving the big builders vast profits as the scheme was only targeted at newly built homes.

The House of Lords Build Environmental Committee last year concluded that "the help-to-buy loans inflated prices by more than their subsidy value in areas where it was needed the most, and that this funding would have been better spent on increasing house supply" directly through local authority and housing association building projects.

Section 24:

Section 24 is a legislation passed under the Finance Act 2015. The legislation aims to remove landlords' rights to deduct most of their finance costs, including mortgage interest and arrangement fees, from their rental income before tax liability. In essence, landlords pay tax on their turnover instead of their profits, meaning sustaining a medium-sized portfolio becomes tough unless you incorporate it into a limited company, which is expensive. 

This, on paper, sounds great and is a straightforward policy to sell to the public until you start reading the fine print. The government, whilst increasing tax on small landlords, enabled easy entry to the market for the corporate known as Build-to-Rent run by large corporates like John Lewis, Goldman Sachs, Lloyds and Aviva. By increasing taxation on smaller landlords, the government gave big corporations a tax cut as they could deduct all of their finance costs.

Before the introduction of section 24, the private rental sector between 2010 and 2016 grew by 3.7% annually. Since then, from 2017 to 2023, the private rental sector has only grown by 0.4%, resulting in a loss of 1.2 million extra homes that would have been available, putting less pressure on the rental market.

In contrast, the build-to-rent sector has grown 33% since 2018. Additional units have increased from 30,312 to 40,181. Property consultancy JJL says BTR (build-to-rent) property can cost around 11% more to rent than traditional rental properties. This could make it unaffordable for many people, who spend more than half their income on rent in many places like London. 

Once again, the policy introduction in 2015 has led to inflated rental prices as landlords pass on additional costs to tenants or quit the market, creating a supply crisis, meaning that rents will continue to rise. Add to this the increase in interest rates, and you will have a rental market screaming for government support within a year. The build-to-rent sector will be unable to fulfil demand as it will not be easy to scale up existing site construction. The private rental sector will look very different in the coming years.

Successive housing policies have been introduced to favour corporates:

The number of small housebuilders has been falling since the 1980s, and since the 1980s, the number of small housebuilders has fallen from 12,000 to 1,000 today. According to the CEO of Taylor Wimpey, Jennie Dailey, one of the major stumbling blocks is that planning applications would usually take six to eight weeks. Work could start on the ground; today, it could take months and years before a spade goes into the ground. Since 2010, local authority planning resources have more than halved.

Big home builders and corporations have successfully lobbied successive governments to change policies in their favour, allowing them to gain a larger share of the £8.7tn housing market. This has resulted in inflated house prices, causing the average age of a first-time buyer to increase from 29 ten years ago to 32 today. Additionally, rents have increased at the highest levels since records began. Unfortunately, reversing the damage caused in the last 13 years will take years, only if there is a policy change. However, I have little hope.