There was an unwelcome surprise in the Budget in relation to stamp duty land tax and the build-to-rent sector.
It is known and accepted that the government’s crusade to achieve universal home ownership rides roughshod over all other property-related policies, but in view of the official target to deliver one million new homes by 2020, it was surprising that the Budget slapped an extra tax on a sector which most people thought it was relying on to help achieve that target.
For some months the buy-to-let sector has been carrying the blame for the woes across the rental market: rising rents, appalling living conditions, exorbitant fees, rogue landlords and beds in sheds.
Apparently the solution to those problems is to tax private buy-to-let landlords on turnover rather than profit, which is sort of OK while interest rates remain where they are, but will drive them out of business with any significant rise, which is bound to happen eventually.
Having said that, it appeared that without knocking ownership off the top of the pile, the government was prepared to support the legitimate end of the build-to-rent sector, populated by both established and new operators with a range of long-term institutional funding.
These businesses were fighting hard to achieve viability in the face of much simpler build-to-sell models, and were no strangers to Westminster workshops and round table discussions, which appeared to be getting the message across that build-to-rent is a good thing, so please give us a few breaks.
In return for the breaks, the build-to-rent operators were offering a covenant of up to 25 years, during which the buildings would not be sold to occupiers, as well as maybe 20% of the flats let at 80% of market price, with priority going to local residents.
It is generally accepted that there is £30bn-£50bn of institutional funding trying to invest into the UK’s emerging build-to-rent market, and with that level of investment as many as 250,000 new homes could be built, which would knock out a large part of the 2020 target.
Pre-Budget rumours of an impending SDLT surcharge on second homes was widely rumoured to be aimed at the buy-to-let market and that investors buying more than 15 flats would not be liable. This made a lot of sense as viability was already an issue for build-to-rent, and what would be the point of knocking back this valuable source of new homes?
The government’s response to the outcry from the sector was that the institutions should become developers rather than simple investors, in which case they would only pay SDLT on the land.
Of course, that is correct, but how about all the forward funding deals currently in the pipeline which are now unviable? How about the blocks on regeneration schemes, which will now cost an extra 3% on the way in and the way out?
The demand is still there, the supply isn’t, so the sector will take the hit and concentrate on development. Early delivery will be lost, with clear risk to the 2020 target.
Build-to-rent is a good thing, particularly in London and the South East. It sits very comfortably alongside build-for-sale. The two don’t compete. The market is desperate for new supply sources.
What really was the point?
Harry Downes is managing director of Fizzy Living
