COMMENT The recent Stamp Duty Land Tax cut can support the sales market, but with 4.5m UK households currently in rented accommodation, and with demand for rental homes predicted to rise to 7.2m households by 2025, it’s imperative that the UK private rented sector is also supported.
This year, we’ve all come to realise and appreciate the importance of a good quality home – whether buying or renting, everyone should have the option of a well-designed, safe and secure place to call home.
At Grainger, throughout this time we’ve continued to serve our thousands of residents who have been living in their homes almost 24/7, while looking at ways in which we can carry on with construction of new homes safely and be ready to remobilise swiftly.
Prior to Covid-19, the UK was in the midst of a housing crisis, and with construction pauses and safety measures slowing things down recently, we must find ways to accelerate the recovery and regain momentum.
The build-to-rent sector is well placed to support the UK recovery. Rental housing demand remains resilient and is likely boosted during an economic downturn as more people choose to rent for longer.
Government support for the build-to-rent sector would mean more jobs, more economic activity and more homes quickly. While house builders usually build in line with sales, the build-to-rent sector develops and delivers more homes faster. If this country wants more houses, we need to be doing all we can to stimulate this new sector.
There are several areas where we believe government support could go a long way to enabling the build-to-rent sector to maximise its positive impact in supporting the recovery. Among these are long-term relief for large-scale investors from the SDLT surcharge on second properties, as well as changes to landlord licensing and VAT.
Aligned with the British Property Federation in its “Building a Shared Recovery” paper, we believe a relief on the SDLT surcharge for second properties for PRS investors would be a big boost, ensuring more capital is going towards construction jobs and new homes. The BPF estimates this could mean a loss of £75m tax revenue to the Exchequer, but this will be swiftly offset by taxes paid on increased investment activity.
An increasing number of local authorities are rolling out borough-wide selective licensing schemes for all private rental properties. This now represents a significant administrative and cost burden for large-scale landlords to bear. It requires separate applications for each unit, which means hundreds of duplicate forms for large apartment buildings. Each council’s licensing regime is different, so there is no standardisation and therefore no efficient way for large PRS landlords like ourselves, with properties across the country, to process the thousands of applications we need to complete.
This is unnecessary and is soaking up important time and capital that should be going into the delivery of more homes. The licensing system was designed to regulate poor landlords, but the fact that it’s being targeted at large-scale landlords is at odds with that aim. We believe this regime should be reformed in order to standardise it across councils and simplify it for large scale landlords.
VAT is the third area of opportunity, where changes, albeit quite technical tax changes, could make a meaningful difference to encourage greater and swifter investment activity in the build-to-rent sector.
The first is addressing the risk surrounding covenants and their potential impact on the VAT treatment of build-to-rent properties. Covenants in planning can impact the zero VAT rating of new residential developments owing to the definition of “dwelling” requiring no restrictions on future sale.
Therefore, where planning requires a PRS covenant it potentially adds 20% to construction costs, making developments unviable. Secondly, removing, or potentially allowing recovery of, VAT on repairs and maintenance activity would improve viability of many build-to-rent schemes and encourage greater investment into improving existing rental properties.
With these ideas we’re looking to provide simple but effective solutions to help kickstart the economic recovery and support the delivery of much needed quality new rental homes.
Helen Gordon is chief executive of Grainger