by Dan Cooke

It seems that no political candidate today, from Westminster to the humblest parish council, can venture a comment on the state of the nation without name-checking the “crisis” that is the shortage of housing, both for renters and buyers. The Labour leadership candidates are following this script, with Andy Burnham pledging record house-building to make Labour the “party of property ownership”, and Jeremy Corbyn instead threatening to make it the party of property expropriation with his provocative proposal of a right to buy from private landlords.

However, for many, it remains an unwritten rule of politics that you just don’t mess with the way we, as a country, do real estate.

Yvette Cooper once had a political near-death experience after trying to introduce home-information packs, making the mistake of thinking that the anachronistic conveyancing process  – which tortures legions every year –  might safely be improved.

Similarly, Labour’s modest proposal at the election to introduce longer standard tenancies with stable rents was widely, but absurdly, branded as “rent controls” and treated as something that would defy the laws of economics or even amount to “carpet bombing”. And the less said about the “mansion tax” the better.

Like the weather, it seems to be a national sport to complain about anything to do with the property market without apparently believing it is subject to any human control. If we note that others do things differently it is usually just to present that as a curiosity that could never be applied here: Berlin really does control rents but the Germans just don’t get home ownership, right? Scotland manages to avoid gazumping and gazundering, but we could never do that in England because, well, the current system makes for such good TV with Kirsty and Phil.

So, while it’s always safe to propose building more homes, or playing with niche funding schemes that will only ever apply to a tiny proportion of them such as “rent to own”, any wider reforms of the way housing is funded, used and taxed seem to be off the table in the political mainstream.

This has to change. The combination of constrained supply, liberal finance and, in London, footloose international capital means that getting on the housing ladder is becoming a vanishing dream even for many well-paid professionals. After the peak of the Thatcherite “home-owning democracy” at the beginning of the nineties (following years in which the decline in the number of renters, many in council housing, was matched by a rise in ownership), the trend reversed. By the start of this decade the number of renters overtook owners with a mortgage and the gap has widened rapidly since, during a period of low growth in wages and skyrocketing house prices.

The universally-promised house-building crusade will not dramatically change this picture for another generation  -and the voters know it –  so to get a hearing politicians have to face up to the housing landscape as it is right now. This means that some of the political assumptions on which many cut their teeth may no longer hold.

For one thing, this transformation has an enormous impact on the debate about equality of opportunity. That today more homes are owned mortgage-free than with a mortgage highlights the vast transfer of wealth to existing owners as a result of rising prices. This means working class kids who pass the “poshness test” to get into top jobs will still economically lag far behind their peers from asset rich backgrounds. There are no easy fixes to this, but it certainly not the right time to lower inheritance tax –  Labour’s response to this Tory manifesto pledge must be emphatic and unapologetic that support of those trying to get onto the housing ladder takes priority over preservation of windfall wealth across generations.

Secondly, the phenomenal growth in the private rental sector means that a significant body of the population are now captive consumers of a largely amateur, unregulated and unstable industry. While in the past local government was the dominant residential landlord and in many European countries this role is filled by well-capitalised private institutions, in Britain today it is typically individual landlords. In other areas of life few of us would enter into major, ongoing financial relationships with complete strangers, but in renting it is the norm.

To say that this exposes tenants to often inadequate, part-time property management and on occasion completely unacceptable conditions is not to attack private landlords – many of them are themselves stretched to the hilt by mortgages taken out chasing the buy-to-let hype, terrified of unexpected maintenance bills or fallow periods and exposed to risks regarding their tenants’ creditworthiness or honesty. The majority of landlords with a small property portfolio are completely ill-equipped to manage these uncertainties – let alone the possibility of a major shift in interest rates – and so cannot easily be blamed for seeking to maximise short term income and minimise expenditure with possibly detrimental impact on tenants.

Is it appropriate for government do anything about this? Well, it has certainly already influenced the way this state of affairs has arisen. Decades after Nigel Lawson began the process of abolishing mortgage interest tax relief for owner occupiers, the same relief continues for those renting out their property.

Ironically Lawson recalled in his memoirs that he justified his move to a reluctant Thatcher on the basis that interest relief was economically distorting as it made real estate more attractive than other investments – actually a far more compelling factor for  buy-to-lets than purchases by owner occupiers. The wisdom of the continuing tax incentive for individuals to bet their savings on real estate must be questioned, not only for this reason, but also because of the volatile and complex nature of property as an asset compared to other tax-favoured investments and the impact on pricing of a “commodity” that is also somewhere to live.

It should not therefore be unthinkable, in the same phased way that Lawson pursued his reform, to start redressing this balance. Some tax relief for amateur private landlords is appropriate as a temporary cushion against a change in circumstances (tax on rental income if you have to move for work and rent elsewhere is actually punitive now), but not as the foundation of a voluntary investment decision.

More generous reliefs should instead be focused on property businesses that invest to increase or improve the housing stock, or at least demonstrate adequate capitalisation and professional standards to guarantee a decent service to tenants. Labour floated an interest in some of these ideas before the election, but this needs to be firmed up and taken further – there is arguably room in the regulatory landscape for an “OFRENT” to police the most important utility which many consumers rely on.

Ultimately, if Labour is to find a path back to office, it needs to start showing it understands, and has something to say about, the real hopes and worries of modern Britain. The rise of “generation rent” is a prime example of how this means more than going back to the Blair/Brown recipes, from a time when circumstances differed (and it is even lamer for Cameron to try and re-heat one of Maggie’s greatest hits with his own extension of the right to buy).

A key plank of an electoral prospectus in tune with voters’ aspirations must be to offer hardworking taxpayers the security of somewhere decent to live from the start of adulthood and a realistic chance of progression in line with their life circumstances.

Expanding house-building plays an important role in realising such a vision, especially in the long term, but fresh thinking is needed to identify how to start making a difference now.

Dan Cooke is a Labour member and business lawyer

Tags: Dan Cooke, generation rent, Housing, mortgages, Nigel Lawson, right to buy

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