Examination of Witnesses (Questions 340
- 352)
MONDAY 5 FEBRUARY 2007
MR RUPERT
DICKINSON AND
MR ANDY
LEAHY
Q340 Mr Betts:
I am still not quite sure what this great change is that is going
to unlock all this private investment. Surely the HMO legislation
is not going to stop most large institutions from investing in
private property, and it is probably not that sort of property
that many of them will invest in anyway. Really what you are talking
about is tax changes. You actually want a bit of government subsidy
by taking VAT off. Are these the sorts of issues? I am not sure
what are the regulations are that you are so worried about.
Mr Dickinson: I think that the
large institutional landlords were driven out of the system in
the sixties and seventies and it is going to take a very, very
long time to get them back in, in the sort of scale that we need,
to increase the supply of housing in the private rented sector.
Q341 Mr Betts:
What will do it? If you could say two things now to get them back
in, what would do it?
Mr Leahy: You need to encourage,
and by saying that I think you need to give, yes, those breaks
with regard to Stamp Duty and VAT, you need to look at the REIT
legislation and look at whether there should be a longer period
for the developer phase to go into investment. That is quite crucial.
Most of the big schemes, if you are looking at East London, Thames
Gateway, two or 3,000 unit schemes, will take up to 10 years to
evolve. If you were trying to base a REIT around those types of
schemes, then you are going to be stuck until such time as the
investment has come to total fruition. The taxation element needs
to take account of the development process, is what I would say.
Q342 Sir Paul Beresford:
You heard the previous discussion about new-build and properties
being bought and then left vacant.
Mr Leahy: Yes.
Q343 Mr Betts:
The Government perceive that as a problem, and, being a government,
particularly this Government, they are prone to regulate tax.
Firstly, do you see it as a problem, is it for real, or do you
support the point made by our previous witnesses? If there is
something that the Government could or should do, what would you
suggest?
Mr Leahy: I personally do not
see it as a huge problem. I believe it is anecdotal that there
are properties being left around the country. At the end of the
day, you have to look at motives that are driving the people who
buy these properties and leave them empty. The majority of them
are speculators, as was characterised earlier. At the end of the
day, they are hoping that house price inflation will outstrip
their cost of ownership or holding and they are not that interested
in putting a tenant in, because it just brings another factor
into the equation.
Q344 Mr Betts:
Let us come on to another thing, which is slightly related. If
the capital growth is diminishing, which it appears to be, and
if the return from private rental is low, what do you think can
be done to encourage investors into private renting?
Mr Leahy: It all comes down to
the initial yields. If those investors are going to sit there
with absolutely no initial yield and work on house price inflation
as their driver, the majority of the institutional market will
not, and at the moment one would see initial yields from pure
rent at somewhere around 4, 4½%. With the increase in base
rates of late—
Q345 Mr Betts:
You mean building societies?
Mr Leahy: Yes.—that is going
to discourage the position in terms of the buy-to-let market,
I would suggest.
Q346 Mr Betts:
You have set the problem; what is the solution?
Mr Leahy: I come back to it: institutional
investors are there willing to invest in an intermediate market
because they know there is a huge demand. If you look at the paper,
47% of people who rent fit into that category. I think what they
need is the ability to do deals with developers at what we call
the build-to-let end of the spectrum before it ever becomes a
buy-to-let. That will support the developers in underpinning their
developments. It should be allowed to be done on a large-scale,
and to do that and to make sure that the yield profile improves
tax breaks is going to be helpful.
Q347 Emily Thornberry:
Would you support introducing a tax on vacant dwellings?
Mr Dickinson: No.
Q348 Emily Thornberry:
Why not?
Mr Dickinson: I understand that
there are some, but I think it is a very small proportion and
I think, as Andy said, it is anecdotal rather than statistically
relevant (the number of vacant dwellings in the buy-to-let sector)
and I do not think that it would encourage investment or letting
particularly.
Q349 Martin Horwood:
I find that reply very difficult to understand. I cannot see how
it cannot encourage letting if you have a charge on it when it
is vacant. If it is such a significant part of the market, it
surely would not hurt your members to have that tax, would it?
Mr Dickinson: If you are a large
institutional investor and you are wanting to build a portfolio
in the private rented sector and you have your HMO licensing coming
in one day, you have changes to housing benefit payments the next
day, the next day you have a tax on your vacant properties of
which you know you are going to have 3 or 4% vacant a year anyway,
then it is a further disincentives to the sort of landlords that
we want to attract to the sector in order to really increase the
supply of good private rented sector accommodation.
Q350 Martin Horwood:
Would you support the introduction of a tax on vacant dwellings
after a certain period of time?
Mr Dickinson: There is already
that through council tax, is there not?
Martin Horwood: You would not support
a further charge?
Q351 Chair: Can
I just ask Mr Dickinson, because you keep talking about the HMOs.
Has your own company, Grainger, got any HMOs?
Mr Dickinson: We have some property.
We do not specialise in houses in multiple occupation, we do not
specialise in properties with shared services, but some of the
properties that we let and some of the properties we let in the
short tenancy market are classified as HMOs because they have
young professional sharers in them and they are in buildings of
over three storeys. It is very complicated, because you can have
a building where you have flats which are owned by owner/occupiers
and are not HMOs, then one of the owner/occupiers starts letting
out their flat and they let out to professional sharers and then
the whole building is an HMO.
Chair: That is a useful clarification.
One final question.
Q352 Anne Main:
On 106 agreements, I would like to take you back. You did say
that maybe some of the problems could be sorted by greater or
better use of 106, targeting who lives in the properties?
Mr Leahy: Yes.
Anne Main: Could you give me any feelings
about the proposals to scale back or even abolish 106 agreements
and move towards a Planning Gain Supplement?
Chair: No, that is not part of this inquiry,
Anne.
Anne Main: Do you think 106 agreements
could be beneficial or otherwise?
Chair: That is also not part of this
inquiry.
Anne Main: They did express a view on
the way 106 could be made to do that, and I am just asking how
they feel it can be done.
Chair: I understand that, but I think
it is outwith this inquiry.
Anne Main: I am sorry, you are not allowed
to answer that.
Chair: Thank you very much indeed.
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