Financing the new housing supply

Written submission from the Residential Landlords Association

SUMMARY OF EVIDENCE

1. We are looking at issues from the perspective of the PRS which is now a major sector in housing provision.

2. Buyers are being shut out of the owner/occupier sector and the social sector is afflicted with ever lengthening waiting lists.

3. The reality is that there is little likelihood of the social sector being able to provide the requisite number of new homes.

4. There are major demographic and economic trends relevant to the supply of new housing. We have a rising population but at the same time the average size of each household is falling, both of which necessitate extra housing provision. Coupled with this we have a densely populated country which has led to restrictions on supply.

5. We face a huge contraction in the availability of credit. The wholesale money markets have been closed and banks are contracting their loan books. Property development is seen as a high risk lending area.

6. Social housing provision has been squeezed out by other demands on the public purse e.g. welfare benefits.

7. Owner/occupied housing and PRS housing are the same assets class but there is no point in the sectors squabbling over the same housing stock.

8. The PRS is having to provide accommodation for those who otherwise normally access social housing.

9. On the face of it the PRS is doing well with rising rent levels but this picture is highly misleading.

10. PRS provision has been artificially boosted by involuntary landlords. Some landlords have been kept afloat by low interest rates. Arrears will increase along with repossessions of rented property once interest rates raise.

11. Fundamentally the PRS business model is now flawed because capital appreciation is no longer a realistic possibility.

12. There is therefore the spectre of disinvestment. The key to this is return on investment in the PRS. Hitherto this has depended on capital appreciation because rental yields are too low. Yields need to be rebalanced.

13. We take it that it is a given that there is a need to improve housing supply.

14. Much PRS stock is older housing. Generally PRS landlords do not purchase new dwellings although some do. There is a premium price to be paid. PRS provision is more heavily geared towards the younger element of the population.

15. The importance of the PRS is twofold. It buys up existing housing which enables owner/occupiers to buy new property. Importantly, the PRS contributes through converting older stock to sub divide it into individual units.

16. Provided certain issues are successfully addressed the PRS can help expand housing provision. However, structural issues need to be addressed first.

17. PRS tenants indirectly bear a much higher taxation liability than in either of the other two tenures. This feeds through into increased rents.

18. Residential landlords are also disadvantaged in relation to VAT because of the exempt supply treatment of residential accommodation. This means also extra costs are passed on to tenants.

19. Owner/occupiers are in particular privileged regarding their tax treatment.

20. PRS gearing is at around 55%, at least for longer term traditional professional landlords; as opposed to new entrants.

21. The PRS is made up of small and medium sized landlords with little prospect of direct institutional investment. Institutions are better suited to provide finance for the PRS.

22. The PRS has traditionally been dependent on bank and mortgage lender debt financing.

23. Going forward this traditional type of lending is not going to be available and we need to look at alternatives to develop new funding arrangements.

24. Essential to this is a structural reform of taxation system for the PRS such as capital gains tax roll over relief and entrepreneur relief.

25. Alongside this tax incentives are needed to boost the acquisition of new properties at the lower end of the market.

26. We recommend two incentives a private rented sector expansion scheme and for SIPPS to be able to invest in residential properties. Both could be geared towards lower valued properties.

27. There is no instant remedy but the PRS has a role to play to help promote sustainable growth in housing supply. To do this we need to address the structural issues such as taxation reform

28. We have major concerns about the way the planning system works particularly in relation to the provision of shared houses which are needed to meet increasing demand.

29. Urgent action is needed to help grow housing supply.

RESPONSE

About the Residential Landlords Association ("RLA")

1. The Residential Landlords Association (RLA) is one of the two direct

membership national landlords associations operating in England and Wales. We have a membership of around 15,000. Our members own or control over 150000 units of accommodation. Primarily our members are landlords in their own right but a number are managing and letting agents, some of whom are also landlords. Our members operate in all sub-sectors of the Private Rented Sector (PRS). Properties are rented out to families, working people, young professionals, the elderly, students and benefit customers

The role of the Private Rented Sector

2. This submission is made from the perspective of the PRS. This Sector has grown significantly and now represents around 14% of housing provision with about 3.5 million dwellings, approaching parity with the social sector. Although the PRS provides accommodation across all age groups predominantly the Sector houses younger people (see Table below)

3. The average age of a first time buyer is now approximately 38. Aspiring home owners are being shut out of the owner/occupier sector. They are unable to afford the higher deposits required and mortgage funding is being rationed. Others are preferring to rent through choice. The social sector is also severely constrained with ever lengthening waiting lists. Due to cut backs in public spending there is little likelihood of the social sector being able to provide the required number of new homes. Relative to other sectors the size of the owner/occupier sector has contracted.

The underlying trends

4. There are in our view a significant number of underlying trends which the Committee needs to consider as part of this Inquiry. These are both demographic and economic. So far as the demographics are concerned in the United Kingdom we have a rising population. There is continuing net inward migration. Unlike continental Europe the birth rate is not falling. Most importantly, the population are living longer.

5. At the same time average household size is falling. More people are living on their own or in smaller units. Part of this is aspirational because children want to leave home and set up on their own. Part is due to social change and most importantly many older people, who are living longer anyway, end up living on their own. The upshot of all of this demographically is that demand for accommodation across the board is rising.

6. We also have the particular problem in this country that it is one of the most densely populated in the World even though the built up land mass probably represents no more than 10% of the total land area. This in itself has led to constraints on supply.

7. Turning now to the economic position, huge forces are at work as a fall out from the excesses of the credit boom prior to 2008. We face a huge contraction in the availability of credit. New housing provision is, of course, capital intensive. The increasing regulatory requirements such as Basel III tighter oversight by regulators and significantly market forces mean that credit is going to be much more limited. It has been estimated that lending peaked at around 1.2 x deposits but in the USA and Japan the ratio is a much more prudent 0.7 x deposits.

8. Our lending levels are coming down. Our lenders have had to rely on access to wholesale funding to bridge the difference and this has been particularly true of mortgage lending. It was the closure of these wholesale markets that precipitated the credit crunch. Buy to let mortgage provision through specialist lenders was funded through the wholesale market model. Across Europe banks are deleveraging. They are contracting their loan books because it is simply not practicable for them to raise additional equity funding. The only way they can do it therefore to meet market conditions and regulatory requirements is to cut back on the amount available to lend. Furthermore, property and property development in particular are seen as a high risk lending area. The omens for reversing this trend and expanding the occupier housing provision in the short to medium term are not good.

9. When it comes to the social sector what we find is that social housing provision has been squeezed out of national budgetary provision. Previous expansions of social housing were publically funded. However, because of the shifting of emphasis in Government spending it is no longer realistic to expect that the tax payer will fund new social housing provision on any kind of scale. Too much money is now spent on welfare benefits, pensions, personal social care and, of course, education. These big spenders have crowded out social housing provision coupled with a declining tax base due to the recession and a reluctance on the part of people to pay higher taxes. It is unrealistic to expect significant public funding of social housing provision in the future. The current deficit deduction programmes have accentuated this problem. Furthermore, in the social sector to ensure that they are affordable (so called) rent levels are such that there is no return on investment for the tax payer. Where outside funders are involved then this can only be achieved by way of public subsidy but tax revenue are insufficient.

The PRS as a housing provider

10. Housing in the owner/occupier sector and in the PRS is in the same asset class. Houses are bought and sold and transferred between these two sub-sectors of the private sector. Another way of looking at it is that because there is a shortage of accommodation the PRS and owner/occupiers squabble over a limited housing stock. This lead to complaints, often unjustified in our view, that prior to 2008 in the boom landlords were squeezing out first time buyers and pushing up prices. This was yet a symptom of the overall problem of insufficient supply. What is not mentioned, however, is how the PRS helped to fund many new developments at that time often through off plan purchases, particularly of new apartment developments. By putting down initial deposits and pre-purchasing PRS investors gave developers the necessary funding and confidence to proceed with these developments. This is, of course, no longer feasible.

11. On the face of it the PRS is doing well. Rent levels are rising, there is increasing demand because of the lack of supply in both the owner/occupier sector and the social sector. Increasingly the PRS is having to provide accommodation for those who would otherwise have been housed in the social sector, with the assistance of housing benefit budget. Rent rises have been particularly marked in London of late. Some would say the PRS is a bright spot in an otherwise drab picture.

12. The RLA, however, believes that this picture is highly misleading. There are a number of reasons why:-

(1) Provision in the PRS has been artificially boosted by a significant number of "involuntary landlords" – these are individuals who cannot sell at the moment. They may well be in negative equity. Potentially, over time, as market conditions improve they will sell up.

(2) Many landlords in the PRS, especially late entrants, are being kept afloat by low interest rates. Property values have fallen generally outside London by 20% in nominal terms (equivalent to 30% in real terms) on average. However, debt levels remain the same. Rental margins are tight so it is the low interest rates which mean that these landlords still afford to make their repayments. However, as and when interest rates rise, as they inevitably must because they are at an artificially low level, these PRS landlords will face real distress and repossession.

(3) Although the arrears rate for buy to let mortgages is low at present, and falling, as outlined in the previous paragraph as interest rates start to climb again we face a potential wave of repossessions.

(4) Where repossessions have already taken place lenders are being much more canny than they were in the last recession at the end of the 1980s/early 1990s. Although there have been some sales, in many cases lenders are appointing rent receivers and hanging on to properties which continue to be rented out.

(5) Fundamentally, for the PRS the business model is now flawed. It was originally built on capital appreciation with the ability to make and take a big capital profit because of apparently booming house prices.

(6) Those who came into the PRS late on on the back of the boom culminating in 2008 now realise that capital appreciation was a mirage and likewise so many will want to get out as soon as market conditions improve so far as selling the property is concerned.

(7) Although the capital appreciation model of investment in the PRS is no longer viable, although we believe that the long term professional landlords will, by and large, remain.

(8) Now that the capital appreciation is no longer the viable fundamental concern is the return on investment in the PRS. Historically, the Sector has depended on capital appreciation rather than rental yields. Rental yields themselves are low. However, in the current climate because of downward pressure on income many cannot afford higher rents. Nevertheless, because of the shortage of supply of accommodation and the need to rebalance yields rents are currently on an upward trajectory in many parts of the country, especially in London. Returns are currently too low now that capital appreciation is no longer part of the equation. There needs to be a significant adjustment to produce a worthwhile return on investment in the PRS. Otherwise, large scale disinvestment will follow.

The need to increase housing supply

13. For the purposes of this Inquiry it is taken as a given that there is a general acceptance of the necessity of improving housing supply. We have already referred to CLG estimates of need and given evidence above as to the underlying demographic changes in this country which are driving the demand and therefore the need for an increased supply. Importantly, by increasing supply we will prevent further booms in house prices.

The PRS and provision of new housing stock

14. The bulk of the PRS stock is to be found in older housing stock. On the whole the PRS does not purchase new dwellings although the off plan purchases referred to above were a notable exception to this. Some PRS investors do specialise in buying new properties. Indeed, quite a number of buy to let investors in the boom leading up to 2008 bought properties on new developments. Nevertheless, there is a perception that if you buy a new property then a premium price is being paid. Money is perhaps unnecessarily being spent on shiny fixtures and fittings which soon depreciate.

15. The importance of the PRS in new housing provision is twofold. Firstly, it recycles existing stock enabling owner/occupiers to buy new properties. This has been demonstrated by the demographic changes which have taken place in the past decades. Owner/occupiers have moved out of city areas for example and purchased new homes on new developments on the fringes of the city. PRS renting has stepped in. The second way in which the PRS contributes and in this case it does provide new dwellings is by converting older stock. Often this takes place by way of sub-division particularly with larger older Victorian and Edwardian properties, for example. Commercial properties may also be recycled and converted. This is a particular skill of the PRS.

16. We need to see if the PRS can expand to try to help restart housing provision but as well as the concerns outlined in Paragraph 12 above there is a major structural problem which needs to be addressed affecting the PRS namely its taxation regime.

The PRS and tax

17. Beside the need to reconfigure the return in the PRS, the other message which the Association want to put over to the Committee in this evidence is that the disadvantageous tax treatment of the tenant in the PRS as compared with that in the other two tenures. The immediate reaction will be "what are they talking about"? It is the landlord who is taxed not the tenant. This is not so, it is the tenant who indirectly bears this tax burden which falls on the PRS to a much greater extent than either the owner/occupier sector or the social sector. The latter is tax exempt because local authorities do not pay tax and registered social landlords, as charities, are also exempt.

18. Owner/occupiers also receive huge tax breaks in comparison. As a business person, when you look at your return on your investment i.e. your income (whether from rents or capital receipts) you look at your return after tax. Taxation costs are therefore factored into your calculation and are included in your charges i.e. the rents paid by your tenants. Landlords in the PRS, unlike social landlords, are taxed on their receipts both in terms of rent net of expenses and interest and capital gains if they dispose of a property. The burden of capital gains tax is particularly iniquitous because it now makes no allowance for increases in value due to inflation. The a business of residential renting is not regarded as a trade so Entrepreneur Relief is not available. Like the costs of regulation, all of these costs ultimately bear down upon the tenant through the rents which they pay.

19. When it comes to value added tax (VAT) again the residential landlord is disadvantaged. Residential renting is an exempt supply but unlike say, the supply of food which is zero rated, this means that the landlord cannot recover the VAT he pays out, e.g. on repairs. Instead, again this cost is passed on to the tenant.

20. The consequences for tenants who indirectly bear these taxation costs arising from VAT are as follows:-

(1) The landlord has to pass on VAT spent to purchase materials or to carry out works. EU law allows a reduced 5% rate but the UK Government has not adopted this approach.

(2) When it comes to provision of new housing by conversion the residential investor has to bear the full cost of VAT and, therefore, again passes this on indirectly through the rent to the tenants. This contrasts with a purchase of a new home which is zero rated for VAT. Here the builder can recover VAT and the purchaser does not have to pay VAT on the purchase of the dwelling. Clearly, this adversely affects a landlord wanting to carry out a conversion and distorts the provision of converted accommodation, in which the PRS excels.

21. So far as owner/occupiers are concerned they are privileged when compared with PRS tenants as are social tenants. A landlord’s rental income is taxed so this burden ultimately falls on PRS tenants. There is no tax however on any imputed rent on owner/occupied properties. When it comes to capital gains tax an owner/occupiers principal private residence is exempt from capital gains tax; whereas the PRS landlord is fully exposed to CGT liability. Even worse there is no rollover relief for the PRS landlord who sells a property although they may want to reinvest in the PRS. This is why the PRS tenant is disadvantaged because these extra taxation costs are passed on.

Gearing in the PRS

22. In conjunction with Prof. Michael Ball of Reading University the RLA has recently carried out the first ever in depth survey of landlord’s costs. This is not yet a published work. From the initial response 200 of our members gave detailed costings and this showed that the level of gearing, on average, is at 55% based on current property values. This is in line with Dr. Julie Rugg’s findings that the PRS is generally low geared.

23. Bearing in mind that as a national Landlords Association we tend to represent professional landlords (the average portfolio size of our members is 8 as against the national average of 4), we have yet to investigate how this relates to gearing of a particular group of landlords we have identified, those who were brought into the sector in the boom leading up to the crash in 2008 using buy to let finance generally. It is clear from other survey evidence and information held by mortgage lenders that this sector is far more highly geared and in many cases may well be in negative equity particularly where properties were bought towards the end of the boom. It is this type of landlord which we have already indentified which is under threat as and when interest rates rise.

The nature of the PRS

24. Overall, the PRS is made up of small and medium sized landlords. Experience in the UK is in line with other countries in this regards. Following the passing of the Housing Act 1988 there was a view held that this would bring in larger corporate investors but this has not materialised outside specialist areas particularly students, this picture is likely to change. The problem is that rented properties tend to be scattered in many different locations. In practice, it is hard to put together a portfolio which would achieve economies of scale. Smaller or medium sized landlords frequently self manage and therefore can achieve economies in this way, particularly by avoiding having managing agents to manage their properties for them. Although it is the Government’s hope, we do not feel that there is going to be an influx of corporate investment directly into PRS renting. On the other hand there is a clear opportunity for indirect investment by providing funding. Essentially this is what happened with the buy to let boom in that mortgage lenders provided funding for property purchases and improvements.

Funding for the PRS

25. Traditionally, the PRS, although relatively low geared, has been highly dependant on debt funding from banks and mortgage lenders. Traditionally, the high street banks have funded property purchase and improvement for renting out and then the specialist lenders, the buy to let lenders, came into the market, usually funded through wholesale borrowings as already pointed out. Normally, because of being small and medium sized operators this has been by way of traditional mortgage funding, taking security on a property and lending 60% or 70% of its value. Landlords have been able to use their portfolio to leverage in borrowings e.g. to fund new property acquisitions or to improve their existing stock. Obviously, with the current loan to value ratio for many existing landlords there is still considerable equity held by them which could continue to be utilised in this way, if only funding were available. As always in a recession there are bargains out there to be had if the money is available.

26. Going forward, however, the problem is whether traditional bank type debt funding is going to be available. We have already highlighted the contraction in lending overall which is going to occur as banks readjust their balance sheets following the credit crunch. It is critical to this Inquiry as it directly bears on how far the PRS can contribute towards the increase of housing supply.

What part can the PRS play in increasing housing supply?

27. Previously, in this submission we have identified three potential ways –

(1) The purchase of new stock direct from builders.

(2) Conversions.

(3) Purchase of existing stock which in turn helps the sales chain that ends in the acquisition of new properties by owner/occupiers.

28. We believe that the PRS can play a role in all of these but it needs two things. Firstly, the yield issue needs to be addressed. Secondly, we have to develop a new funding model to supplement traditional debt/mortgage funding and thirdly, through the tax system tax reform and incentivisation to bring about growth.

New funding arrangements

29. When it comes to new funding models further work is clearly needed to see what appetite there is for this from funding institutions. We are not arguing for the existing debt model to be superseded, only to supplement it. However, for any new funding model to be successful the issue regarding return on investment for PRS landlords themselves, already referred to above, needs to be successfully addressed. Importantly, the structural tax changes referred to below will also help. On the footing that generally speaking institutions are not going to want to invest directly but are better providing funding for PRS landlords, we need to develop ideas such as residential rent bonds to access the bond markets and equity investment.

30. Similarly, if equity capital could be made available to landlords this would provide another source of funding. The problem at the moment is that the banks are fighting shy of the traditional lending model because they have become over exposed to property generally, or so they perceive. The banks themselves who are struggling to find funding. Clearly these new sources of funding, if they could be developed, could be focused on providing new housing supply for renting in the PRS. After all, one advantage the PRS does have is a growing market with strong demand.

Reforming taxation in the PRS

31. Essential to this is a structural reform of taxation in the PRS. For example there is an immediate step to be taken by giving PRS landlords deemed trader status in the same way as furnished holiday lettings are treated. Then at least CGT treatment would be brought into line in other businesses. The PRS landlord is even more harshly treated than other businesses who do obtain various reliefs in respect of CGT e.g. rollover relief and entrepreneur relief. It is appreciated that this will not sit easily with the Treasury’s wish to maximise taxation but by stimulating the market and particularly construction other tax revenues come in e.g. stamp duty land tax, income tax from workmen, VAT on the sale of furniture and equipment.

Tax incentives

32. As well as this structural reform the Association strongly believes that tax incentives are needed which would help boost the supply of new housing via the PRS involvement. These are twofold:-

Private Rented Sector Expansion Scheme

(1) The Business Expansion Scheme was originally introduced alongside the introduction of the current Assured Tenancy Regime but ended a long time ago. It stimulated growth in the PRS. It led to new build. Our scheme is modelled on the same kind of principles. It should be aimed at the provision of new accommodation.

(2) By providing tax breaks for new build and the creation of new units by conversion/extension, not only is this much needed accommodation provided but as already pointed out the Government can increase tax receipts. Now is a good opportunity for land to be acquired to provide new housing (for instance what about all the empty pub sites?)

(3) What we call the Private Rented Expansion Scheme, modelled on the

old Business Expansion Scheme, should be reintroduced to stimulate growth in the PRS. As already stated there is still good demand for rentals and it is likely that this will increase. It is not therefore going to be a case of new dwellings being provided only to stand idle.

(4) We should also look at using tax breaks to encourage landlords in the

PRS to buy up new build units which are standing vacant (or vacant conversions) which have been carried out with a view to being sold so far unsuccessfully to the owner/occupier market.

(5) What form should the new Scheme take? Firstly, there should be indefinite capital gains exemption so long as these properties are kept within the private rented sector for, say, five years. Realistically it will be some time before there is capital appreciation anyway so there is no immediate loss of tax revenue.

(6) Secondly, all rental income for these newly created units should be tax

free for five years. Obviously the landlord would not then get the benefit of related expenditure which was otherwise tax allowable; nor related tax relief on interest. As these are new units of accommodation by definition there would be no loss of tax revenue because at the moment tax revenue would be received for these properties anyway as they are not currently in existence/use.

(7) Just as importantly, we would have a ready source of new homes to

rent for those in need. Pressure would therefore be taken off local authorities, particularly local authority homelessness sections. There would be a saving on costly provision of bed and breakfast type accommodation and expensive contracts to provide short term housing for the homeless.

(8) All round this should be win win not just for tax revenues but for the

economy as a whole particularly as it would stimulate the down and out construction Sector. People would get back in to jobs with a saving on benefits. It would help regeneration particularly existing derelict sites.

(9) The Business Expansion Scheme was proven to work so it is a tried and tested means of promoting economic development.

Self Invested Pension Schemes ("SIPPS")

(1) To promote employment, retention of skills in the construction sector and to take up empty units the Government should allow self invested pension funds to invest in residential units, up to a maximum purchase price of £250,000 per unit outside London (with a suitable adjustment for London prices).

(2) The units must then be let out by an ARLA, NALs etc affiliated letting agent. These measures would prevent any abuse, mop up unsold units, allow part finished developments to be completed, free up capital for both building companies and banks. The tax take would also increase as would employment taxes as a gradual improvement in prospects would follow.

(3) The real cost of this measure is negligible yet it could reap very great benefits very easily. It is suggested that this be introduced for a limited period of 5 years in order to stimulate demand. There is capital in these funds waiting to be invested.

Although we have talked of the tax treatment of new properties there is a strong case that this should extend to investment in existing properties to also assist in generally stimulating the market.

The current crisis

33. Confidence has slumped and demand is generally low. Unfortunately, there is no magic bullet; no instant remedy which will bring about large scale change. If there was somebody would have thought of it by now. We are going to have to claw our way out of the current mess. The RLA believes that the PRS has a role to play in helping promote sustainable growth in housing supply especially because of low gearing there is equity available. Properties acquired at the right price can provide the rental yields required to stimulate investment. We do need to find new ways of providing the necessary funding but for a lowly geared business model which can be achieved. However, the taxation regime is punitive and stands in the way of growth for the Sector. It urgently needs reform. Tax incentives which we believe will be tax neutral (because they will provide other forms of revenue for the Exchequer) are a way of kick starting investment in this way. By channelling investment through tax neutral tax incentives to new properties growth can be achieved.

34. What we advocate is both our proposed tax incentive schemes should be focused at the lower end of the market in value terms and also be concentrated on provision of new units. This does not mean just brand new properties but also bringing back into use empty units, as well as promoting conversions/extensions. It lends itself to new units being provided above shops, as another example. We acknowledge that safeguards are required to prevent abuse but feel that these can be successfully put in place.

The Planning System

35. We consider that the planning system as it presently operates is broken and no longer fit for purpose. It is standing in the way of improving housing supply. We have made submissions to this effect both to this Committee and to the Government’s consultation on the proposed National Planning Policy Framework we support the thrust of the draft Framework. We are extremely concerned at the hysterical opposition which has been whipped up against these sensible measures. Indeed, we feel that the Framework needs to be clarified and strengthened to help grow both housing supply and particularly the wider economy.

Houses in multiple occupation (HMOs)

36. One particular area of expertise for the PRS is providing shared housing and bedsits especially for the young.

37. The Association, along with many other landlord representative organisations consider that it is absolutely vital that as a matter of urgency the planning regime for these small HMOs needs to be revisited. Unless radical changes are made and the old planning regime is reinstated this will stand in the way of the urgent need to provide shared housing and bedsit type accommodation, particularly for young people. This is particularly important in the light of the change to the shared accommodation rate for local housing allowance and housing benefit purposes.

38. Some 30 local authorities are imposing Article 4 Directions requiring planning permission for a change of use from a single dwelling to a small HMO (occupied by up to six unrelated persons). We believe that this power is being abused and is highly discriminatory against very young people for whom the PRS caters. There is a pressing need for this kind of shared housing. It is not the function of the planning system to determine who can live where or to impose quotas on the numbers which is what is happening as a result of the changes to the planning law originally implemented by the previous Government. We believe that this whole situation calls for an urgent review. It will clearly inhibit conversion of properties and changes of use to provide the required accommodation and stand in the way of expanding housing provision.

Conclusion

39. We believe that urgent action is needed to grow housing supply. At the moment we cannot turn the supply tap on but what we can do is to put in place the ground work along with incentives hopefully to kick start some growth. The PRS has a significant part to play in this as it is the one sector of housing provision which is still growing. However, this should not be about squabbling over existing stock; rather the imperative is for new stock. The planning system needs to be reformed particularly in relation to smaller HMOs. We need to look at new ways of housing finance. The present tax system for the PRS which discriminates against renters in the private sector needs structural reform. Changes need to be made to the VAT regime. To help the supply we have put forward two suggested proposals for tax incentives. The PRS has a role in helping to promote growth but only if the reforms we have referred to in this evidence are implemented.

October 2011