Our friends at Onward have published a new proposal for how to help struggling private renters. The ‘Chance to Buy’, harks back to the Right to Buy in name as well as design. By offering a way for tenants to buy their existing home, it attempts to appeal to private tenants today in just the way Right to Buy has done for many social tenants since its introduction in 1981.
Without more analysis, it’s hard for us to comment on how successfully it would achieve its central aim and result in landlords selling to their tenants.
However, the proposal has also been presented as a possible way to incentivise longer tenancies. This is something much closer to our heart, given our ongoing campaign for longer tenancies to address the insecurity in the private rented sector faced by the people we help with our services.
So it’s worth a closer look as to whether this proposal is in fact a viable route to longer tenancies.
The ‘Chance to Buy’
First, a recap on the proposal, the Chance to Buy initiative would be a new 100% Capital Gains Tax relief on properties where they are sold to a sitting tenant who has lived in the property for at least three years.
Half of the tax would go to the tenant themselves, giving them a contribution to a deposit. Onward estimate it would be about £7,500. The other half would be a tax relief kept by the landlord, acting as an incentive for them to sell.
It’s this ‘bung’ to the landlord which, it is claimed, would act as an incentive to landlords to keep hold of their tenant, and a way to deliver longer tenancies. So, would it?
Most tenants would miss out on a longer tenancy
In short, most likely not. We’ve previously written that the major problem with using tax incentives to deliver longer tenancies is that a lot of tenants who need one end up missing out.
Only 46% of landlords say they’d be willing to offer a longer tenancy if they got a tax incentive for it. The majority wouldn’t.
This is a fundamental shortcoming of all tax incentives, irrespective of how they’re designed.
The problem with the Onward proposal here is that – as a means of delivering longer tenancies – it isn’t an especially well-designed tax incentive.
This is because it’s even more exclusive than a generic tax break for offering a longer tenancy. All of the following would have to be true for the ‘longer tenancy’ incentive to apply:
- Tenant able to buy – if the landlord doesn’t think the tenant could afford to buy, there’s no incentive. And as we know, a lot of tenants can’t afford to buy. New IFS research shows that many young tenants couldn’t buy, even if they had a deposit
- Tenant wants to buy – even if they can afford it, not all tenants want to buy the place they currently rent. If they want somewhere else, there’s no incentive
- Tenant wants to stay for three years – if the landlord doesn’t think the tenant will stay for the full three years, there’s no incentive to keep them in the interim
- Landlord wants to sell – if the landlord’s not looking to sell-up, there’s no incentive. Particularly if they’re not looking to quit being a landlord, as any tax saving would get more than wiped out by the additional Stamp Duty on additional property purchases
- Landlord has big taxable capital gains – if the landlord hasn’t owned the property long, or it’s not gone up much in value, or if they could wriggle out of the tax anyway, there’s no incentive
In other words, only better-off tenants, looking to buy, living in properties that have gone up a lot in value, with a landlord looking to sell, would benefit from this ‘longer tenancy incentive.’ There’s a good word for that kind of benefit. It’s ‘lottery’.
Weak protection against eviction
Even for the fraction of tenants who win the lottery by falling into this category, the ‘longer tenancy incentive’ they would get is not really all that.
A genuine longer tenancy gives tenants a legal guarantee that they can stay in their home for the long term, unless their landlord can evidence a good reason (like their tenant has stopped paying their rent).
This not only means renters are able to put down roots, it also means they are able to act as confident consumers without being worried about revenge eviction, i.e. getting evicted if they complain about conditions in their property or their landlord’s behaviour.
The Onward proposal is different. Instead of giving tenants a legal guarantee, it’s just a new carrot for long occupancy. If you annoy your landlord by complaining about conditions in your property you still have no additional legal protection from revenge eviction.
If you think that landlords will be swayed by a carrot for long occupancy, remember they already have one: rent. And in spite of this, some landlords still choose to revenge evict their tenants.
What’s needed now isn’t new carrots, it’s genuine legal protection for all tenants by making longer tenancies the legal minimum.
One thing dressed as another
So, is the Chance to Buy worth the £1.3 billion that Onward estimate it would cost every year?
If we are judging it on how effectively it would incentivise longer tenancies, the answer is no.
Like all tax incentives for longer tenancies, it’s a lot of money for limited return. It just happens to be even more money for even less return.
But as Will Tanner, the director of Onward, said on Victoria Derbyshire, even though the Chance to Buy has been dressed up as a means of delivering longer tenancies it isn’t best viewed that way. Instead, it’s “a policy specifically to encourage landlords to sell to their tenants.”
It’s valuable to have right-leaning think tanks discussing the problems confronting private renters, whether that be instability or sky-high house prices.
However, it’s important that we are clear on what it does and doesn’t achieve. It might help a number of (better off) tenants into home ownership, but there is no evidence to suggest it will result in more security and stability for the majority of tenants.
For tenants who want a long-term home and can’t afford to buy, we need legislative change to make longer tenancies the legal default rather than tweaks to tax laws. This is something the government is due to report back on, following their consultation. And it’s what they need to come down firmly in favour of if they want to effect large scale change for private renters.
 Our research shows that a million tenants have been threatened with eviction for complaining about their property or landlord in the last five years.