Government efforts to control the housing market by taxing landlords have failed, according to a leading economist.
David Miles, a former Bank of England monetary committee member and professor of financial economics at Imperial College, London, argues that making buy to let landlords pay more tax hasn’t freed up homes for first time buyers by discouraging buyers away from buy to let.
The aim was to free more affordable properties for first time buyers by increasing stamp duty, capital gains tax and slashing mortgage interest relief for landlords.
“These policies were justified on the grounds that they would reduce tax distortions which favoured buy-to-let purchasers and drove prices up for hopeful first time buyers and reduced their welfare,” writes Miles in a blog for the Residential Landlords Association.
“That argument was incoherent back then and it remains so today. But the policy remains in place.
“The tax distortion arguments are nonsense.
“Rather than being a move towards tax neutrality – as was claimed – they in fact represent a further penalty against private provision of rented properties by potential suppliers who cannot (or choose not to) invest via a corporate entity.”
Miles also explains that government buy to let policy is unfair to non-corporate landlords.
“Can the tax changes be defended on the grounds that it is not appropriate for the private rented sector to be significantly supplied by small scale landlords? It is not at all clear that it can,” he said.
“There is no compelling reason to think that private landlords with a small number of properties are bad landlords.
“Nor is there any reason to think that investing in property to rent is an inappropriate thing for people to do with part of their saving.”