LUVTHECITY INTERVIEW - 19.04.10

AS THE GENERAL ELECTION LOOMS, THE AFFORDABILITY OF PROPERTY IS BACK IN THE HEADLINES. WE TALK TO PRICEDOUT'S KATY JOHN AND ASK HER HOW SHE'D CHANGE GOVERNMENT POLICY


PricedOut claims that first-time-buyers are squeezed out of the market by buy-to-let investors. Is that really the main cause?
High house prices have several causes; lack of new supply, lax lending from mortgage companies or speculative activity by investors. First-time-buyers are finding themselves consistently out-bid by buy-to-let investors who have a greater purchasing power.
It’s not just us who think it’s a major cause of higher house prices, government research does too! They estimate the price impact on the average British home of buy-to-let is £13,485 – and that’s a conservative estimate! This dwarfs the average amount spent by first-time-buyers on stamp duty – which according to Halifax is £1,750.
I have personal experience of being priced out by an investor. A couple of years ago I put in an offer of £160,000 on a one-bedroom flat in London, only to be told that a property investor had out-bid me. However, there is very little acknowledgement from the Government that this kind of displacement is happening to first-time-buyers on the ground.

You’ve campaigned against tax breaks for buy-to-let investors – what are these main breaks?
In the UK, property is much more lightly taxed than income, despite income reflecting much more valuable economic activity. Buy-to-let investors benefit from several tax advantages including low-levels of taxation from Capital Gains Tax (which they often avoid altogether through various methods of tax evasion).

“Capital Gains Tax should also be raised
to ensure richer investors aren’t paying less tax
than hard working individuals”

But the big advantage buy-to-let has in relation to first-time-buyers is their ability to write-off mortgage interest payments and other expenses against tax. This gives investors a huge cash advantage when bidding for the same property as a first-time-buyer will unfortunately always be paying their mortgage out of their post-tax income.

Which of these taxes would you like to see withdrawn?
Given the social importance of the housing market and the widespread political commitment to helping first-time-buyers, we’d like to see this ability for buy-to-Let investors to write off their mortgage interest withdrawn. The playing field is unfairly stacked against us and this is the easiest way to make it level. Capital Gains Tax should also be raised at least to the same level as income tax to ensure richer investors aren’t paying less tax than hard working individuals. The UK has a very large deficit, it’s important that buy-to-Let investors play their part in reducing it!



A large number of buy-to-let investors are regular people who are disillusioned with pensions. Would you prevent them from entering the housing market?
A large number of buy-to-let investors are probably pretty disillusioned with buy-to-let investment at the moment too! Most of their activity in the past six years has been speculative on the expectation of rising house prices, and that hasn’t exactly been a one way bet.
For the long-term economic health of this country we need to think long and hard about how we use our investments. We face large challenges meeting an ever more competitive global economy. We need to direct the wealth of our economy into investments that actually create further wealth. We see hundreds of bright and exciting business start ups that have been drained of capital in the past couple of years – we’d like to see people investing and benefiting from these entrepreneurs. Property creates no new economic activity or wealth – it’s baffling why we want to encourage so many people to pour their money into it.

Do you think private individuals should have a role in the private rented sector, or should it be purely Government controlled?
The problem with the recent UK experience of private investment in the private rented sector is that it has been short term, speculative and highly volatile. This has led to a great deal of economic damage, from the short-term costs of bailing out buy-to-let lenders such as Bradford & Bingley to the longer-term damage on employment and growth caused by the impact of the credit crunch. It has also led to a net loss of supply from the owner-occupying sector – thus denying many homes for ordinary families. Recent research that we conducted at Priced Out shows that the private sector currently purchases far more properties than it builds- creating a net loss of 640,000 homes over the last ten years.

“The problem with the private rented sector
is that it has been short term, speculative
and highly volatile”

Many European countries have very successful private rented sectors – and they have achieved this by long-term investment that gives stable returns for the investor, adds to the overall level of housing supply and gives much greater security for the tenant. Unfortunately the buy-to-Let model in the UK has achieved none of these things. The speculative nature of the UK sector is coupled with much poorer tenants’ rights in the UK than elsewhere in Europe.

What do you think happens to profit made from buy-to-let properties?
You’ll have to ask a buy-to-Let investor! Maybe a trip to sunny Spain? Several studies show that many investors have used gains to further finance purchases for their portfolios and increase their level of overall gearing. Given how damaging this high-level of exposure has proven to be for investors, mortgage banks and the global economy, it doesn’t seem that beneficial for the rest of us!



Should individuals be taxed if they make a profit on their own homes?
We’d like to see a situation in which an individual’s home is primarily a place to live and not a get-rich-quick scheme. Most people live in one house, and having lower house prices benefits them when they want to move or when their children want to move out, start a family and buy a home. High house prices don’t really benefit anyone apart from speculators or mortgage lenders.
Investment and profits from investment would be much better channelled into supporting small start-up businesses or loans to the real economy. We’re not going to compete with China or anyone else by selling more and more expensive houses to each other!

Current political thinking leans towards a free market - would you support preventative legislation in other areas of investment, say pensions or the stock market?
We have no problem with a free market – if only this were the case with the housing market I’d have built my own house long ago! But even the most free market thinker knows that government has to put in place the right set of ground rules to ensure a healthy long-term economy. High house prices increase personal debt levels, concentrate individual wealth portfolios disproportionately in one asset class and increase vulnerability to external credit shocks. They also reduce labour mobility, add an additional cost to UK businesses in higher wages and drain disposable income out of the wider economy.

“It’s illegal to borrow hundreds of thousands
of pounds to buy shares yet this is what
half the country seems to do with property”

The misallocation of resources impacts on the total level of investment capital available for businesses and wider consumption levels. Any sensible government would want to reign in irresponsible housing speculation and try to direct investment into areas where investment is actually useful.
As it stands the property market is less regulated than the stock market. It’s illegal to borrow hundreds of thousands of pounds to buy shares in the hope that their price might increase, yet this is what half the country seems to have spent the past decade doing with UK property!

Is home-ownership a right or a privilege?
Home-ownership is something to be earned – and we support more sensible mortgage lending and the need to save for a deposit before buying a house. Home-ownership is also very important for ensuring social coherence and a sense of community – it’s where we live, have families and make friends with our neighbours. That’s why we’re not very keen on increasing numbers of people acquiring multiple properties, whilst levels of UK home ownership decline proportionally.

Your organisation only exists because Britain has a historically high-level of home ownership. If your campaign fails and we become a nation of renters, like Germany, would this be a bad thing?
We wouldn’t have any problem with becoming a nation of renters like Germany – Germany has low and stable house prices, a good quality of life and a globally competitive economy and is the world’s largest manufacturing exporter. Additionally, they have a much stronger framework of tenants’ rights compared to the UK, which is a key difference, offering those who rent far greater levels of housing security and quality. They also have much stricter controls on mortgage lending and curbs on speculative investment in property. What’s not to like?!

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PricedOut.org
PricedOut is an independent group that campaigns on behalf of first-time-buyers and owner-occupiers
PricedOut.org