Capital Gains threat to rental market
A lack of available properties and the proposed increase to the rate of Capital Gains Tax presents a grave threat to the Private Rental Sector (PRS), according to the Association of Residential Lettings Agents (ARLA).
The PRS currently represents more than three million homes, and is a crucial component in offsetting the shortage of homes being built to house the growing UK population. ARLA believes that the new CGT policy could create a shortage in rental property supply as investors look to sell off their portfolios and also deter future investors from entering the sector.
"Our latest research shows that rent levels are on the rise, indicating a potential market stabilisation, but also highlighting the dearth of available rental properties," said Ian Potter, operations manager of ARLA.
"With the anticipated increase in Capital Gains Tax rates for non-business assets, we could potentially see a fire sale situation arise in the buy-to-let market with investors offloading properties. Consequently, the number of available rentals will greatly diminish and the fragile market recovery jeopardised.
"There are some potential solutions, one of which is that landlords should be treated as exempt businesses. For example, could the new Government propose taper relief, or rollover relief into the CGT changes? We need clarity before this new Government risks damaging the confidence of the recovering property market."
ARLA's latest research reveals that almost a third of ARLA members (30.8%) felt that achievable rent levels had increased in the last six months. This compares with just 12.5% of members at the end of 2009. In central London the situation is even more prolific, where almost half (46.7%) of members surveyed reporting an increase in achievable rent levels.
"As the new government plans its first steps, it is vital that there be a concerted focus on the PRS," continued Mr Potter. "For months we have emphasised that specific measures are needed to encourage the creation and improvement of rental accommodation - to no avail.
"Now, we appeal to the new coalition to implement solutions that will ensure the long-term availability of enough affordable rented accommodation. This includes treating landlords as businesses within the fiscal regime. This is the only way to help ease the housing deficit."
Other measures ARLA is calling for include:
Removal of VAT on the purchase of materials and labour to improve older property
Introduction of capital allowances for landlords improving older housing stock
Increase the Landlords Energy Saving Allowance (LESA) to include the installation of central heating systems
With reports of house prices on the rise once more, ARLA's research also showed that the value of rented properties is increasing. The average value of a rented house was £422,700 - up from a low of 371,300 in May 2009, while the average value of a rented flat was £260,000 - again, an increase on the 234,900 seen in mid-2009.