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Political risks increase for landlords

The the referendum and the party conferences of the past few weeks have thrown politics back into the spotlight.

Landlords have been living in an unprecedented benign political environment for over the last 30 years, as an uneasy political consensus has existed between the two main political parties. Politicians on both sides have benefited from increasing the number of landlords and the strengthening of the buy-to-let sector. Now, approaching 20% of UK households are in the private rental sector, this at NO cost to the public sector. Record low interest rates also means the private rented sector is now generating sizeable taxes from private landlords rental incomes.

Clouds are gathering

However, things rarely stay the same. The resurgent private rental sector is not immune from politicians and their pre-disposed need to meddle, or at least appear to be doing something. This political meddling presents a risk for landlords.

We have a generation of landlords, such as myself, who have grown used to a relatively stable political environment. The biggest political changes in letting residential property during this time have been in the areas of capital gains taxes, mainly Gordon Brown’s fiddling with property taxation – remember taper relief and the introduction of the flat rate.

New political paradigm

The surprising closeness of the Scottish referendum result highlights just how the politically unthinkable can turn into reality in a blink of an eye. Landlords new and old need to be aware of the increased political risks on the horizon.

Labour gunning for landlords

The Labour party is desperately seeking votes from ‘generation rent’. This naive and slightly disaffected group who have been squeezed out of owner occupation (for many their preferred option) by a tightening mortgage market and house prices that fail to fall to their natural level because of massive central government stimulus both fiscal and monetary. This group resent having to rent and resent even more their landlords who they see as coining it in whilst not paying heed to their requirements out of long-term rental properties.
Labour is carefully cultivating this disaffection by promising this expanding group: more control over the length of their tenancies and cheaper rent all without consequence.
Landlords once again are seen as an easy target as house prices in London and the South East rocket and the lazy convenient narrative of : “It’s all the landlords fault, and we should give them a good kicking” find resonance.

The Coalitions uneasy alliance

The Conservative party has been the traditional defenders of a landlords’ interest. Clearly they see private enterprise and private provision of services and ownership of capital as a positive thing. However, the existence of the coalition has put this position under scrutiny. The Tories are keen to dispel their image as the nasty party and an unquestioning defence of private landlords plays into their detractors view of them as the nasty party and defenders of private capital at any cost. In order to keep their coalition partners sweet they are trying to appeal to ‘generation rent’ with their own version of tenant friendly policies. To date they are a mixture of advisory and voluntary codes calling on landlords to behave and tow the line without the need for compulsion and fines.

Creeping localism

The influence of the Liberal Democrats has been to unearth the spectre of localism giving local authorities more power to influence matters affecting landlords. Two things to look out for is the spread of selective landlord licensing where local authorities use the provisions of Sections 79, 80 and 81 of the Housing Act 2004.

Newham Council in London is the first local authority to have a blanket licensing scheme covering the entire borough, and other Local Authorities are sure to follow. Barking and Dagenham have already followed suit and introduced a compulsory landlord licencsing scheme.

Another aspect of localism targeting landlords is Council Tax charges on empty properties. Up until April 2013 all empty properties were given an automatic 50% discount on their council tax liabilities. From this date councils were able to charge the full council tax amount immediately with a penal rate of 50% after 2 years.

The general election 2015

The general election is only 8 months off. The political uncertainty has probably not been greater in the last 30 years. Picture the very realistic scenario of a Lib Lab coalition bringing in the double whammy of additional restrictions on landlords in terms of rent control and greater security of tenure through mandatory longer-term tenancies. This is combined with the Liberal Democrats wish for greater local powers for local authorities and the result of increased powers to legislate against landlords. It all adds to the risks of investing in residential property.
A word of warning.

Things never really stay the same and good things rarely last. Be politically aware!

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