The government's crackdown was painful, lengthy, and effective.
Over the years, landlords have been plagued by a series of tax changes exacerbated by high interest rates.
Many small landlords have sold their apartments. Others have gone corporate or flocked to what for years was a small, lucrative tax haven, the vacation rental sector.
But the government appears to be backing the short-term rental industry as another victim of the crackdown on investment in real estate.
Housing Minister Michael Gove has begun consultations on plans to require new homeowners to rent out their properties.
It's part of his drive to tackle the housing crisis and give locals access to nearby homes at affordable prices.
But it's also part of a larger change in the government's approach. to a sector previously exempted from scrutiny, under plans to allow local authorities to levy a double council tax on second homes.
The Department of Digital, Culture, Media and Sports has also started consultations on the introduction of a holiday permit register, which may be subject to an annual fee.
The government is implying that building permit requirements will not apply retroactively. But the move is likely to halt growth in the sector entirely, warns Chris Norris, head of policy for the National Association of Residential Landlords, a trade organization.
Capital proposes a plan. In London, property owners already need to register for a change of destination if they want to rent out their property on a short-term basis for more than 90 days a year.
“Ultimately, if the rest of the countries or areas with high demand apply this change in planning in the way that most areas of London do, it will be a complete failure,” says Norris.
Any growth restriction in this sector is potentially can be worth billions in rental income.
Rental property owners generated an income of £6.91 billion in 2022.
Rental income for the first three months of 2023 is up another 38% year-on-year. If this trajectory stops, it will cost owners £2.63bn in lost profits over 12 months.
1404 Vacation contribution to GDP
Government plans are illogical, says Norris.
“If they are concerned that housing is declining as people move into this more lucrative market, they should actually ease the crackdown on the rental sector so landlords have less incentive to jump ship.” he adds.
Initially, landlords who bought homes to rent out could deduct mortgage interest from rental income when calculating tax bills. From 2017 to 2020, this exemption was phased out.
Now, landlords who buy property for the purpose of renting out, who own the property on their own behalf, and not in the structure of the company, can only deduct 20% of their interest expenses .
This tax change significantly increased the impact of high interest rates on landlords' profits.
Short-term allow, however, to continue to enjoy the benefits of the old system.
«Until now, vacation homes have been fairly immune from tax restrictions because they are treated very differently,» says Aneisha Beveridge, head of real estate agent research at Hamptons.
The tax changes have drastically changed the investment strategy.
In 2015, when then-Chancellor George Osborne announced changes to taxation, Companies House data shows that 469 vacation rental companies were registered.
This number has quintupled to 2,426 by 2022.
1,404 New vacation rental companies
Although these numbers only show vacation rentals registered as company, the trajectory is clear.
< p>“When talking to landlords, the main reason these properties aren’t being leased long term is because the government has declared war on leasing,” says James Haven, a rental property owner and conservative candidate for Salcomb and Thurlstone. in the Southwest.
According to Beveridge, one in 10 vacation rental limited liability companies was previously registered as a rental company.
As the holiday rental sector has grown, the rental market has suffered from an extreme imbalance between supply and demand.
According to the Royal Institute of Certified Surveyors, except for a few spikes during the pandemic, the number of instructions from landlords on the market has been declining since 2016.
Although the number of households renting housing has increased, the number of houses rented to renters has fallen sharply.
Supply has not kept pace with demand, which has risen sharply since lockdown restrictions were lifted.
1404 The widening gap
Although many blame the vacation boom for the lack of rental property, the sector is vital to seaside communities, Haven says.
“What is absolutely essential to the local economy are visitors,” he adds.
According to an analysis by Oxford Economics, short-term holidays bring in £6.2 billion a year to the economy of the South West.
“If you have a government that really wants to be taken seriously, to encourage investment and growth, it would be wiser to loosen the grip of the tax that discourages investment, rather than just apply the stranglehold that currently applies to landlords who rent out real estate for rent, to these short-term rental operators,” says Norris. .
Holiday let the owners worry about future changes in the pipeline.
Last year, a report from the Tax Facilitation Authority recommended that the tax relief associated with vacation rentals be eliminated and that the same system as the «purchase to rent» market be applied.
So far there has been no indication from the government that it intends to accept the proposals, but investors are wary of the direction of the move.
While the government has said it wants to preserve the economic benefits of short-term holiday rentals, building permit requirements could be damaging if they are introduced for punitive purposes, says Amanda Stecker, who runs the holiday rental business Unique. Cotswold Cottages and Training Services Holiday Letology.
«It will actually destroy livelihoods,» she adds.
Gove has been accused of blaming holiday pay owners for not building more houses.
“At the moment, we are responsible for solving problems in the housing market,” says Andy Fenner, executive director of the Short Term Accommodation Association, a trade organization.
“There is a shortage of rent and a shortage of houses because the government is not meeting its housing targets. But it's easy for them to look at our sector and say that these problems are caused by us.”
Tory's 2019 election manifesto promises to build 300,000 new homes a year by mid-2019. 2020s.
In the 2019-20 tax year, new construction (which represents 90% of new supply) peaked at 219,000 homes. This year, Capital Economics predicts that number will drop to 190,000.
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