Amongst the many factors contributing to our housing crisis, perhaps the role of supermarkets is the most surprising.
Amongst the many factors contributing to our housing crisis, perhaps the role of supermarkets is the most surprising. The Waitrose effect is the term now used to describe the impact on local propery values when a new branch opens in the area. Last year Lloyds Bank reported that, ‘the Waitrose effect can boost the price of a home… by an average of almost £40,000”. This may be good news for property owners, but it can spell trouble for tenants.
Writing for Generation Rent, Dan Wilson Craw has described ‘The Other Waitrose Effect’, which can see tenants facing eviction, as landlords either decide to sell and take the profit from increased property values, or demand a higher rent, evicting tenants who can’t afford it. Analysis by Oxford University academic David Adler found that the arrival of a new Waitrose store was associated with an increase in evictions of between 25 and 50 per cent.
There could hardly be a starker illustration of the arbitrary power which landlords can have over the life of their tenants, and the disruption which can be caused to tenant’s life for the sake of profit. Which is why, when George Osborne decided to change some of the financial rules for landlords, it was a welcome move.
The former Chancellor introduced several measures designed to make the property market a more level playing field, to give first time buyers a better chance of being able to secure a home. These measures included a three per cent surcharge on stamp duty on Buy To Let (BTL) properties and second homes, and a phased reduction of tax relief on BTL mortgage interest for higher-rate tax payers, which came into effect in April this year.
Iain Duncan Smith has sprung to the defence of landlords, saying, “they’re not enormous property magnates, for the most part, but often people using the market to help provide retirement income in later life or assets to pass on to their children.”
However, in analysis from the Resolution Foundation published today (19 August 2017) Laura Gardiner says, “Owning additional property is sometimes depicted as a common way for typical workers to shore up savings or for ordinary folk to boost their pension with rental income. But situating multiple property owners and private landlords within the wealth and income spectrums makes them seem far from ordinary…both across society as a whole and among their peers, those drawing on wealth or income from additional properties are disproportionately rich and wealthy.”
Whilst the number of people with multiple properties has risen, so has the number of people with no property. Housing assets are concentrated in fewer and fewer hands. A major factor in this concentration of property wealth has been the Buy to Let mortgage, so let’s consider how it works.
In my local area, it is possible to buy a two or even three bedroomed property for around £50,000. Buy to let mortgages require a bigger deposit than usual, so with a £12,500 deposit and a 25 year repayment mortgage, a landlord would have to make monthly repayments of around £200, depending on the interest rate.
The Local Housing Allowance (LHA), which is the amount of Housing Benefit payable on a three bedroom property, is £113.92 a week. So even if a landlord charges only the LHA rate to a tenant on Housing Benefit, (meaning the rent is coming entirely from the social security budget), it covers the mortgage and produces a £250 a month surplus. In effect, this means the Department for Work and Pensions, via the tenant on housing benefit, is simultaneously buying the house for the landlord and giving him/her an income. The irony of Iain Duncan Smith, architect of welfare reform with its benefit cuts and sanctions, defending the right of landlords to boost their pension or build up a property portfolio with help from the DWP is, as they say, epic.
The tax changes introduced by Mr. Osborne have resulted in one in five BTL investors saying they will sell up, so Iain Duncan Smith has called for these tax changes to be reversed, warning, “We should all be concerned about this, because private landlords are a significant provider of the additional housing we need. We won’t be able to provide all the housing in the medium term through aggressive building programmes alone… even if we do achieve our housebuilding target, there will still be a continuing growth in demand and a significant part of this will have to be available through private landlords.”
But why do properties have to be available through private landlords? The houses will still be there, it’s simply a question of who owns them. If higher-rate taxpayers decide to give up being landlords because it’s no longer sufficiently profitable, those flats and houses won’t cease to exist. They will simply go back on to the market and become available to other buyers. With less competition from landlords, more people who would otherwise have to rent may have a chance of buying their first home.
And, using the Buy to Let model, why couldn’t other groups or organisations step in and help fill the gap if necessary, offering secure tenancies and affordable rents? Why couldn’t churches, charities, co-operatives or other organisations purchase homes on a buy to let basis? They could become socially responsible landlords, satisfied with a rent that covers the mortgage – not evicting tenants when a new supermarket opens and they see the potential for increased profits.
————
© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden