Is George Osborne really a Tory? This week his previous grovelling before communist China over steel tariffs has returned to haunt him. His conversion to a socialist “living wage” is enraging small businesses. Today, in a sudden revulsion against market economics he is penalising buy-to-let investors – and their tenants.
Osborne’s assault on buy-to-let is mystifying. With the withering away of public housing, private renting is how evermore people live, especially in cities. They include the migratory rich, millennials, those unable to afford a house and those who are just very poor and cannot get a council tenancy. Between 2001 and 2011, private renting in London went from 17% to 26% of the housing market, and is continuing to rise. The London borough of Newham takes in 5,000 newcomers a year, virtually all poor and renting privately.
London is the least densely occupied big city in Europe – a quarter of that in Paris. Even so, Londoners now occupy half the number of bedrooms they did 40 years ago. Encouraging the release of under-occupied space is the one sure answer to the housing shortage. The most efficient way of doing this is by encouraging letting. Renting is the most efficient use of urban property. It keeps things flexible. It is first and last recourse of the homeless and the refugee as well as of the middle-class young.
Of course there are racketeers and slum landlords. But persecuting all landlords helps no one. Racketeers exploit shortage and the lack of regulation. Britain’s private rented sector is under-regulated, but needs regulation that lets the market breathe. Germany, where housing is overwhelmingly rented and regulated, has a market that allocates space efficiently and has little or no house price inflation.
Even Osborne’s form of penalising the market, through higher stamp duty, makes no sense. If he is worried about banks over-lending to small rentiers, he should let the banks take the risk. He has imposed reserve limits on them already. Stamp duty is a tax on market flexibility, on buying and selling. It is doubly daft.
Osborne sees housing as a form of private savings. He subsidises house purchase through mortgage aid, driving savings into inert property and encouraging the under-use of living space. This can only serve to drive up rents in the rental sector, which in turn will increase the cost of the already soaring housing benefit budget.
Osborne should do the exact opposite. He should encourage the sub-letting of rooms, buying-to-let, Airbnb and any other form of rental. He should promote, not tax, market activity, attracting supply from the readiest source of new housing: under-used space. He should help, not impede, the matching of supply with demand. That would make him a proper Tory.
