Are Tax Breaks the Answer to the Affordability Crisis?

With 40% of young people unable to afford to buy a home, the housing market is in crisis. Chancellor Philip Hammond may have to come up with a few innovative ideas to solve the affordability problem. One such solution would involve offering landlords tax breaks if they sell their properties to sitting tenants. Could this work?

The biggest problem faced by the nation’s young people is that there is a lack of affordable housing. In many areas, house prices have shot up much faster than wages, and with the average London property costing around £627k, there are not many 20-somethings who can afford the deposit, let alone the mortgage repayments.

“Today’s renters are older, more likely to be in rented property for longer, and more likely to have children than any generation before them,” says right-wing think tank, Onward. It is they who have come up with the Help to Buy proposal to offer landlords tax breaks.

Landlords Pay CGT on Investment Properties

Right now, landlords are hit with a 28% Capital Gains tax bill when they sell an investment property. That is hardly an incentive to sell up. The new plan would mean landlords are eligible for a tax break, with the resultant windfall to be shared equally with their tenant. Inward reckon the average gain would be £15k, so the tenant would gain £7.5k towards their deposit.

IFS Research

2016 research carried out by the Institute for Fiscal Studies reveals that only 60% of young people could buy the cheapest property in their area with a 10% deposit, compared to 90% in 1996. This has created a huge chasm of inequality between young and old, with many older people much better off than their children and grandchildren.

Tough planning regulations are holding back large-scale house building schemes in areas where demand is greater. The IFS says planning regulations need to be loosened to solve the housing crisis, but environmentalists argue that this would lead to Green Belt land disappearing completely.

It’s clear that there are no easy solutions, but it will be interesting to see whether Philip Hammond does decide to run with the landlord Help to Buy proposal when he announces this month’s budget.