The case for property reform

Young British people who are first-time buyers are squeezed out of the housing market. House prices have risen faster than wage growth and mortgages are harder to get. Add a lack of building of affordable houses makes property ownership for young people in Britain nothing more than a fantasy.

This white paper outlines an approach to taxation and house building that when put together will lead to more young British people owning their own property.

The end-goal

·      To enable young British people to own an affordable property with enough space to enable them to adequately raise a family of two or more children to the age of 18.

The problems

• Young British people have an imbalanced ratio of earnings vs. property asset prices.  

• Therefore, Young British people are less likely to obtain a mortgage for a home in which they can raise a family, particularly in British cities.  

• Landlords are increasing rents to a point where young British people cannot save for a mortgage.  

• Investors and cash-buyers of property are able to out-bid young British people on properties which are then rented back to the market leading to a lack of supply in the property market and exacerbating the rise in rents.

• Affordable properties which allow young British people to buy and raise a family in are not being built fast enough and many of the new build properties are of poor quality.  

• Short-term lets further decrease the housing supply and increase rent.

The solutions

1. Build more high quality affordable and energy efficient housing that allows young British people to raise families of two or more children to the age of 18.  

2. Increase public transportation in rural areas that connect isolated communities to major cities to enable young British people to compete for high-paying jobs that require an on-site presence but can afford homes in these locations.
   

3. Enforce in law a “Minimum Living-Area (ML-A)” - measured in square meters – for properties (including HMOs) to have. Any property below the ML-A is designated as a “Slum Property” and subjected to penalties.
   

4. Reduce the number of properties landlords can own without incurring an additional tax burden. The additional tax is used to pay to build more affordable properties.
   

5.   Prevent investors outbidding young British first-time buyers.
   

6. Introduce rent caps where single-occupancy homes cannot be rented out for more than one third (33%) of the average monthly take-home income within the local area where the property is being rented out.  
   

7. Cap rents of family homes that allow for young British people to raise two or more children at 50% of the average monthly take-home income of the local area.
   

8. Cap the number of short-term lets and introduce a short-term letting tax to pay for the cost of building new affordable properties.  
   

9. Introduce favourable mortgage terms for young British people and fist-time buyers that allow them to afford a mortgage costing no more than 50% of the average monthly income for the area.
   

10. Reduce the ability for foreign registered companies and trusts to own residential property in Britain.  
    

11. Increase the powers of the state to confiscate properties at no cost to the state for property owners that fail to comply with these reformative measures.

The details

1.     Build more high quality affordable and energy efficient housing that allows young British people to raise families of two or more children.

Supply must exceed demand in order to reduce the cost of homes for young British people. When Margret Thatcher allowed people to purchase their council homes this led to a significant increase of supply into the market making house prices cheaper comparatively. This was at a time when wages made properties more affordable and mortgages were easier to get with 1% deposit schemes.

A big question mark remains on where to build these homes. Much has been done to protect the green belt, which is valid. However, we cannot ignore the requirement to build housing and the necessity of building homes. It is not right that unused land is kept empty at the expense of young British people owning and residing in their own home. It should be recognised that a fair balance needs to be struck between protecting the natural environment and building quality homes for young British people. The areas that need to be targeted for development are brownfield sites and sites that have no farming prospects. Where land is fertile, every effort should be made to ensure that, if there is a decision to build on the land, the residence make best use of the land by growing crops or keeping livestock. This can also help the environment and reduce food costs for families.

There must be increased incentives for property builders to construct properties with an adequate ML-A so that young British people can own their property that enables them to raise a family.

2.     Increase public transportation in rural areas that connect isolated communities to major cities to enable young British people to compete for high-paying jobs that require an on-site presence but afford homes in these locations.

Many young people rely on transport networks into cities to get gainful employment. Whilst COVID accelerated remote ways-of-working, it is still true that on-site presence is a requirement for most organisations. When considering building homes for young British people, it is important to consider their professional requirements and how physically connected people need to be to further their career.

We have spent billions on HS2, a rail project that connects major cities. This can be a main artery for taking people from one major city to another. However, it is important to consider the smaller veins and capillaries that bring people into these major cities. As we build more homes for young British people, we need to be cognizant that these homes will need to be built further and further away from city centres. There can be greater value in making many smaller train and other transportation lines that feed into existing major railroad infrastructure to connect new family homes with towns and cities.

It would be disastrous if we build new homes with little job prospects because of their rural locations. Creating additional transportation will also boost our national infrastructure, create more jobs and create wider economic benefits to more rural locations.

3.     Create an enforced “Minimum Living-Area (ML-A)” - measured in square meters – for properties to have. Any property below the ML-A is designated as a “Slum Property” and subjected to penalties.

Renters know the state of the market, pay more for less. Houses of Multiple Occupation (“HMOs”) are common on the rental market. Many of these contain smaller living accommodation, particularly in major cities like London. It is not uncommon to see boxrooms, cupboards-under-the-stairs, and other space-restricting property adaptations.

Introducing an ML-A ensures that renters and owners can live in a property comfortably and prevent landlords an unscrupulous property sellers from creating slum-like residences that crowd people and unfitting accommodation.

It is imperative that all properties have a minimum floor space of 37 square metres. Where a property is a HMO this must be 37m2 per person within the property.

Should a landlord or property agent pout a property on the market with a ML-A lower than 37m2, the property should be designated as a “Slum Property” and there should be a financial penalty for the seller as well as price reductions of a minimum of 20% of the listed price of the property should a person which to occupy the property. If a seller refuses to build or adapt their property to increase their ML-A to 37m2 then at-worst their property shall be confiscated by the state.

The policy ensures that people can live in suitable accommodation that allows them to live comfortably and raise a family.

4.      Reduce the number of properties landlords can own without incurring an additional tax burden. The additional tax is used to pay to build more affordable properties.

We want to make owning and letting homes a more unattractive prospect for people who buy-to-let vast numbers of residential properties. Therefore, we recommend introducing a tax penalty for landlords who are buying up the residential properties that prevent first-time British buyers from owning their first family home.

We propose a tax on landlords owning multiple residential properties that can house two adults plus three children as follows:

a.     If a landlord owns between 1 & 3 residential properties meeting the criteria, including their primary residence, they are taxed either 25% (equal to corporation tax) or their standard tax as someone earning within the normal individual tax brackets.

b.     If a landlord owns between 4 & 10 residential properties meeting the criteria, including their primary residence, they are taxed 75% of the profits of the properties revenue no matter if they are held as personal assets or held by a corporation or other legal entity.

c.     If a landlord owns >10 residential properties that meet the criteria, including their primary residence, they are taxed 100% of the profits generated by letting these properties.

The tax generated from these properties will be used to meet policy objectives 1 & 2 outlined in this document. We would be prepared to consult on the tax brackets listed in this section. However, the aim of this policy statement is to dissuade people from being landlords and reducing the chances for young British first-time buyers to get on the housing market.

5.     Prevent investors outbidding young British first-time buyers.

Property investors regularly purchase residential properties to then let out or develop. These investors can squeeze young first-time buyers from the market as they are able to offer a cash and offer above asking price as they are able to forecast a Return on Investment (“ROI”) that makes an over-asking price offer a reasonable business decision.

Often young British people do not have the same capital resources to compete with property investors. Estate agents and property sellers are more likely to accept over-asking cash bids on properties. This further reduces the likelihood of young British first-time buyers from purchasing their first property.

We recommend introducing a mandated “order of preference” policy whereby investors are only able to bid on properties after first time buyers of British citizenship have had a fair opportunity to submit an offer for the property. This prevents investors from submitting an offer before first-time British buyers as property sellers are unable to accept any investor bid before first-time buyers have had an opportunity to submit an offer. We believe an acceptable time period is 3 months from when the property enters the market. Further, property sellers are unable to wait for 3 months before accepting the offer. If they receive an offer from one or more first-time buyers, they must select one of these offers. If a property seller fails to comply with this policy, the property will be seized and the monies gained from the sale to the investor will be distributed to the first-time buyers who submitted offers in the form of compensation.

6.     Introduce rent caps where single-occupancy homes cannot be rented out for more than one third (33%) of the average monthly take-home income within the local area where the property is being rented out.

Cost of housing is the largest deduction people see from their income. It is not fair or good for the economy if people only can spend money on having a roof over their head and nothing else. We want to introduce affordable rent caps which ensure that people can have a roof over their head and still live a full life where they can afford other things. This moves capital away from the residential buy-to-let market and into other parts of the economy.

We therefore propose:

·      Single-occupancy homes meeting the outlined ML-A requirement to be rented out at no more than 33% of the monthly average wage in the local area for the property.

·      HMOs meeting the ML-A requirement must also be let out at no more than 33% of the monthly average wage in the local area for the property.

These proposals are based on take-home pay rather than pre-tax as this is the amount of money people can actually spend on living accommodation. Taxed income does not reach personal bank accounts and so cannot be a factor.

7.     Cap rents of family homes that allow for young British people to raise two or more children at 50% of the average monthly take-home income of the local area.

Further to point 6, we propose a rental and mortgage cap of 50% of the average monthly take-home income of the local area for properties that allow people to raise two or more children.

These properties should be sufficient for two adults and two children and measured by multiplying the ML-A by four. Properties that exceed the ML-A calculation maybe rented or sold by mortgage for higher than 50% of the average monthly take-home income of the local area.

8.     Cap the number of short-term lets and introduce a short-term letting tax to pay for the cost of building new affordable properties.

Short-term lets are properties that are rented out like hotel rooms on a short-term basis (typically no more than 90 days). The benefit to property owners is they can operate these short-term leases at higher rents per-day than traditional longer term lets. The recent boom in “Airbnb” style lets has reduced the amount of properties that people are able to purchase to live in and has increased long term rents as there are less properties for renters.

We propose that there should be a regional cap on the number of short term let properties to allow local people to buy or rent properties at a reasonable rate. Additionally, we propose a tax of at least 40% of the profit from short-term lets to pay for building affordable homes.

9.     Introduce favourable mortgage terms for young British people and fist-time buyers that allow them to afford a mortgage costing no more than 50% of the average monthly income for the area.

There was a time where banks offered home buyers no-deposit or 1% mortgages – at a time when properties were more affordable. This was a component of what eventually led to a financial crash as people were offered mortgages they ultimately could not afford. The fact remains that a large number of people purchased their homes on these schemes and were able to continue making payments on their properties. These schemes are not available to young British people.

We encourage a policy whereby banks and other lenders can offer favourable mortgage schemes to young British people that allows them to afford mortgages on homes where they can raise families. These schemes must include repayments of no more than 50% of the average monthly income of the local area and allow people to purchase sizeable homes where they can raise families. Mortgages must also include affordable deposit terms including deposits of <10% of the property value subject to applicants meeting affordability requirements such as paying a near-equivalent amount in monthly rent payments. The term limit of the mortgage should also be uncapped allowing people to take out >50-year mortgages.

10.  Reduce the ability for foreign registered companies and trusts to own residential property in Britain.  

Put simply non-British registered companies from owning property in Britain reducing the housing supply for young British people to purchase.

11.  Increase the powers of the state to confiscate properties at no cost to the state for property owners that fail to comply with these reformative measures.

There must be an enforcement instrument to these policies and we propose – to make property owners and lenders motivated to comply with these policy requirements. We propose that property confiscation is used to take property from non-compliant people and organisations. Confiscated properties should be given to young British people.