Onward’s paper “Green, pleasant and affordable” is incredible, unfortunately

Onward has published its first policy paper, “Green, pleasant and affordable”..  It was written by Neil O’Brien, who has been an MP since June 2017.  He is a Conservative, believe it or not.

His attack on BTL is only a small part of the paper, but it has obviously been given precedence in the press release, judging by the number of newspaper headlines that mention it.

It starts “Onward is a powerful ideas factory for centre-right thinkers and leaders. We exist to make Britain fairer, more prosperous and more united, by generating a new wave of modernising ideas and a fresh kind of politics that reaches out to new groups of people. We believe in a mainstream conservatism – one that recognises the value of markets and supports the good that government can do, is unapologetic about standing up to vested interests, and assiduous in supporting the hardworking, aspirational and those left behind.

Our goal is to address the needs of the whole country: young as well as old; urban as well as rural; and for all parts of the UK – particularly places that feel neglected or ignored in Westminster. We will achieve this by developing practical policies that work. Our team has worked both at a high level in government and for successful thinktanks. We know how to produce big ideas that resonate with policymakers, the media and the public. We will engage ordinary people across the country and work with them to make our ideas a reality.”

No false modesty there.

“Our team has worked both at a high level in government and for successful thinktanks.“  But it appears they have not worked in the property world, unfortunately.

“Neil O’Brien OBE MP Neil O’Brien was elected as Member of Parliament for Harborough in June 2017. Prior to entering Parliament, Neil served as a Special Adviser in both Theresa May’s Number 10 Policy Unit and within George Osborne’s team in HM Treasury.”

Yes, he was a special adviser to George Osborne, the man who rose without trace, when he announced Section 24 – without having bothered to consult anyone in the industry.

Page 12 states:

“While the discussion about falling homeownership has been gathering pace in recent years, for younger people and people in more expensive areas the problem is in fact not new. Homeownership rates among 25–34-year-olds have been falling since 1989, and are lower than at any time since records began in 1961. Ownership rates for 35–44-year-olds are back to where they were in 1971.”

But his graph on page 18 shows that the number of owner-occupied dwellings was higher in 2015 than in 1995!

Today’s 34-year-old today was 23 in 2007 when the banks stopped lending to each other, let alone to house-buyers.  Prices fell, then lending regulations made it harder to get a mortgage.  Those are the reasons why ownership in this cohort fell.

Page 18 states

“Alternatively, if in Britain we had simply kept the ratio of privately rented to privately owned homes the same between 2000–2015, while building the same number of homes, we would have ended up with 2.2 million more homes in owner-occupation.”

If landlords had not increased the supply, a lot of the 2.2 million homes would not exist.  Rents would be higher and the mobility of labour would be lower.

Page 19 reads like a child’s essay.  It is tat that would not even get into the Guardian

“A really big increase in supply might tip the balance so that the number of owner-occupied homes might start to slowly grow, rather than slowly fall.”

This suggests that none of the current new supply is going to owner-occupiers, although the Help to Buy scheme enables OOs to buy new builds only.

And what is meant by “really big”?

“If we could increase supply by a third, owner-occupation overall would grow by about 25,000 units a year, other things being equal.”

A third of what?  And where does the figure of 25,000 come from?

“But if we compare this to the large reduction in the number of young owner-occupiers over the last decade – a fall of around 1.8 million – then even at this rate it would take about 70 years just to undo the fall in young owner-occupation we have seen in the last decade.”

This farcical statistic is based on all 1.8 million getting a new-build each, and some of them waiting until the age of 95, if not 104.

“We can only get a faster increase in owner-occupation if we also take measures to stop or slow the growth of the private rented sector which is displacing owner-occupation.”

They are not mutually exclusive.  Landlords have increased the supply of dwellings.  They did this by rehabilitating run-down properties, by converting large residential or commercial buildings into flats or houses in multiple occupation (HMOs) or by financing new builds.  And as developers were obliged to build affordable homes for housing associations on the same sites, as the price for planning consent, landlords also facilitated an increase in the supply of dwellings in the social sector.

“No plausible increase in supply will be enough to reverse falling affordability and falling home ownership on its own”.

Owner occupation isn’t falling, it’s rising.  O’Brien even says so, on page 53: “The combination of limits on mortgage interest relief and reforms to Stamp Duty in 2016 may have had some effect, as 2016 was the first year since 2005 to see a substantial increase in the number of owner-occupied properties. Perhaps relatedly, it also saw relatively slower (but still strong) growth in the private rented sector. Overall, it was the first year since 2003 in which ownership rates rose rather than fell.”

On page 52 he claims“Evidence so far suggests that the announced (and part implemented) restriction of mortgage interest has made little difference to levels of mortgage lending to buy-to-let. At the end of 2017, buy-to-let lending remained substantially above 2010 levels, and indeed above the late 2007 peak.”

If only he knew something about the business or had tried to find out through Google!  He might have found the following articles:

In April 2017, reporting a fall from March 2016

Lenders report 42% fall in loans to landlords as tax changes begin to bite

In June 2017

Buy-to-let UK property sales fall by almost 50% in a year

In May 2018, reporting a further fall from March 2017

Collapse in buy-to-let lending as landlords back out of market

And

Buy-to-let in freefall after tougher rules deter buyers

He denies that S 24 has driven rents up. On page 55 he wrote

“At the time of the 2015 announcement there were suggestions that rents could increase as a result of a dramatic decline in the number of rented properties.”  “In fact, since the Summer of 2015 rental price growth has declined from 2.5% a year to around 1% in April 2018, while the number of rented properties has continued to grow, albeit a little more slowly. Therefore the overall evidence from the 2015 and 2016 reforms is that tax reforms can have a positive impact on homeownership, but that measures taken, and so far are not large enough to produce a step change in ownership.”

What he fails to realise, due to his ignorance of the PRS, is that some landlords did  not increase the rent of tenants for several years, so that the rent was well below the market rate.  But thanks to having to pay a levy on interest, landlords have now started to increase the rents.  Some tenants cannot afford the increase and are being made homeless.  So yes, the reforms have increased homeownership, but have also increased homelessness.  This result was predicted right from the announcement of S24.

Page 56 states

“Although MIRAS (Mortgage Interest Relief At Source) was abolished in stages for owner-occupiers from the late 1980s onwards, mortgage interest relief remains for renting out residential property. The rationale for abolishing relief for landlords is equally strong – it simply increases demand and prices.”

Oh no, not this spurious argument still, surely?  Osborne made the same false comparison with the absence of MIRAS in his 2015 Budget speech.  Did O’Brien write it for him?

MIRAS was introduced to offset a tax that owner-occupiers used to pay, which was based on “imputed” rent – the rent that an owner-occupier would be willing to pay to live in his or her own property.

The tax on imputed rent was abolished decades ago, whereupon there was no;longer any justification for an owner-occupier to deduct interest when calculating tax.  However, MIRAS continued to be given for years after, as a subsidy for owner-occupation.  But it was unfair that someone who had a mortgage paid less tax than someone who rented, so MIRAS was abolished in April 2000.

Landlords’ interest is a cost of generating a taxable profit.  Like every enterprise in the country they deducted it under Generally Accepted Accounting Principles.

Page 56 continued

“In the Summer Budget 2015, the then Chancellor restricted relief to the basic rate, but decided not to fully abolish it. One risk in going further for existing landlords would be that it would push some highly-geared landlords into bankruptcy, and lead to some landlords paying more tax than they were earning from letting. The key issue is that the reforms applied to people who had made their plans on the basis of gaining the relief.”

Again through ignorance and lack of consultation he does not realise that S24 as it stands, without full abolition, will make some landlords bankrupt because their tax will approach or even exceed the real rental profit.  I know landlords whose effective tax rates will be 83% and 93% of their real profit, respectively.  If interest rates go up the tax will exceed the profit.

And he suggests restricting another cost:

“HM Treasury could also look again at the tax treatment of wear and tear. While the new post-2015 system (based on actually incurred costs) is fairer the previous system (based on a percentage of the rental value), the system still means landlords can gain a tax relief on their furnishings which owner-occupiers cannot.”

A new false comparison!  Where does he get them from?  The cost of replacing furnishings and white goods that wear out due to tenant use is a business expense.  They are not “their furnishings” – the landlord does not get tax relief on the furnishings in his own residence.  He can’t believe this is a sensible argument, surely.

“Ministers could also look again at the generosity of the relief. They could either reduce the rate or cap the total that can be claimed to prevent abuse.”

There is nothing generous about deducting the actual cost of replacements from income.  Therefore there is no justification for reducing the rate or capping the total.  Where is the abuse?

The drivel on this page makes me think that O’Brien was behind the rubbish that David Gauke and his minions used to send to MPs and landlords about S24.  Maybe he was the architect of Section 24, stolen from Natalie “Brainfade” Bennett’s Green Party manifesto.

This is Onward’s first policy paper. Let’s hope it’s the last.

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