What affect would taxing second homes have on the economy

[Kenai]

People can't complain if...

I think you'll find they absolutely can and will

 

[b0rn2sk8]

Of course you don't but its soul destroying for people who might watch 10 years of mortgage payments go down the drain or the house they just bought has 50k wiped off the value and they then spend the next 5 years just getting back to parity. There is a damn good reason the government are petrified of doing anything that would negatively effect the housing market. A huge number of people would be affected by a housing market crash and whoever presided over it would be almost guaranteed to lose the next election. Especially if they actively caused it.

Two big issues with that assumption though.

It assumes that houses don’t return to growth and that any tax applies actually causes a material decrease in house prices.

There is a huge upwards pressure on prices at the moment, taxing second, empty or rental properties isn’t always going to cause a huge flood to the market. It really depends on how they are taxed and what impact that has on your individual circumstances. Most landlords are not highly leveraged (big mortgages) and can ultimately afford additional tax.

For example if you are already wealthy, you may be able to afford the tax and just pay it, at least initially. There is also more buyers than sellers at the moment so any initial supply with be quickly snapped up.

The tricky part is to apply enough pressure for some people to sell, particularly if they are empty so those houses come back to the market but not so much pressure that it causes a huge glut to be dumped at the same time. You could also put some restrictions in place on who can buy, e.g. no second home owners, investors or properties for short term let.

But rather than a blanket tax you could easily come up with a tax that says something like 1% tax on a profit of 25% or more, 2% on 40% profit etc. People can't complain if you're taxing a tiny proportion of cold hard profit they've done absolutely nothing to earn.

It’s still a disincentive, if you really wanted to go down that route, a better solution would be not to make it a flat rate but to also take into account an onward purchase made within a year or something. So if you are downsizing you are only taxed on what’s left after that onward purchase is made. Local authorities would probably complain because they can’t take that money for care costs!

There is a huge demand for rental properties in general so like it or not, they are very necessary. Whether that should be provided by the state or private or non profit sector is another debate entirely.

 

[Pudney]

But rather than a blanket tax you could easily come up with a tax that says something like 1% tax on a profit of 25% or more, 2% on 40% profit etc. People can't complain if you're taxing a tiny proportion of cold hard profit they've done absolutely nothing to earn.

You clearly don't deal with people and tax!

People complain about 0.5% stamp on share transactions over £1,000.

 

[fez]

Two big issues with that assumption though.

It assumes that houses don’t return to growth and that any tax applies actually causes a material decrease in house prices.

We are talking about if something hypothetically caused a flash crash of housing price. If it was caused by a fundamental change in the housing market due to a policy change the prices wouldn't bounce back over any short term period or they wouldn't have dropped so suddenly. If it takes 10 years for your house to recover in value from the drop then its still a big loss as its value hasn't increased with inflation from its original pre-crash price you paid.

There is a huge upwards pressure on prices at the moment, taxing second, empty or rental properties isn’t always going to cause a huge flood to the market. It really depends on how they are taxed and what impact that has on your individual circumstances. Most landlords are not highly leveraged (big mortgages) and can ultimately afford additional tax.

For example if you are already wealthy, you may be able to afford the tax and just pay it, at least initially. There is also more buyers than sellers at the moment so any initial supply with be quickly snapped up.

Any policy would have to essentially remove the easy profit there is to be made on owning rental property. They wouldn't sell due to immediate pressure, they would sell because its no longer an asset worth the effort of maintaining.

The tricky part is to apply enough pressure for some people to sell, particularly if they are empty so those houses come back to the market but not so much pressure that it causes a huge glut to be dumped at the same time. You could also put some restrictions in place on who can buy, e.g. no second home owners, investors or properties for short term let.

This is indeed the tricky part and why its getting harder to solve. There will be a financial crash in the next 5 years which will effect house prices but by how much, who knows. This will obviously just funnel more property into the hands of the already wealthy unless something is done.

I think they should just completely disincentivise the ownership of second homes through crippling taxation that increases for every home you own beyond a certain amount.

 

[tlrBeta]

You make it sound like all second home owners are loaded or making millions.

Yes I agree, some rent prices in London are astronomical. That doesn't apply to all area's though.

For most it really is hardly anything that is made. Tax is paid on everything, including the BTL mortgage which is no longer tax free either.

 

[b0rn2sk8]

I think they should just completely disincentivise the ownership of second homes through crippling taxation that increases for every home you own beyond a certain amount.

Thats fine but that doesn’t change the fundamental need for rental property which is often conflated with second homes. Landlords do ultimately serve a market which needs to be served. Like I said whether rental properties should be provided by the state, private or not for profit sector (housing associations) is another discussion. There will always be a market for decent private rents which just aren’t going to be provided by the state for housing associations who only really focus on minimum need.

Empty home are a completely different kettle of fish and need tackling but that’s not the conversion we seem to be happening.

Housing often goes into other sectors like holiday homes for rent and other short term let’s (e.g. air b&b) which are completely separate markets to long term let’s to live in. They are huge markets and need to be served.

Finally you have private second homes and holiday homes which are basically owned for the private use of the owner and not let.

A blunt tax is going to have different effects on all of these types of owners, including unintended consequences and there isn’t a 1 box fits all solution.

 

[fez]

Thats fine but that doesn’t change the fundamental need for rental property which is often conflated with second homes. Landlords do ultimately serve a market which needs to be served. Like I said whether rental properties should be provided by the state, private or not for profit sector (housing associations) is another discussion. There will always be a market for decent private rents which just aren’t going to be provided by the state for housing associations who only really focus on minimum need.

We need rental properties for sure but I would wager that the supply we want/need is tiny compared to what we have. Almost everyone in reasonably secure long term employment wants to buy a house. The reason they can't is house prices. I don't know about your parents but the parents of most people my age all bought their first home in their early 20s. Thats a pipe dream for most people these days. Its hard to find the statistics I am looking for on percentage ownership of rental/owning over any sort of long term period but one statistic suggested that 3 times as many people age 35-44 rent compared to 20 years ago.

Empty home are a completely different kettle of fish and need tackling but that’s not the conversion we seem to be happening.

Agreed, there is no excuse for empty homes on the scale we see in some places. That should very much be addressed.

Housing often goes into other sectors like holiday homes for rent and other short term let’s (e.g. air b&b) which are completely separate markets to long term let’s to live in. They are huge markets and need to be served.

There should be a separate system that governs holiday lets because they are essentially a business and serve very different needs to general purpose housing. Even that causes huge issues in some parts of the country. Places like Devon which have a lot of holiday homes.

Finally you have private second homes and holiday homes which are basically owned for the private use of the owner and not let.

A blunt tax is going to have different effects on all of these types of owners, including unintended consequences and there isn’t a 1 box fits all solution.

Of course you have to treat different cases differently but if you have the wealth to afford a holiday home then there is no reason you shouldn't have to pay for that privilege and in most parts of the country the issue of holiday homes taking housing stock is minute vs greedy rich landlords hoovering up all the houses.

 

[tlrBeta]

. I don't know about your parents but the parents of most people my age all bought their first home in their early 20s. Thats a pipe dream for most people these days.

They also got married young and had kids younger compared to this generation

Any person that has a partner, doesn't rent/live with them first before getting married or buying a house is bonkers to me

 

[b0rn2sk8]

We need rental properties for sure but I would wager that the supply we want/need is tiny compared to what we have. Almost everyone in reasonably secure long term employment wants to buy a house. The reason they can't is house prices. I don't know about your parents but the parents of most people my age all bought their first home in their early 20s. Thats a pipe dream for most people these days. Its hard to find the statistics I am looking for on percentage ownership of rental/owning over any sort of long term period but one statistic suggested that 3 times as many people age 35-44 rent compared to 20 years ago.

There is a also a shortage of rental properties in a lot of areas. I really don’t think it’s fair to say everyone in long term employment wants to or is in the position to buy a house. There are loads of reasons why you might want to rent and there is a massive demand for it.

Generally speaking a huge number of people are entering the work place later (50+% now going to Uni for 3/4 years). They are living alone for longer and starting families later. This all has a knock on effect on how early people are buying houses. There is also the price compared to wages and not having a deposit issue.

 

[fez]

Generally speaking a huge number of people are entering the work place later (50+% now going to Uni for 3/4 years). They are living alone for longer and starting families later. This all has a knock on effect on how early people are buying houses. There is also the price compared to wages and not having a deposit issue.

That 3-4 years doesn't make a difference when we are talking people in their mid thirties onwards and (in theory) you should have a better earning potential if you have a degree. As time goes on, more people are also having proper careers so again, there should be more money available to them. Most of my parents generation had children younger but they also survived on one salary for the most part. Thats not even a consideration for most people these days who aren't in well paid jobs.

The single biggest reason people are buying houses later is simply house prices. There are obviously other factors but I would have bought a house about 5 years earlier than I did if I could have. Nothing stopped me apart from house prices and being able to save up the required deposit which was so high because of high house prices.

The sheer fact that house prices have risen so much should tell you that there is a huge demand to own houses. When your mortgage is 2/3rds of what you are paying in rent there is something going wrong.

 

[Bald-Eagle22]

So another bash the landlord post eh ?

In terms of taxing the 2nd home owner to the hilt all that would happen is a glut of property would come on the market and prices will crash . All you idiot's who took our massive mortgages at more than 3X or 3.5 X combined may just as well hand the keys over to the building socierty , much like a lot pf people did in the 80's when interets rates went north of 15% /.

As a lanldord of 3 properties there defintley needs to be 2 things that need to happen

• Regulation- I honestly believe landlords need to be licensed by local authorities , some of the toilets ive seen when looking to buy property that have an encumbent tennant in you wouldn't wish on your worse enemy.
• Taxation , tennat fees Act of 2019 - LEAVE IT ALL ALONE , THE ONLY ONE IT COST MONEY IS THE TENNANT.

 

[b0rn2sk8]

That 3-4 years doesn't make a difference when we are talking people in their mid thirties onwards and (in theory) you should have a better earning potential if you have a degree. As time goes on, more people are also having proper careers so again, there should be more money available to them. Most of my parents generation had children younger but they also survived on one salary for the most part. Thats not even a consideration for most people these days who aren't in well paid jobs.

Of course 3-4 years makes a difference, most students these says are not only entering the labour market 3-4 years later, they are also entering it at -£50k+ being paid off via a 9% student tax over £25k. Previously most people entered the labour market at £0. That also has a huge knock on effect in that people are not ‘settling down’ for far longer after leaving education. You are pushing into your late twenties before you are established in the labour market and even thinking about ‘settling down’. So many graduate jobs require you to up-sticks and move to different parts of the country and basically start from scratch. If you want evidence of that, just look at the average age of new parents, it’s far higher than it was in the 80s.

Not only that, due to qualification creep you now need a degree to do jobs that previously didn’t need one. There are loads of grads these days in jobs which anyone could do and are relatively low paid. If you don’t get a degree or a place on a workplace training scheme like an apprenticeship you are put at a huge disadvantage in the labour market and they really don’t hold the value they used to in the labour market.

 

[Quartz]

They bought it for something like £700k only 14 years ago. Which means they walked away with an extra £900k in their pocket.

Have you done the maths on that and calculated the annual return? Don't forget to account for maintenance, insurance, and improvements. And if they had a mortgage remember that they were paying that mortgage out of post-tax income. Without accounting for maintenance etc it's a 6% annual return. That's good but not outrageous.

And remember that house prices can go down. The property market hereabouts, for instance, is not good.

 

[M1k3H]

How will that affect companies that own rentals?

Won't that just push out the small landlords and allow the bigger ones to make more profit?

 

[b0rn2sk8]

There isn’t anything stopping you applying the same rules to companies as well as individuals. There are just consequences which need to be considered like housing associations and other not for profits tend to be companies.

 

[Street]

Regulation- I honestly believe landlords need to be licensed by local authorities , some of the toilets ive seen when looking to buy property that have an encumbent tennant in you wouldn't wish on your worse enemy.

Liverpool Council ran a licensing scheme for a couple years about 5 years ago. From memory, it cost me over £400 for two years and I saw absolutely no benefit. There were no checks or anything, it was just a money grab from the council. I'm sure the less reputable landlords didn't bother getting registered and it just stung the ones doing it right.

 

[Psycho Sonny]

Where are these 500k empty homes?

I can assure you every home being built around me has people buying them and living in them.

Just because it's happening in London doesn't mean that problem exists elsewhere.

Therefore you cannot say it's a nationwide problem that people are buying property and then just sitting on it, doing nothing with it.

 

[Surveyor]

Where are these 500k empty homes?

I can assure you every home being built around me has people buying them and living in them.

Just because it's happening in London doesn't mean that problem exists elsewhere.

Therefore you cannot say it's a nationwide problem that people are buying property and then just sitting on it, doing nothing with it.

Empty homes aren't just new builds. A few links giving some numbers:

Empty Housing (England)

The top 10 areas of Scotland with the most empty houses

Empty Housing Hotspots

 

[Psycho Sonny]

Empty homes aren't just new builds. A few links giving some numbers:

Empty Housing (England)

The top 10 areas of Scotland with the most empty houses

Empty Housing Hotspots

"And while many empty dwellings are unsafe or simply unfeasible to renovate into accommodation"

I didn't think they would use homes which are literally falling apart in these statistics but there you go. Yeah I've seen those places where all the windows are smashed and there is boards over the holes, etc. But I'm going to say you can't really say they are that way because someone has bought it up as an investment to sit on. They are in areas nobody wants to live in because of the type of people who have caused them to get into that state living in that area.

 

[arknor]

For most it really is hardly anything that is made

so why they complaining so loudly?