Land could come under ‘common ownership’, inheritance tax could be abolished and the buy-to-let market could be tightened under housing proposals floated by the Labour party yesterday (June 3).
In a paper entitled Land for the Many, written by a group of academics, economists and land experts for the Labour leadership, and published by the Labour party, a set of reforms aimed to stabilise house prices, end the “buy-to-let frenzy” and revolutionise tax policy was put forward.
The authors recommend a Labour government should set an explicit goal to stabilise house prices and pinpoint land price inflation as the root of house price inflation.
To do this, a Labour government would discourage land and housing from being treated as “financial assets” and one solution would be a radical common ground trust — a non-profit institution that would help prospective buyers purchase homes.
At the buyer’s request, the trust would buy the land underlying the property to make the upfront cost of home ownership more affordable. The buyer would then pay a land rent to the trust.
The paper suggests that by bringing land into common ownership, “land rents can be socialised rather than flowing to private landlords and banks” and “debt-fuelled and speculative demand can then be reined in without the risk of an uncontrolled or destabilising fall in values”.
In order to end the so-called buy-to-let frenzy the authors suggested major reforms to the private rented sector.
These include open-ended tenancies, a cap on annual rent increases and firmer regulation and restrictions on buy-to-let mortgages.
Under the reforms, landlords would lose their power to evict a tenant who has not broken the terms of the agreement in the first three years of the tenancy and would then have to provide grounds for eviction after that point and rent increases would be capped at the rate of wage inflation.
The paper also suggested the Bank of England should “encourage a shift in bank lending away from real estate” towards “more strategically useful sectors of the economy”.
Banks currently have a strong incentive to lend against housing collateral as capital requirements for mortgage loans are lower than for other types of lending such as small businesses, it stated.
This bias could be reversed by raising the risk weightings for mortgage lending and lowering the risk weightings for productive forms of lending, or by enforcing a maximum ratio of mortgage lending to productive lending.
Once house prices are “stabilised” — due to the common ground trust — a Labour government could then tighten the rules over maximum loan-to-income and loan-to-value ratios which the paper states would prevent any future debt fuelled re-inflation of house prices.
The paper goes on to discuss tax reforms, including a progressive property tax, stamp duty reform and inheritance tax abolition.
A progressive property tax would replace council tax and would be payable by owners of property, not tenants.
Under this, empty and second homes would automatically be taxed a higher rate and a surcharge would apply on properties owned by those who are not resident in the UK for tax purposes.
Labour would also propose that stamp duty land tax should be phased out for those buying homes to live in themselves and that capital gains tax for second homes and investment properties should be increased.
Under the new reforms, inheritance tax would be replaced with a lifetime gifts tax levied on the recipient.
A lifetime gifts tax would be levied on the gifts received above a lifetime allowance of £125,000. When this lifetime limit is reached, any income from gifts would be taxed annually at the same rate as income.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Labour’s proposals are no real surprise as they are along the lines of similar ideas which have been previously mooted.
“Although some people may be scared by the prospect, some of the ideas have merit, particularly regarding the need to modernise the current outdated council tax system.
“Ensuring that upper bands are added and regular revaluations take place would make it fairer for all as current limits have not kept pace with inflation.
“As for the other measures, not many people would take issue with stable prices and more affordable homes but pulling that particular rabbit out of the hat has always proved difficult in the past.
“Killing market forces and the ability of the private sector to generate much-needed housing for all will remain important unless the public sector is going to take over the majority of housing provision.”
By Imogen Tew
Source: FT Adviser