Government stance on rental sector is ‘incoherent’, former MPC member says

The government’s approach to the private rented sector is “incoherent”, according to a former member of the Bank of England’s Monetary Policy Committee (MPC).

David Miles, now a professor of financial economics at Imperial College London, has argued that contrary to the government’s stated aims, there are “few signs” that tax increases on the sector have benefited those hoping to become homeowners.

Writing in a blog post for the Residential Landlords Association (RLA), Miles said that instead, potential first-time buyers were “left in a rental sector with reduced choice, and where rents are likely to be higher as supply gradually shrinks”.

He noted that since 2015, the government had introduced measures to restrict mortgage interest relief on the private rented sector to the basic rate of income tax, and also imposed a 3% stamp duty levy on the purchase of new homes to rent out.

Miles attacked the government’s approach – which was designed to cut investment in the rental market to support aspiring first-time buyers – saying it “hardly helped by squeezing the supply of rental property and driving rents up”.

He went on to state that there is nothing “intrinsically wrong with people being in the rented sector for an extended phase of their life. We should want to avoid a situation where people feel pressurised into taking big mortgages relative to their income early in life, because the rental option is so poor”.

Miles argued that in an economic environment where house prices were consistently higher relative to incomes than they were in the past, it might “naturally” be expected for people to stay in the rented sector for a longer period. He added that it was “perverse” to then have measures put in place that reduced the supply of rental property.

Commenting on Miles’ stance, RLA policy director David Smith, said: “Professor Miles hits the nail on the head. Choking off the supply of rental properties does nothing to help aspiring first-time buyers who need somewhere to live now. It is time to change tack and recognise that we need more homes to rent as well as to buy in order to meet growing demand, and have policies that support investment.”

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