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Joseph Rowntree Foundation offer three models to improve PRS

Friday 16 March 2018

The Joseph Rowntree Foundation has published three policy options together with costed findings, aimed at incentivising improvements to the private rented sector.

The findings come after carrying out an international review to identify incentive-based policy interventions used elsewhere in the world that may be transferable to England and subsequently holding a number of roundtables with a project advisory group of which ARLA Propertymark was part of.

Other representatives making up the group came from across a broad spectrum of bodies, including various landlord associations, Government departments, JRF and universities.  

A shortlist of potential incentives to improve the private rented sector for people in poverty was then produced. The focus was on incentives that have the potential to improve: access to housing, affordability, housing quality and security of tenure. 

In their report, JRF say that the costs of each of the proposals are much lower than the £808 million annual increase in tax revenues by 2021-22 that the Government anticipates making from restricting finance relief for landlords to the basic rate of income tax.

The three costed options to try and tackle the shortcomings of the PRS in England are:

Option 1
Introduce a Rental Incentive Allowance, enabling landlords to offset a proportion of their rental income against tax if they let their property to households in receipt of Local Housing Allowance.

Costed at: £354 million per year

Landlords would be encouraged by tax breaks to let to households in receipt of LHA and charge rents that are no higher than LHA. 

In England, the tax deduction could be set as a proportion of rent received from LHA (such as 20% to 100% of LHA), incentivising landlords to let to households in receipt of LHA and reflecting the difficulties that households receiving LHA currently have in accessing the private rented sector. 

The registration body would register individual tenancies, assess the level of LHA (or the housing component of Universal Credit) for that property, and hence the tax deduction due to the landlord in question. Landlords would confirm occupancy by tenants in receipt of LHA to the registration body, which would have powers to check and verify this.

Option 2 
This proposal aims to boost incentives to improve the quality of property by allowing specified improvements to properties to be tax deductible against income tax, rather than Capital Gains Tax.

Costed at: £36 million in the first year, rising to £86 million after nine years.  

In order to maximise the incentive to improve housing for people in poverty, it is proposed that landlords can offset the following improvements to their properties against rental income for tax purposes:

• up to £10,000 per year per property, on improvements that result in an increase in the Standard Assessment Procedure (SAP) energy-efficiency rating

• up to £20,000 per year per property, on improvements that increase the quality or liveable space of the housing:
(a) for properties where the current occupants are in receipt of Housing Benefit/Universal Credit, or
(b) where the landlord agrees to let the (currently vacant) property to a household referred by the local authority, at rents not exceeding LHA, for at least two years.

There would be a voluntary landlord/tenancy registration scheme, which would assess when landlords had met the terms for tax-deductible expenditure on specific properties.

Option 3
This proposal would improve access to housing by enabling local authorities to issue vouchers to priority households, guaranteeing the payment of rent.

Costed at: £170 million per year. 

The scheme would be centrally funded but administered by local authorities. Local authorities would have discretion over who received vouchers within the parameters of national guidelines and within a budget constraint.

Local authorities would set their own budget constraint, which would be determined by a combination of funding available from central government and any local funding that the authority decided to allocate to its voucher initiative.

Landlords accepting vouchers would have to offer rental contracts for minimum periods, with the principal incentive to be a guarantee that rental income would be received for the full period of the tenancy.

Whilst at the moment the three proposals are for England, these options could also be applied to other parts of the UK. 

In their report, JRF also highlight current policy and disincentives to helping those in poverty. These include welfare cuts, restrictions placed on landlords with mortgages by their lenders which prohibit them from letting to tenants receiving benefits, costly HMO regulation and licensing and recent tax changes, which some landlords recoup by increasing rents. 

Housing costs are higher as a proportion of income for more disadvantaged households, and as we pointed out in our written response, there are low levels of income growth generally which also affect people's ability to pay rents.

The report highlights the fact that landlords are also aware of the LHA limits and the risk of arrears from tenants receiving benefits, and are therefore often unwilling to let to low-income tenants who they fear will be unable to pay their rent.

With so little local authority housing available and long waiting lists, the new proposals aim to tackle some of the problems with the current status quo which makes it difficult for those in poverty to secure affordable, quality accommodation in the private rented sector.