The UK needs an ownership revolution. There has been a collapse in home ownership across the country, particularly among the young. Britain now has the fourth lowest rate of home ownership in the EU. The proportion of young people on average wages owning their own home has shrunk from two thirds in the mid-1990s to only a quarter, during which period house prices have risen by 160% in real terms while young people’s incomes have grown by just 23%.
Yet while we need to build more homes, we also need to ensure that more people are owner-occupiers, not renters.
In recent decades, millions of first-time buyers have been kept off the property ladder by the rise of private renting, and forced into the private rental sector. This was not just a product of house price rises: changes introduced under Labour produced incentives worth a cumulative £220 billion that pushed people towards buying second homes. The result was a housing market for the few, not the many.
‘From Rent to Own’ puts forward a fully costed policy which would actually raise substantial sums of money for the government while increasing the rate of home ownership substantially.
The report proposes that for a single year, the Government should turn the Capital Gains Tax payable by a landlord on sale of a rented home into a rebate shared between landlord and tenant - to the former as an incentive to sell, and the latter to contribute towards a 10% deposit so that they can purchase the home.
In order to ensure fairness, the tenant would have to contribute 3.33% of the value of the property to the deposit, although they would be given time to save or find this money. This would be a hand up on to the housing ladder, not a handout for nothing.
This scheme, entitled Help to Own, would mean that for every £1 a tenant invested to buy the property they rent they would receive a total of £3 for their deposit. For an average property worth £228,000, they would be putting in just over £7,000 and getting £22,800 back.
The report contains detailed modelling which shows that the levels of capital gain across the rented sector have been sufficient to pay for this scheme – and shows how, by putting in place highly generous caps on the payments to any individual tenant or landlord, the scheme would not only cross-subsidise other first-time buyers but produce revenue for the Treasury. It would also offer landlords a substantial incentive to sell, rather than punishing them for having made rational financial decisions.
If just one in 10 landlords took advantage of this policy this would allow over 1 million people to move in to home ownership – a massive shift in a single year. If one in four landlords took advantage of this rebate and offered it to tenants it would allow 2.5 million people to move into home ownership, more than the entire first decade of Right to Buy.