When Shadow Chancellor John McDonnell began floating the idea of a right to buy scheme for private tenants over the weekend there was surprise, anger and dismay. Just a few days later the dust has settled on what would appear to be nothing more than an attempt to deflect attention from ongoing Brexit concerns. Stripping aside any political bias, what do we know?
Right to buy for private tenants
We know that the idea of a right to buy for private tenants, along the lines of the government’s right to buy on council property in the 80s, was first floated by Jeremy Corbyn in his 2015 leadership bid. This may well have looked good on paper to left-wing supporters but the fact it was never discussed after his election perhaps says everything?
Comparisons between the council house right to buy in the 1980s and legislation which would give private tenants the right to buy from private landlords are flawed. The government/local authorities owned the properties they offered to tenants, private landlords own these properties and the vast majority have kept them in good order.
Who would foot the bill?
As it stands there is no detail whatsoever on who would foot the bill. When you bear in mind the scheme on which it was based gave council tenants discounts of between 35% and 70% we are talking about billions upon billions of pounds. Back of an envelope figures suggest there are 4.5 million rented homes in the UK which could be worth a total of £370 billion. So for eligible right to buy tenants the cost to private landlords could be upwards of £100 billion!
Smoke and mirrors
During his 2015 leadership campaign Jeremy Corbyn suggested that a Labour government would use £14 billion of tax allowances available to landlords to subsidise the discount on private landlord properties. Where is the relationship between the £14 billion cost mentioned by Jeremy Corbyn and the real potential cost, upwards of £100 billion?
There is also the question of setting the discount level if the scheme ever came to fruition. John McDonnell had very little detail on this, suggesting that “this will be set by the government”. Well, to discuss such a groundbreaking controversial policy you would have thought the Labour Party would have done their calculations? It would appear not.
Forcing owners to sell
There are many buy to let landlords in the UK that have spent years building up their portfolios, nurturing their cash flow and creating potential for long-term capital gains. If private landlords were forced to sell properties as and when their tenants decided the time was “right” what would the incentive be for future property investors?
Many private landlords struggled through the last recession but held on in the hope of maintaining rental income and eventually seeing the value of their properties return to previous highs. So, if we have a recession and property prices were to plummet, would this not be the best time for tenants to buy and the worst time for private landlords to sell?
Ruining the private rental market
One of the main reasons why the private rental market has been so buoyant over the last 40 years is because of a lack of council housing and the ever-increasing cost of homes. Many people have been critical of the Tory government’s right to buy back in the 1980s which began the homeownership trend to the detriment of council housing stock. So a Labour government would follow the same track, risking legal challenges, potentially huge costs to the government prompting a slashing of both domestic and international investment in UK property markets.
Oh the irony….
Whatever your views on this policy announcement (can we even call it a policy?) let us leave this as a final thought. This policy is obviously a badly shielded attack on capitalism and those perceived to be wealthy. On the flipside of the coin, the policy is seen as a means of allowing less well-off individuals and families to benefit from future house price increases. In essence, this would remove well managed assets from capitalists and place them in the hands of non-capitalist. However, the previous non-capitalists would then be converted into yes you’ve guessed it, capitalists.
Is the irony of this lost on John McDonnell?