Buy to Leave

The Problem

It’s inexcusable that during a severe supply shortage many new build flats in London are being sold to overseas Buy to Leave investors and left empty. All whilst local buyers and renters are priced out of the market due to a lack of available properties.

Why is this happening?

Because our current government insists on taxing property based on Council Tax bands that use house prices from 1991 when houses cost a 1/5th of what they do now. In many central London areas about a 1/10th of what they do now.

The Welsh government revalued their Council Tax bands based on 2003 property price values back in 2005 and introduced new higher bands for high value properties.

So why in England and especially London where the problem is most acute is our government still using 1991 values?

This means that a foreign investor can purchase a luxury London property, for millions of pounds and only pays £1,345.48 a year (Westminster Council’s top band) in Council Tax. Even a £50 million home pays this tax.

In New York; if the same overseas investor bought a property of the same value they would pay around £200,000 in property tax each year. A lot more.

http://www.cnbc.com/2014/06/03/top-10-property-taxpayers-in-the-new-york-area.html

It’s not hard to see why all the global investors are so willing to snap up luxury London flats and leave them empty whilst the rest of us stare on in horror.

The government is also failing to apply a much higher Council Tax rate on long term empty properties. This means that over half a million homes in England remain derelict or empty. By not applying a higher rate of Council Tax on empty homes this means that land owners are not incentivised to renovate derelict houses to rent or be bought by first time owners therefore increasing supply..

For example in Washington DC property owners pay 0.85% of the home’s value when occupied but 5% of its value when unoccupied.

http://otr.cfo.dc.gov/page/real-property-tax-rates

So in Washington DC an owner occupier of a £2 million home would pay £17,000 property tax a year, far higher than the £1,345.48 a year charged by Westminster City Council

But if a £2 million home owner in Washington DC left their property empty, they would pay £100,000 a year. Far more than the £1,345 paid in Westminster.

Other governments with densely populated global finance hubs realise that demand for property will be high and supply short.

They therefore put in place taxation systems to ensure that housing stock is used effectively. Singapore and Hong Kong and other such cities apply property taxes based on a percentage of the properties worth. The higher the property price the higher the property tax. And many countries charge more tax on empty homes. This ensures that the owners utilise this scarce asset and that these flats are lived in or rented out.

Higher taxes on extortionate property prices (those over £2 million) would also dampen the grotesque distortions of the housing bubble, and make housing affordable once more to ordinary families.

That in my opinion is another problem. Many people do not want housing to be affordable, no matter how great the benefits to society, because they profit too much.

But with the amount of people priced out of owning or renting a reasonable home growing rapidly, I believe we are approaching a tipping point. This is why I have faith that policy will soon change.

The UK government at present though seems to prioritise the needs of themselves (most of the cabinet are mansion owners) and their rich donor’s, lobbyists and media friends.

The argument put forward that it’s unfair for someone who is cash poor but living in a £2 million home having to pay more Council Tax is absurd.

These people are either very rich or have made millions of pounds through the sheer luck of house price inflation. Only 110,000 out of the 25 million homes in the UK are worth more than £2 million, which is less than 0.5% of the population.

Most of our generation will never earn £2 million in our entire lifetimes. So I believe it only fair that people who are either extremely rich or lucky pay their fair share.

It’s not just a London problem. The fact that the majority of luxury London homes are left empty means that ordinary Londoners have to live further out in the suburbs, commuting longer distances.

These empty homes also damage the countryside, by not utilising our existing housing stock effectively we have to build more and more homes on our Greenbelt and in our countryside.

Also in Cornwall and many other beauty spots 2nd homes are being bought up and left empty for periods at a time, damaging the community and meaning young people forced away from their home towns and families. And of course more new housing needs to be built for them in rural areas too.

This could so easily be fixed by central government introducing the policies adopted by other countries.

The Solutions

Land Value Tax

The most radical alternative, put forward by The Green Party, and being considered by Jeremy Corbyn, is the Land Value Tax. Google it if you want details.

In my opinion it’d be the silver bullet in solving the housing crisis in one foul swoop. We live in one of the most densely populated countries in the world with some of the most expensive land values and I believe that our current system isn’t fit for purpose.

However I fear it’s too radical for our current government as it would upset a lot of vested interests. Too many wealthy landowners, including most of our politicians, their donors, lobbyists and media friends, would have to share their wealth with the rest of us. I don’t see this happening

21st Century Council Tax bands

Therefore I believe the most realistic option is simply to bring our existing property tax system, aka Council Tax, into the 21st century.

In Wales this has already been done. Why is England, with a far worse housing crisis being left behind?

Firstly reset Council Tax bands based on today’s property prices; 2015 not 1991. And make it so that the only people that would have to pay more is those who own houses worth £2 million plus.

With higher rates of Council Tax for the richest 0.5% we could ensure lower rates of Council Tax for the 99.5% of the population.

Higher Council Tax rates for long term empty properties

Secondly have a higher rate of Council Tax for properties that are empty for a certain period of time.

The Conservative/Liberal Democrat coalition government to their credit did introduce a law allowing councils to charge one and a half times Council Tax on homes left empty for more than 2 years. But given the values in London described above clearly this does not go far enough.

As stated before Washington DC charges 6 times the property tax for empty properties and the United States doesn’t even have a population density or housing crisis problem as bad as the UK.

Raising public awareness

It’s my belief that the current government and their friends in the media have a vested interest in keeping our 20th century Council Tax bands that are no longer fit for purpose to suit their own interests.

My goal therefore is to raise public awareness, that by taxing the richest 0.5% of our population more, we can help the 99.5% of our people by eliminating overseas investors who Buy to Leave our homes empty.

The United States is one of many countries to realise that “in examining the effect of various types of taxes on economic growth, it found property taxes to be the most growth-friendly, followed by consumption taxes and then by personal income taxes.”. This is because it incentivises those born into no money to create their own wealth by working hard whilst ensuring that the very rich pay some tax on their capital wealth.

An important point; global millionaires may be able to hide their money in offshore tax havens to avoid paying tax. But they cannot hide property. If they spend millions of pounds buying up luxury London homes at the expense of ordinary Londoners then they should be charged a similar rate as per other global financial centres.

 

The Benefits

The majority of homeowners would pay less Council Tax as the rich, those who earn £2 million plus homes, pay more towards the Council’s income.

Councils who have had their income decimated by cuts to central government grants could increase their income by levying higher rates of council taxes for the wealthy and for overseas investors who leave homes empty.

Therefore libraries and leisure centres would be able to stay open and local services could be improved not got rid of.

The majority of luxury London homes would be occupied once more, providing good quality homes in central London for people to live in. Enabling people to live closer to work, therefore average commuting times would be reduced.

This would have a knock on effect as more homes in suburbs and commuter towns would become freed up and available for First Time Buyers.

The greenbelt and countryside around the cities would be better protected too. Because less empty homes means less new housing would need to be built.

Our National Parks and Areas of Outstanding Natural Beauty would also be better protected. Reducing the amount of empty 2nd homes would enable First Time Buyers to live in them, therefore reducing the demand for new housing.

Life could also be breathed back into some of these dying villages by filling these empty homes with young families currently priced out of their home towns, keeping generations of families together and improving community spirit.

And by increasing the rates of Council Tax on long term empty homes we would also ensure that landowners bring derelict homes back into use and either sell them to families to own a home of their own or rent them out to those desperately in need of a roof over their heads.

Policy of Political Parties

The Conservative Party have been opposed to increasing taxes on multi million pound homes but I believe that they can no longer carry on using woefully out of date Council Tax bands and ignore the Buy to Leave scandal in London and the empty 2nd home problem in the countryside.

It’ll be interesting to observe George Osborne’s budgets and see if he is willing to tackle the vested interests of the richest 0.5% of the population for the benefit of the rest of society.

The Green Party are proposing the Land Value Tax.

The Labour party are developing their policy after the Mansion Tax was dismissed after Ed Miliband’s defeat. Their website currently states that “We will tackle empty homes by giving councils more power to charge higher rates of council tax on empty properties, and ensure new homes are advertised in the UK first, not overseas.

I can’t find any policy on the websites of UKIP or the Liberal Democrats.

In Scotland the Scottish Government is debating whether to carry on with the Council Tax system or replace it entirely with another system.

In Wales, the Welsh Assembly has already updated their Council Tax bands based on 2003 property values with higher bands introduced for top end properties.

So yet again, in England we are being left behind and the people are suffering.

Action you can take

If your MP is Conservative please email them and ask when they will update our Council Tax bands set in 1991 when property cost a fraction of what it does now and impose a much higher rate on long term empty properties to end the Buy to Leave scandal in London and the empty 2nd home scandal in our countryside.

Ask them why Wales are using 2003 property prices when in England we still use 1991 property prices despite having a far worse housing crisis

Ask them if vested interests, i.e. most cabinet ministers, their donors, lobbyists and media friends who live in multi million pound homes, is the real reason why they refuse to bring our Council Tax bands into the 21st century?

If your MP is from another party then please email them and ask them to challenge Tory policy in Parliament.

http://www.parliament.uk/get-involved/contact-your-mp/contacting-your-mp/

Philip Hammon, the Chancellor and Gavin Barwell, the Housing Minister are the two people with potentially the most power to change current government policy.

So regardless of who is your MP please email them to ask if they will increase the length of UK tenancies.

http://www.parliament.uk/biographies/commons/philip-hammond/105

http://www.parliament.uk/biographies/commons/gavin-barwell/

If by 2020 the current government is still only offering Europe’s shortest tenancies and highest rents for the 12 Million UK Private Renters then I’d seriously advise these 12 million people to vote for another party.

Email the Campaign to Protect Rural England and point out to them that by ending our Buy to Leave and Empty Homes scandal we can protect our countryside from excessive housing development by using our existing housing stock more fairly.

http://www.cpre.org.uk/contact-us

And please see my link to Other Organisations and get in contact with them too

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