Kelvin Davidson: Our ‘top down’ perspective on the Government’s investor tax policy changes

It’s an understatement to suggest that the content of the Government’s housing policy announcement on 23^rd March was a surprise to most. In
reality, it was a major surprise to all. However, now that the dust has settled a bit, our perception is that the changes won’t have
as much impact as first thought. Sure, some landlords will look to sell properties and/or raise rents sharply, but for the most part, we think people
will carry on, just a bit less profitably than before.

 

Our analysis boils down to three key points:

• Existing landlords are unlikely to sell en masse over the next few years. After all, the full brunt of the removal of interest
  deductibility won’t be felt until 2025/26, and only by those with large mortgages. Then we also need to keep in mind that the cheapest option for
  many investors from a tax perspective is still going to be to avoid Brightline by not selling. And finally, there’s still the thorny issue of what
  to do with any sale proceeds anyway.

• Rents are unlikely to rise noticeably more sharply than they would have done anyway. First, if there’s no big landlord sell-off, then
  the supply of rental stock will be similar. Second, the historical evidence suggests that rents are much more closely tied to tenants’ incomes
  than landlords’ costs – for example, previous law changes (such as depreciation removal and Healthy Homes) haven’t caused rents to spike across
  the board. And of course many landlords value a good tenant and want to avoid vacancies.

• But further investor purchases of existing properties from here on will be curtailed. The extension of the Brightline Test to 10 years
  for purchases of...