"The increased transfer of homes over the last few years from residential letting to short term holiday lets is arguably directly attributable to the different tax treatments."
The government’s latest intervention in the housing market, in this case holiday lets, is no magic bullet and once again a sign of the fragmented, hotch-potch approach to housing policy.
The policy is aimed at giving powers to councils to ban future holiday lets if the local area has insufficient rentable or affordable housing and may also force property owners apply for a change of use. This will take up scare local authority resources and may result in a bad outcome all round.
The policy being announced last week is no magic bullet that will solve one of the many housing problems the country faces because of a totally disjointed set of housing policies the government presides over.
The withdrawal of homes from the residential letting market is in part driven by the higher returns that can be achieved on holiday lets compared with ordinary buy-to-let.
That difference in return was there as there is more operating cost and more hassle in holiday lets, due to continually servicing the property every time the guests change.
A tipping point came when the tax treatment of finance costs changed for standard buy-to-lets owned directly (i.e., not via a limited company), but which were not changed for holiday lets - along with continuing favourable treatment for business rates.
The increased transfer of homes over the last few years from residential letting to short term holiday lets is arguably directly attributable to the different tax treatments.
The Treasury could equalise the tax treatment across all types of small scale letting and ownership structures, leaving larger long term letting businesses to operate as they do now. But they choose not to do this.
Going further back you could say the tap-roots of this lie in the rise in popularity of letting as an alternative to the pensions system. Any tax change like this would still leave letting tax-advantaged compared with owning.
All these proposals will achieve will be more bureaucracy. It will not make available more housing for people who need it but while the tax advantages of short term lets persist there is a greater likelihood of more homes being left empty apart from a few weeks a year.
