In the grand scheme of levers at the Chancellor’s disposal, hitting asset-rich property owners isn’t a bad one to pull. After all, much of the UK’s wealth is held in property, and the way we tax it has never been particularly progressive: the current system relies on property valuations made in 1991. A revaluation and rejigging of the council tax bands is therefore long overdue, and may well make its way into Reeves’s speech today.
But the real question for the Treasury is which other property-owners should be hit with additional taxes, all to help plug the gaps in Britain’s depressingly leaky budget. Unfortunately, based on history anyway, we’re not likely to get an answer. The truth is that, over decades, this country has become reliant on a powerful legion of amateur private landlords. And whether we like it or not, no government can meet the country’s basic housing needs without them — even as they make life harder for everyone else.
With over 2.8 million across the country, Britain boasts roughly double the number of landlords as it does NHS staff, the country’s largest employer, while also outnumbering teachers four to one. Yet this isn’t a singular class, but rather a motley bunch of part-timers. Their main gigs vary from dentists to solicitors, from retired expats to Chancellor of the Exchequer. Their rental properties are there to afford them some additional income on the side.
This makes them a hard bunch to control or predict. How do you get them to keep their rents at least roughly in line with wages? How do you ensure they won’t sell up when you pursue decent policy objectives like tackling energy-inefficient home boilers? How can you make sure they will license their properties when the local authority says they have to? Such a situation makes our market dysfunctional, especially as these part-time landlords have become the primary providers of homes to those in most desperate need. As social housing growth has essentially flatlined, and house prices have soared out of reach, tenants now include low-income families, poorer pensioners and the homeless.
This tension between small-time investors trying to maximise their income, and a societal need for affordable housing, is at the heart of our housing problem — and which a braver Chancellor would tackle head-on.
Take housing benefit expenditure. This financial year, the Government is projected to spend £35 billion on housing benefit support, largely through Universal Credit. This is up by more than £10 billion from a decade ago, and has doubled in real terms since the Nineties. In addition to this, local authority expenditure on emergency homelessness accommodation has ballooned out of control. The figure, paid mostly out of local authority budgets, has now hit £2.8 billion — having been less than half that figure as recently as 2018. In London, the bill to councils is more than £5 million a day. This has caused catastrophic financial crises for the worst-hit town halls.
Vast sums of both of these budgets go directly into the pockets of private landlords. The New Economics Foundation estimates that £73 billion in housing benefit will be paid to private landlords between 2024 and 2029, while many of the most expensive “temporary accommodation” sites used by town halls are nightly let homes rented out privately. Through deals like this, individual landlords with no registered company can receive millions in state cash in just a few years.
This is terrible fiscal policy. Spending housing benefit in social housing is cheaper on a per-home basis, and keeps the money in the system (the councils and housing associations who provide social housing recycle any “surplus” from their rents into maintenance and new build). Spending state money building social housing is better still, since it creates an asset which the state will own for generations, meaning building costs can also be recovered over time.
And yet, Reeves, like all of her recent predecessors, has neglected to think about the bigger picture. At the last fiscal event, she grabbed as much money as she could find for new social housing developments, settling on £39 billion over 10 years. This was a welcome funding boost to the social housing sector, and a big rise on anything offered under the recent Conservative governments. But it is still only just over half the sum we will hand over to private landlords over the next five years.
This is a continuation of the same flawed policy that created the homelessness crisis in the first place, which only truly emerged over the last 15 years. Figures now show 131,140 households in temporary accommodation — up from 50,000 in 2010. This is a direct consequence of relying on private landlords to meet the needs of those on lower incomes. As private rents have risen, while housing benefits have been capped, councils have run out of homes to offer to people whose wages no longer cover the rent.
For most of the 20th century, private renting was a very different beast. Rent controls were introduced into the market in 1915, after landlords in Glasgow attempted to hike rates by 25% and, with most of the men fighting in war, the city’s women went on rent strike. This led to emergency war-time rental protections, which survived in some form until the Eighties. Moreover, private tenants had access to long-term security of tenure.
“For most of the 20th century, private renting was a very different beast.”
Back then, landlords saw themselves as part of a particular community. Old-school businesses and occasionally paternalistic organisations became involved: the Sutton family, former dockers who had been investing in property since the 19th century, dominated the area of East London I grew up in. But others were sharks, who did their best to operate outside the legal structures. Associated with organised crime, they sought the most vulnerable tenants, often new immigrants. Peter Rachman, who owned more than 100 properties in West London, gained such a strong reputation for bullying and intimidating tenants that “Rachmanism” now describes this form of semi-legal landlord exploitation. Conditions in these homes were a living disaster: whole families in single rooms, outside toilets, rat infestations.
But by the Seventies, all types of private landlords were dying out. Property prices were low enough that many working families could afford to buy — and decades of major building programmes meant those who couldn’t were still able to get a council house.
Indeed, even Right-wing commentators at the time believed the decline of private landlords was “quite irreversible” and that within a generation they would be “as extinct as the dinosaur”. Instead, we took a different path. In 1976, the UK got itself into financial trouble and had to go to the International Monetary Fund for a bailout. The terms of the loan demanded brutal spending cuts: and specifically targeted expenditure on new council housing. The IMF wanted the state out and the private sector in.
This was followed, three years later, by the arrival of Margaret Thatcher as prime minister. A leader who enthusiastically embraced the IMF’s philosophy, she cut spending on new council housing almost to nil, and introduced the Right to Buy policy, which saw millions of homes in the existing stock rapidly sold off. In 1988, Thatcher liberalised the rental market, axing rental control and introducing short-term tenancies with “no-fault” evictions. The idea was that private landlords would replace the state: people who couldn’t afford to buy would no longer get council housing. Instead, they would rent privately and claim housing benefit to meet the higher costs. As one of Thatcher’s housing ministers, George Young, said in 1991: “If people cannot afford to pay that market rent, housing benefit will take the strain.”
Then, in the Nineties, as global interest rates fell and banks made it easier to get mortgages for investment property, a tidal wave of money suddenly began to flow into landlordism. The money, though, did not come from large institutional investors as Thatcher had hoped: but rather from regular people who had a bit of spare cash and little prospect for a lucrative retirement through their pension. A survey from 2001 showed 65% of privately rented dwellings were owned by individuals, with less than one in ten owned by property companies. Altogether, just 9% of landlords saw their job as a full-time occupation. The era of the side-hustler had begun.
Today, Labour and Reeves continue to grapple with the consequences of these choices. There have been some steps in the right direction, what with the ending of no-fault evictions, and the imposition of major new obligations on landlords to cover repairs. Yet the single biggest problem remains: side-hustlers can always walk away. As our national demand for rental homes continues to rise, ministers are left in a bind, worrying about the ramifications of rocking the boat too sharply. House prices have risen to such an extent that we need a large amount of housing to rent. The state no longer provides enough, and so an absence of rental housing soon implies homelessness. Ministers and local authorities are terrified — rightly or wrongly — of private landlords selling up.
Reeves and her colleagues hope that big investors will step up, if small-timers step out. But this is wishful thinking: investors are more interested in the top of the market than the bottom; the gritty rooms in HMOs are of little interest to international money. These sort of properties look destined to remain in the hands of modern day Rachmans. Remember the 41-year-old man who was killed in a fire in a former Tower Hamlets council flat in March 2023. It later emerged that he shared a two-bedroom flat with up to 20 other adults; with no cooking facilities they had to rely on the landlord to provide food.
The Chancellor herself will likely get away with her own side-hustle misdemeanours, but it’s her fiscal rules that will make solving the wider crisis difficult to achieve. To make a start on a sustainable solution, we need to use our housing expenditure to build up low-cost social housing stock, rather than blowing it on benefits — and that isn’t something her current economic principles will allow.
So instead, we will continue to tap wealthy homeowners for taxes which we then hand to wealthy landlords, who provide housing which is all too often substandard. A housing strategy for the country would mean plotting a way out of this cycle of doom, and imagining a future where we no longer treat housing as a route to quick profits and instead as essential social infrastructure which we cannot do without.
