Rented homes have become a major part of the UK property market in recent decades – there are now around 4.6 million households in the PRS. But there are some people who think buy to let should be banned, and that this would help to solve the housing crisis. In this post we’ll look at the argument and at what a study into cities where buy to let has actually been banned reveals.
First, what is the argument for banning buy to let property investment?
Critics say that buy to let creates a shortage of property to buy for owner-occupiers and so pushes prices up.
It’s claimed that buy to let investment can hit first time buyers particularly hard. Because landlords and first time buyers are often in competition for the same properties. Buy to let investors can usually afford to pay more. So first time buyers not only have to pay more but have less property to choose from – or even none.
A similar argument can be made for second homes and holiday property, which can also be a type of buy to let investment. Property is often in very short supply in these areas and locals can’t compete with second home and investor buyers.
So would banning buy to let solve the housing crisis and make houses cheaper?
A recent study in the Netherlands has found it might not offer many benefits, and there could be major disadvantages.
In 2022 a number of cities including Amsterdam, Rotterdam, The Hague, Utrecht and Eindhoven made use of a new law known as ‘purchase protection’. This effectively allows them to ban buy to let investors from buying properties to rent out in certain zones of the city – or in Amsterdam and Utrecht across the whole city. The new law means properties cannot be rented out for the first four years after they are bought. It allows local authorities to set the price bands that the ban applies to.
The theory behind the new law was to lock investors out of the market. It was thought this would help to keep prices down, or reduce them, and give first time buyers a better chance in the market. As in the UK, many parts of the Netherlands have a housing shortage which particularly affects first time buyers.
However, a study by the University of Amsterdam and Erasmus University Rotterdam has found that these benefits have not really materialised as expected.
The study compared and contrasted areas of Rotterdam where the ban applied with areas where it didn’t.
The study found that first time buyers did benefit to some extent. It found that around 2,000 properties nationally were bought by first time buyers when previously they would have probably been bought by buy to let investors.
However, it found that house prices were not really impacted by the buy to let ban. It did not make homes more affordable.
The ban mainly benefitted older, better off tenants who could have afforded to buy a house anyway without the ban. (These people had average or above-average incomes around €10,000 more than the tenants they replaced.)
The study found that renters were actually disadvantaged by the ban. It said that rents went up by around 4% as fewer rented properties were available. And their chances of buying a home did not improve. It concluded that renters on lower incomes actually lost out to more affluent owner-occupiers.
Could buy to let be banned in the UK?
While not a ban as such, the Government has been doing a pretty good job in recent years of discouraging buy to let investment with measures such as the restriction on claiming mortgage interest and more rules and regulations for rental property.
There is also the possibility that local councils could be given powers that would in practice allow them to ban holiday lets, by requiring them to need planning permission. The government has recently conducted a consultation on introducing new planning rules to allow this.
Calls to ban buy to let investment, or restrict it even further, may come with very good intentions. But if experiences in the Netherlands are anything to go by there are very few positives to be had by banning buy to let. Of course landlords and investors are disadvantaged, but so are most tenants. Well off first time buyers may find they are more able to buy because they are not in competition with investors. But it does not make housing any cheaper even for them.
This story was reported by the Dutch News website here.
The full details of the study can be read here