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Budget changes urged to increase housing investment

It has been mounting a long-running campaign to secure a professional rented sector (PRS) that is now beginning to bear fruit.

Currently, unconnected purchases of individual properties are taxed at the marginal rate for the price at which they are purchased (which may be 0%, 1%, 3% or 4%), but bulk purchases are taxed at the rate applicable to the aggregate price, which will almost invariably be 4%.

The BPF said this disincentivises larger scale investment in residential property, which should in fact be encouraged. Funding from pension and life funds could fund large scale rented housing and would be more likely to be linked to more professional and efficient management.

The BPF wants bulk purchases of residential property taxed at the marginal rate applicable to each unit, levelling the playing field between individual purchasers and those seeking to make larger-scale investments.

The Homes and Communities Agency (HCA), created with an £18billion budget to deliver housing over three years will shortly announce pilots to make institution-backed rental development a reality.

David Butler, director of corporate affairs at Grainger, the UK’s largest residential landlord, told the BBC’s Today Programme that the Government needed to pave the way for the recovery.

"We’re asking very simply that when you buy a block of property you tax it as if each unit had been bought individually.

"We have a significant disincentive to mass investment which is what the Government needs to be doing. We’re also asking the Government to look again at residential real estate investment trusts (Reits) which, for a variety of technical reasons don’t work at the minute."

Rupert Dickinson, chairman of the BPF’s residential committee and chief executive of Grainger said: "Charging Stamp Duty on bulk purchases of residential property at the individual rates would be very welcome signal of the Government’s support for developing a professional rented sector and with clear benefits for the wider housing market."

Liz Peace, chief executive of the BPF, said: "There is likely to be more demand for market rented housing for the foreseeable future. In a more constrained lending environment, however, buy-to-let investment is likely to decrease significantly, which could have a very negative impact on housing development output.

"The HCA is therefore carefully considering how institutional investment in the PRS could be increased. We welcome this focus on aiding the growth of an institutional PRS, which could help support housing market recovery and provide a source of long-term investment and professional management in private rented housing.

"Modelling work carried out by the BPF has shown that greater institutional investment in housing can be hindered by the profile of risk and returns. The impact of property voids in particular means that pure market renting is often less attractive than investment in commercial property or property such as student housing."

Peter Cosmetatos, BPF director for finance, said: "Today’s market conditions provide the best opportunity to grow institutional investment in the housing sector.

"However, it is important that any model that is put in place is sustainable, and we believe that the HCA is taking the right approach in seeking to establish a model that focuses on securing long-term investment with sufficient scale. We have already discussed above the role that residential REITs could play as a potential investment vehicle.

"There are, however, other tax and regulatory changes that would encourage increased investment, better management and ultimately a more professional rented sector."

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