City Steve Reed is as numerically illiterate as Diane Abbott.

 We all know that the current crop of Labour MPs are not blessed with intelligence or basic maths skills but the now Housing Secretary "City" Steve Reed seems to be setting new depths at basic maths.

In his speech at the Lloyd's Banking Group Social Housing Forum on the 6th July he said 

"Taxpayers pay tens of billions in benefits to subsidise private landlords to rent out homes that taxpayers also paid to build."

Either he is stupid or he is a liar.  

Firstly I would say 99% of private landlords did not buy former council houses from the government.  They paid market rate + additional stamp duty to buy an asset that the government were stupid enough to sell at a 70% discount on market rate to the former renter.  Surely City Steve should get that providing massive discounts on this scale is ludicrous.

In a recent blog post I analysed the current house building programme and the social housing rents do not even cover the cost of finance. It would take 70+ years to break even. In the meantime I suspect some of these renters will purchase these properties under right-to-buy at a massively discounted rate and the taxpayer will still be saddled with the debt for another 70+ years - that's stupidity and subsidy....

City Steve's claim that taxpayers are somehow subsidising private landlords is just bizzare.

Let's look at the numbers for a property I disposed of.

I purchased the property 2016 for £160,000.  So I paid 2% stamp duty and a further 3% stamp duty as it was BTL. So I paid £8,000 in TAX simply to buy the property.  I put £40,000 down and took out a £120,000 mortgage at 3.5% so I was £4,200 interest per year on the loan.

I rented the property for £900 per month yielding £10,800 gross income. The agent charged 10% (so £90 per month and VAT on the fee so £18 VAT TAX per month).

I disposed of the property in 2020 so 4 years of occupancy so £216 in VAT TAX PER YEAR.

Typical maintenance costs eg insurance, gas saefty, repairs were running at 10%  so £1,080 per year

So the net rental income was £8,424 before interest

After interest it left a profit before tax of £4,224 which I would be taxed at 40% on so £1,689.60 INCOME TAX PER YEAR]. So this would be a reasonable 10.56% yield on capital employed before tax.

Now to start with things were fine however Section 24 kicked in meantime mortgage interest relief was phased out by 2020.

So in 2016 the net profit after tax was £2,534 from my £40,000 investment. A modest profit.

However by 2020 the situation was that there was ZERO tax relief on REAL FINANCING COSTS and I was paying 40% tax on net income and not on net profit.  

That meant I was paying £3,368.60 INCOME TAX but the real profit was £715.20  in other words I was paying a marginal rate of TAX of 82.5%.

Also Selective Licencing TAX was also introduced at a cost of £696 for 5 years.  Pretty obvious I needed to sell.  I was really lucky that the tenant moved out as the government made it illegal to evict during COVID.

Despite what the government believe, running a rental property is not passive income.  Tenants decide not to pay. Things break.  Some tenants think landlords are like their mum and dad so want their arses wiped etc.

I made some other disposals in 2020 as I wasnt earning any money due to COVID so I therefore had to pay Capital Gains Tax on this disposal at 28%. So my £11,000 net capital gain (after stamp duty, legal fees etc) was taxed at £3,080.

So let's top up all the TAX I paid on this little adventure

Stamp duty £8,000

VAT         £1,080

Income Tax £12,648

SL Tax  £556.80 

CGT Tax £3,080

TOTAL TAX £25,364.80

RENTAL PROFIT £7,915.20

CAPITAL GAIN £7,920

TOTAL £15,835.20

So this is a an effective tax rate of 61.5%.

So for all the risk, pain, stress this caused the government won and I lost.

So it is clear I am subsidising the government and not the other way round. City Steve needs to wake up and start thinking for himself rather than drinking from the Labour fountain of stupidity.

Thankfully I didnt lose money from this. It could have been far worse.  I was fortunate to have a low fixed rate mortgage for 5 years without this I could easily have lost money on this. I was fortunate the tenant paid the rent.  I was fortunate that nothing expensive went wrong.  I was very fortunate the tenant moved out so I could sell. 

It would be utter stupid to repeat this today. The RRA has given too much power to tenants. Mortgage rates are considerably higher.  And finally the government hates landlords.

The environment is one where the risk reward is biased and it's not worth taking any risks. 

So returning to City Steve.

There are 5.6 million privately rented properties in the UK and of these 1.7 million receive some housing benefit (universal credit).  So in other words 70% of tenants receive no assistance and those on benefits are a minority of 30%.  I have always had a policy of not taking tenants on benefits. They seem to think things like tattoos are higher priority than paying the rent. 

The average housing benefit for a tenant claiming is £148.91 per week = £645.28 per month.  With average rents of £1,377 per month that means  the benefit on average covers 47% of the rent and they need to cover the remainder.

Housing benefit is therefore 1.7M x £645.28 = £13.1 Billion per year for the private rented sector.

Now housing benefit for social and council housing is an average of  £146.62 per week or £635.35 per month. The average rent for social and council housing is £490 per month so actually the benefit is higher than the rent.  Now rents in London are higher and if you factor that in it means the AVERAGE benefit will fully cover London rents. 

1.62 Million social tenants receive housing benefit so the tax payer is fully SUBSIDING council tenants to the tune of £12.35 BILLION....

The problem is not that private rents are too high.  The problem is councils are providing social housing at below COST. Tax payers should not be subsiding 5 Million social landlord properties in the UK.....regardless whether they are on benefits or not.