Buy-to-let landlords in the UK enjoyed a wonderful boom from the late 1990s up until just before the financial crisis (and beyond in some areas). The British have long been partial to property as an asset class. But the huge, leveraged gains seen in the heady days leading up to the 2008 crash, with soaring house prices fuelled by low interest rates, really cemented the view that "you can't go wrong with bricks'n'mortar".
But recently, life has been getting harder for buy-to-let investors. House prices were already at unaffordable levels when the 2008 crisis hit. Prices slid in the immediate aftermath, but with the Bank of England slashing interest rates to near-0% and printing money (via quantitative easing) they didn't stay low for long. Meanwhile, the electoral calculus began to shift. Those who felt shut out of the housing market or feared that their children would be started to outnumber those who saw ever-increasing house prices as only a good thing. And landlords snapping up houses that would otherwise have gone to first-time buyers were an obvious target for their irritation.
So in 2015, with voters' anger growing, and a lack of affordable housing rapidly climbing the political agenda, then-chancellor George Osborne decided to curb tax breaks for landlords. While many didn't fully realise it at the time, the phased withdrawal of tax relief on mortgage interest payments was a disaster for mortgaged landlords, in many cases turning a profitable investment into a loss-maker. That became clear last year as the first phase of withdrawal began. According to Neal Hudson of Residential Analysts, quoted in the Financial Times this week, the number of flats bought in England and Wales fell by 10% last year, as buy-to-let investors stopped buying.
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So you might think that landlords had suffered enough. Far from it. A report this week, written by Conservative MP Neil O'Brien (for a new centre-right think tank, Onward), reckons the crackdown has gone nowhere near far enough. Britain's rented sector "is now bigger than all but three of the 28 EU countries", he notes. If we want to return to the Conservative ideal of a home-owning democracy, "we cannot continue to incentivise the growth of buy-to-let in the way that we do now". Instead, mortgage interest relief should be scrapped outright, and there should be further reforms to property taxes.
We've talked about many of these things in MoneyWeek in the past, and I have a lot of time for the view that we should limit housing's appeal as a speculative asset in favour of more productive investments. But whether you or I agree with the report is largely irrelevant. The point is this is firmly the direction of travel. Any change of government is likely to lead to one that is rather less than more friendly to landlords. Future generations are unlikely to be as enamoured of bricks'n'mortar as today's are.
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