By Toby HelmFrom The Guardian UK

Civitas argues for a discount to counter ‘generational inequality’ that has deepened over past two decades

Radical plans floated by Jeremy Corbyn to extend the right to buy to tenants of private landlords have won the backing of a major centre-right thinktank as a way to address the affordability crisis facing young, aspiring homeowners.

In a report to be published on Monday, the pro-market organisation Civitas also argues that the Bank of England should be placed under a statutory duty to keep the ratio of average house prices to average earnings within a defined range, in order to help control demand and limit price rises.

Support for such far-reaching policy shifts is evidence of deep concern among experts that the housing market is failing so called “generation rent” – those people, mainly in their 20s and 30s, who are increasingly unable to get a foot on the ladder as prices soar.

The report’s author, Peter Saunders, a research fellow at Civitas, says “generational inequality” has deepened over the last two decades as house prices have raced ahead of earnings. “The result is that the younger generation is now expected to pay a much bigger multiple of its earnings to buy a home than its parents did,” he says.

“The baby boomers are now making capital gains at the expense of their children. Between 2000 and 2014, average earnings rose by 51%, but average house prices rose by 132%.”

During his campaign for the Labour leadership last summer Corbyn put forward his own plan to extend the right to buy to the private rented sector. He suggested funding subsidised mortgages for private tenants by withdrawing £14bn of tax allowances that were at the time given to buy-to-let landlords.

Because George Osborne has now clawed back the tax allowances that Corbyn proposed using, that plan is no longer viable. But Civitas suggests other ways to achieve the same result and prevent the private rental market adding to the housing problem.

Saunders says that aspirant purchasers should be subject to the same right-to-buy eligibility rules as those who can currently buy their council or housing association homes, and that they should enjoy the same rates of discount. But there would also be measures to ensure landlords were not unfairly punished, including capital gains tax allowances at the point of sale.

He says: “Like council and housing association tenants, private tenants who exercise their right to buy would be entitled to a 35% discount off the market value of the house, up to a maximum currently set at £77,900 outside London and £103,900 in London. The same rules should apply to private-sector tenants who wish to buy their homes, but with two important riders.

“First, the discount should never be so high as to impose losses on the landlord. In the social rented sector, tenants cannot be given discounts which exceed the amount spent on the property by their landlords in the last 10 years, and discounts in the private sector should similarly be reduced to take account of recent improvements costs incurred by landlords. But in addition to this, the discount should be capped so the price at which the tenant purchases is never lower than the price originally paid for the property by the landlord (including the original transaction costs). This means landlords would never be forced to incur losses on their investments – an important safeguard for recent buy-to-let investors and for those who have bought in more depressed property markets. Without such a cap, existing landlords could be unfairly penalised.”

Right to buy in the private sector would be limited to tenants in properties which are at least 25 years old and which they had lived in for several years. This would ensure that investors were not deterred from buying new properties to rent out.

Saunders cites an example of a tenant in a private rented property outside London that had been bought by a private landlord 12 years ago for £200,000, and which had increased in value to £400,000. The tenant, under the plan, would be entitled to a 35% discount, worth £140,000, as long as he or she had occupied it for several years.

However, the maximum discount would be capped at £77,900 (the same maximum applies to sales of social housing) so the house would be sold to the tenant for £322,100. This would give the landlord a taxable capital gain of £122,100. But the capital gains tax (CGT) concession would reduce the sum liable to tax to £44,200. The landlord would therefore end up paying CGT of £9,268 – leaving a post-tax capital gain of £112,832 on the original investment of £200,000. Saunders adds: “Even if a tenant qualifies for a maximum discount of £77,900 (or £103,900 in London), these landlords will still enjoy handsome capital gains if they are obliged to sell. The discounts they would have to offer to their tenants would merely share out some of the windfall gains they have been making over the last decade or two.”

IMAGE: Civitas suggests a number of safeguards to protect private landlords. Photograph: Alamy

For more on this story go to: https://www.theguardian.com/society/2016/jun/11/jeremy-corbyn-right-to-buy-plan-backed-by-thinktank?utm_source=esp&utm_medium=Email&utm_campaign=GU+Today+main+NEW+H+categories&utm_term=176915&subid=11926420&CMP=EMCNEWEML6619I2