Patrick Collinson: Bring on the catastrophe

Patrick Collinson: Bring on the catastrophe

As we reveal this week, buy-to-let landlords picked up around £2bn in tax relief during 2006. This year the figure will be a lot higher, and by 2010 it's likely the government will have given away more than £10bn to people who already own a first home and in some cases tens or even hundreds more. Yet this is the same Labour government that says it can barely afford to cough up more than a few hundred million for "key worker" home schemes for nurses, teachers and other low-paid workers. And it lets the super-rich private equity barons pay less tax than their cleaners.

The tax giveaway on buy-to-let doesn't stop at writing off their interest payments. Buy-to-letters can also take advantage of "taper relief" on capital gains tax, and can access a £40,000 "lettings allowance". And if they set themselves up as a company, they can even avoid having to pay much in the way of stamp duty.

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Meanwhile first-time buyers are facing absurd house prices of five to 10 times their income, depending on where they live. How much tax relief did these people enjoy last year? Zero. No wonder buy-to-let landords can afford to snap up as much as half or more of all newly-built properties in London and other cities across the UK. And no wonder our postbag is full of tales of woe from those elbowed aside by the buy-to-let brigade or who are suffering from the blight brought on their neighbourhoods.

But if you speak to the lenders financing the £100bn buy-to-let boom, then any tinkering with the tax breaks they enjoy will result, they say, in catastrophe for the housing market. If the tax relief is axed, then buy-to-letters will start dumping their properties on the market, sparking a collapse in house prices.

But if that's a catastrophe, then bring it on. Why does one side of the British brain say that high inflation is a dreadful thing, but the other side insists that ludicrously high house prices are a wonderful thing?

A fall in house prices, or at the very least a halt to rising prices, is probably now essential. Traditionally, it is interest rates that are used to cool overblown markets. The problem is that they are an extremely blunt tool and rising rates hurt everybody - homeowners and businesses alike.

How much better would it be to withdraw the tax privileges of buy-to-let as a means of cooling the market. Yes, it means their "portfolios" will be less attractive and yes, they'll make less money than they thought. But they are not going to be on the streets because they are having to sell their second, third or 10th property.

Ah, they say, what of their poor tenants, thrown out because the landlord is forced to sell up? Well, perhaps those tenants, as house prices fall, might just be able to afford to buy their own place rather than paying off their landlord's mortgage. And a clever housing minister might bring in new tenancy rights to coincide with the withdrawal of buy-to-let tax breaks.

The money saved in tax reliefs for buy-to-let could be better spent on providing a mix of help for first-time buyers, support for housing associations and an increase in new-build, mixed-tenure social housing. Developers, who have become obsessed with selling to buy-to-letters, could even go back to the quaint old practice of building homes and flats for first time-buyers.

The new prime minister has a golden opportunity to re-balance Britain's grossly lop-sided housing market, and tackling the excesses of buy-to-let should now be at the top of his agenda.

Guardian Unlimited © Guardian News and Media Limited 2007