Subsidies for private rent sector 'make no sense'

TIGHTER controls on mortgage lending and government subsidies for private landlords are no way to prevent another 'boom-bust' cycle in the housing market, according to Norman Glass, the chief economist at the Department of the Environment, writes Robert Chote.

Mr Glass argued in a lecture sponsored by the Joseph Rowntree Foundation that good interest rate policies were the best way to ensure that there was no repeat of the 1980s boom in house price inflation. But Professor Duncan Maclennan of Glasgow University responded that this view 'sounds too much like DoE washing its hands of some serious problems'.

There was a good case for expanding the private rented sector for reasons of choice and flexibility, but it did not make sense to subsidise that sector to minimise the effect of mistakes in interest rates, Mr Glass argued.

He added that the private rented sector might be growing anyway without the need for large subsidies. 'The reduction in mortgage interest tax relief, the rise in the cost of mortgage indemnity insurance and more cautious lending policies will all have helped to close the gap for potential first-time buyers between buying and renting,' he said.

Mr Glass said he was not convinced that either a larger private rented sector nor controls on lending for house purchase would choke off inflationary pressures if another bubble developed in house prices.

But Professor Maclennan argued that the DoE should not rely on the Chancellor getting economic policy right. He argued for a kick-start subsidy to the rented sector to boost rental investment, in part to stabilise the release of money for consumer spending by people with larger mortgages than they needed. He also argued that public sector rents should not be raised mindlessly.