Tenants should get a share of the capital gain profits in a buy to let property - because it is the tenant that effectively paid the mortgage, one leading housing commentator says.
John Bird is the founder of the street newspaper and social enterprise The Big Issue, and he says that making money from BTL is like 'shooting fish in a barrel'.
In an article for the newspaper, Mr Bird says that the BTL market increased the chance of 'quite ordinary people' to cash in on gaining property and wealth.
He points out that 90% of rented homes are owned by 'small fry' landlords with one or two buy-to-lets which is often their pension and something they want to pass down to their children.
His point of tenants sharing profits
Mr Bird illustrates his point of tenants sharing profits with a story about 'Jim' who rented a flat 20 years ago.
Then he could have bought for £100,000, if he'd had the cash.
But over 20 years, the rent doubled, and he now faces eviction because the landlord wants to sell up and has issued a Section 21 notice.
However, the flat's value has risen from £100,000 to £500,000 and Jim never missed a rent payment.
Mr Bird says the landlord didn't have to pay for the mortgage - Jim did.
'Borrowing money so that you can increase your income'
He says: "The buy-to-let arrangement, as long as the property value does not fall, is an ingenious way of borrowing money so that you can increase your income, and also see the steady increase in the value of what you bought with your mortgage.
"After 20 years, all the money that Jim paid has not increased his value in the world.
"Rather, the money he has paid has increased his landlord's value; but Jim will not be getting a share of that after his three-month notice period is up.”
'Get their hands on some of the value that they have created'
Mr Bird says: "It would only seem fair to me if Jim, and the millions of Jims in the world, could get their hands on some of the value that they have created for their landlords.
"The landlord has not created the increased value. Jim has. So why not cut him in when you throw him out and sell the property for top price?"
He says a potential solution is to introduce a scheme to reward tenants for boosting a rented home's value and give them a percentage of the capital gain when the landlord sells.
Or the tenant could be offered a discount if they want to buy their home.
Mr Bird writes: "Such a scheme would not only be more equitable, but also more efficient and sustainable.
"It would encourage more investment in housing quality, reduce turnover and vacancy rates, and foster better relationships between landlords and tenants."
Prospect of landlords splitting the profits of a sale
The article highlights Mr Bird discussing the prospect of landlords splitting the profits of a sale with a woman landlord.
She highlights that she had taken all the risks and if the property had fallen in value, that would be her issue.
Mr Bird says: "True. But for the last 30 years making money out of buy-to-lets has been like shooting fish in barrel.
"Buy-to-lets have given people a property portfolio who would not ordinarily have been able to participate in this giant rip-off of the tenant.
"The tax relief that goes with owning property you let out, a tax bonus to encourage investment, adds to this."
'See their rents as investments'
He goes on: "Ruling out renters from being able to see their rents as investments, and see returns on their payments, to me is an anomaly that could be addressed by getting more people into property ownership."
Mr Bird says that the UK has a low-investment economy with most lending from banks being made on property, and not business development.
He writes: "This is the ugly face of capitalism, and something must be done to end this turning of the basic need for a roof over your head into the biggest bonanza for some to make themselves wealthy.
"At the expense of the renter."
'People will think this is a good idea'
Simon Thompson, the managing director of Accommodation for Students, said: "There will be lots of people, unfortunately, who will think this is a good idea. It isn't.
"As Mr Bird alludes to, it is the landlord who takes on the risk, saving up for the investment and spending time and more money investing into the property."
He added: "How will the percentage be worked out? If I shop every week at Tesco, do I get to claim a big share of their profits?
"And if tenants can share the profit of the capital gain, will he recommend that they share in the loss of the property's value too? I doubt it." You can read Mr Bird’s article on The Big Issue website.
