Property: New lease of life for an endangered species: Tax incentives to provide homes for rent would increase numbers of private landlords, says David Lawson

SIR GEORGE YOUNG will have the Tory faithful on their feet at next month's party conference. They have waited more than a decade for a housing minister to back landlords, every year enduring the same sermon - usually from Margaret Thatcher - about universal property ownership. Now tax incentives to provide homes for rent are on the agenda.

Ministers hope that cutting taxes on rents and capital gains could bring novice landlords swarming to soak up thousands of repossessions that are blocking chances of a recovery in the crucial housing market. This is one of a series of proposals to be spelt out at the conference. Others include giving flat-dwellers power to throw out their freeholders.

The initial reaction from Paul Mugnaioni, one of the country's few remaining major private landlords, is lukewarm. 'This could be merely a kneejerk reaction which will not solve fundamental problems,' he says. Mr Mugnaioni is part of a broad alliance, including such bodies as Shelter, which blames the bias in favour of home ownership for our current problems. 'If there had been no drive for higher owner-occupation we would not have this surge of repossessions today,' he says. Many buyers would have preferred to rent but had no choice. Now they are weighed down with debt or homeless.

Private landlords have become almost extinct. Around the turn of the century they provided 98 per cent of rented homes. Today the figure is closer to 7 per cent. One reason is the determination to buy rather than rent.

'For all its present woes, owner-occupation in the long run remains the most desired form of tenure,' says Lande Abisogun in the current journal of the Council of Mortgage Lenders. Renting makes financial sense when prices are stable or falling but values need rise only just over 2 per cent a year to reverse this.

But this still leaves times when people would prefer - or be better off - renting. That includes potential first-buyers who need to build a deposit rather than service a huge mortgage, professionals moving jobs, students, the retired and those who just do not want a commitment. Forcing them to buy pushes up prices, leaves many exposed to debt and makes moving difficult.

Melanie Cairnes, a 31-year-old PA at Estee Lauder Cosmetics, went through the property mangle once after buying during the boom. She and her boyfriend, Neil, could afford to buy now: 'But if you have burnt your fingers, you become much more wary of it happening again. I just did not want any more hassle.'

They now rent a flat in Docklands, east London, from Quality Street, Mr Mugnaioni's company. 'We chose to come here because it is near the river. The flat is glorious. It has a swimming pool and gym in the basement and everything is repaired when we need it. I just hand in the keys and it is fixed when I get home.'

Simon Ward and his girlfriend have also been through repossession, but it was a flat they were renting. 'We thought about buying it but we do not want a mortgage hanging around out necks yet,' says 22-year-old Simon. So they also moved into one of Mr Mugnaioni's north London properties.

'It is amazing to live in a place like this because if we were buying we could never afford the plush furniture and carpets, let alone the flat. We also get everything looked after - although so far that has only involved the oven door falling off.'

Thousands would do the same if given the chance, but there are just not enough rented homes to go around, says Mr Mugnaioni. The recent surge of lettings has come mainly through owners renting out unsold homes. Once the market recovers they will rush to sell.

Tax incentives to encourage new landlords have already been tried. Almost pounds 230m has been raised in the last year through Business Expansion Schemes geared to higher-rate taxpayers investing in rented homes. But these may be phased out at the end of next year.

Quality Street proves that professional landlords can be good for both tenants and investors. It started life in the boom with backing from the Nationwide Building Society and high hopes of spearheading a revolution in renting. Assured tenancies had just been created to rid landlords of fears that they could not reclaim property or charge market rents. But almost four years later money is still tight.

'I could do with pounds 50 million a year to satisfy demand,' says Mr Mugnaioni. Instead, he has just gone cap-in-hand to a European bank for pounds 10m. This will help pay for two radical moves. First the group is setting up a chain of high street shops where prospective renters can pick homes. 'It will be more like Marks & Spencer than an estate agent as people can walk in and pick property off the shelf,' he says. One store has opened in Aberdeen and others are planned for Bristol, Manchester, London, Glasgow and Edinburgh.

The other major advance involves building about 200 homes for rent in London, Manchester and Glasgow. 'It will be the first time in four generations anyone has done this in the private sector,' says Mr Mugnaioni.

The group already has around 2,000 homes - plus another 1,000 managed for other owners. But these were bought ready-made, usually from hard-pressed builders. 'There is a big difference creating homes for rent. We will be looking after these properties so they must be easy to maintain. Renters also tend to be single or with very young children, so they want to be near shops, stations and entertainments rather than out in the suburbs or near good schools.'

Each scheme has a broad mix of tenants, with single mothers on housing benefit living next door to accountants, doctors or nurses. Rents range from pounds 65 a week for a two-bed unfurnished flat in Cumbernauld in Scotland to pounds 140 in London. Assured tenancies give occupiers security but enable them to move on at a month's notice. Around 40 per cent are former owners. Some are moving jobs, some are retired and no longer want to own a home, others are just waiting for the right time to buy again.

The company also owns a large amount of social housing such as the 176-home St James's Place development at London's Bricklayers Arms.

'They are occupied by people from local authority waiting lists but I challenge you to tell the difference to private housing,' says Mr Mugnaioni. The secret is that the same quality of administration and maintenance is put in as for more up-market blocks of flats.

They also make a profit, which should impress financial institutions. 'But it is a hard mountain to climb. After generations when renting was looked on as a poor relation we now have a slump which has made everyone even more nervous,' says Mr Mugnaioni.

'Even if the Government comes up with the right package to tempt long-term investors, it could take another decade before we start achieving the balance which gives people a choice of whether to rent or buy.'

(Photograph omitted)