Housing law – setting the scene
In our house, we take the Observer on a Sunday and have done for years. My husband Graeme always gets first read of it and I normally don’t get a look in for a couple of hours.
I was particularly intrigued this week, to see from across the room, that the lead article on the first page was about housing. The first time I have seen a housing related article on the front page of the Ob for some time.
Here’s what it said:
Renting to be ‘way of life’ for young UK families
Millions of young families are entering an era of insecurity in which renting becomes the norm, according to a report that warns of steep increases in the number of parents unable to buy their own homes.
And a bit further down
… it is no longer just young, single people who are locked out of the property market and forced into an under-regulated rental sector due to rising house prices, falling real wages and banks that are unwilling to lend. The same difficulties are now besetting families with children, many of whom are paying half or more of their income in rent and, as a result, have little or nothing left at the end of the month to save for a deposit.
The report the article is basedon predicts that more than a third (36%) of British households will be renting by 2025.
That is a MASSIVE shift from the 8-7% of the population living in rented accommodation in the early 1990’s.
What does all this mean?
This has a number of implications for the future, and there quite a few points I would like to make about all this.
Discussing these with Graeme over the breakfast table it became clear that with all the things that need to be considered, it will be too much for just one blog post.
So I think a series is called for.
This I will be doing over the next few weeks. However I want to start by making the following fundamental points.
The original problem
When the 1988 Housing Act introduced the concept of an assured shorthold tenancy (where a landlord has the right to recover a property after the end of the fixed term provided the proper form of notice had been served), this was at a time when the private rented sector had dropped to nearly 7%.
And much of this 7% probably consisted of unwilling landlords, forced to be landlords because there was no way in which they could get rid of their sitting tenants.
The PRS at that time was effectively moribund. No one in their right mind would seriously consider going into property renting as a business.
Many of the new lets during that time happened by accident – people letting someone in and then being unable to get them out again.
The Thatcher changes
The Thatcher government in 1987 was elected on a mandate to change things, and one of the things they wanted was to change and regenerate was the private rented sector.
However to do this, drastic action was needed. This is why the assured shorthold tenancy was introduced. In fact it took about five to six years before things started to take off, after the introduction of ARLAs buy to let mortgage.
However things are now different. Now we HAVE a buoyant private rented sector. I suspect that the genie is not going to be put back into the bottle:
- many people have invested in bricks and mortar as an alternative to a traditional pension and need the income, and
- tenants are unable to afford to buy their own home and so need properties to rent
Today – a re-evaluation?
So taking this into account – maybe we need to have a re-evaluation of the whole system.
We need to consider whether laws introduced at a time of scarcity are really appropriate once that scarcity is no more.
A different approach
Often when writing on this blog I am looking at things from the point of view of an advisor to a client. Considering the needs of the individual rather than the needs of the many.
However for this series I need to abandon that approach and look to the bigger picture. Because finding the correct solution for the many will inevitably result in a better solution for most individuals.
I hope you will join me on the journey and let me have your views. What things do YOU think are important and what are YOUR solutions?
I may also be asking some guest authors to contribute. If you have any suggestions – let me know in the comments section.
To be continued …
Note:
I know landlords love ASTs but they are demoralising to be under when you are a tenant, the constant insecurity.
When the Housing Act 88 came in I was sent on a trainnig course run by Nic Madge, who is now a housing judge. He drew an egg shaped diagram on the flipchart to illustrate Assured Tenancies with a small yolk depicting ASTs. Nic Said it was envisaged that the AST would be a specialist tenancy that some landlords, but not all, may like to grant. Innocent days eh?
I totally agree with your comments about a housing system that grew up in response to scarcity not be wholly suitable now. There was only 12 years between the high level of tenant friendly Rent Act 1977 and the landlord friendly Housing Act 1988 but there has been no substantial overhaul now for 23 years, despite massive changes in housing goes about it’s business
I am lucky enough to have ownership of my property but I am very fearful for my son’s future. He is in his early 20’s, single and starting his career. It will take him many years to save a deposit for his first house, if he is even able to with such high rental payments. I hope we can find some path to making home ownership more accessible to more people. I look forward to your features!!
I agree with Ben regarding the lack of security of tenure.
The main problem is that there are too few institutional investors in the rented sector. Our PRS mainly consists of small, amateur landlords with an investment focus on the capital growth of one or two properties to fund their retirement, as opposed to relying on good, long term yields from rental activity. In turn this creates two problems:
1) Lack of investment to maintain the quality of stock.
2) Unwillingness to offer long term security of tenure because of a) the future need to sell at open market value without a tenant and b) their exposure to risk of having one bad tenant.
I don’t think there needs to be a big overhaul at all. The law as it stands is perfectly suitable and Assured Tenancy provide adequate security of tenure. All that is required is for the government to incentivise institutional investors to enter the residential market for long term investment.
Residential REITs may be part of the answer but unless there are some changes they will never be the ideal vehicle for many companies due to the high dividend requirement.
What brilliant input.
@ Evan, I totally understand your worries for your son but you are coming from the viewpoint that homeownership is the only viable solution. Renting is fine, it works in many different ways in many different countries but it isn’t a stable market when viewed against the background of current UK renting laws, which as Tessa accurately points out was created in response to a set of circumstances that don’t exist now.
Renting is a perfectly respectable choice in my opinion as long as the set-up meets the needs of landlords and tenants. What happened with both the Rent Act 1977 and the Housing Act 1988 was a see-saw thing, and it disturbs me that landlords can only feel their needs are met when tenants needs are reduced and vice versa. To me that isn’t a good place for anyone.
@JamieT. Absolutely. A tenant feels far more exposed when their landlord is a small amateur who are always on a financial edge and prone to bail out when their own circumstances respond to market fluctuations.
The difficulty is that in a housing shortage we need properties, regardless of where they come from. The Buy to Let explosion meets that basic need but also creates an unstable market. Corporate investment may well be the way out of this.
We cant argue with market rent levels. I would like to but even housing associations are moving that way with the laughably named “Affordable rents” idea, but the stability provided by organisational landlords who aren’t so at the mercy of the everyday market might just provide the security that so many tenants need and crave, so they can live in one place and not have to constantly move their kids to different schools.
For private landlords and, when Universal Credit comes in, social landlords too, the big fly in the ointment is direct payments of housing benefit to tenants. This has to stop.
“We cant argue with market rent levels.”
Absolutely. We have to rely on market forces or we’re asking for trouble. It was draconian rent controls post WW2 that lead to the massive shrinking of the PRS in the first place.
“the big fly in the ointment is direct payments of housing benefit to tenants. This has to stop.”
Hear hear.