I know our government is convulsed at the moment with the Brexit disaster but this does not really excuse the lack of logic and clear thinking about the private rented sector.
Let’s take a look at where we are today and how we got there.
A bit of history and Margaret Thatcher
In the 1970’s and 1980’s the private rented sector was fairly small (about 8% of households). Most people either owned their own home or lived in Council accommodation. Such private rented accommodation as there was, tended to be fairly basic.
Then, as I described in my history post about section 21 there was a major change in the law in the 1980’s brought in by Mrs Thatcher’s Tory government. The premise behind these reforms was fairly simple
- Get rid of social housing
- Replace it with the private rented sector
Over the following 30 years, this policy was followed by both Tory and Labour governments. As a result, we have a greatly diminished social housing sector and a greatly inflated private rented sector.
This was brought about by light-touch regulation of the private rented sector along with the ability to evict as of right after the end of the fixed term, along with the selling off social housing under the right to buy.
However, this has brought problems unforeseen by the Thatcher government in the 1980’s.
Unforeseen housing-related problems
A large percentage of the social housing sold off to tenants has now been sold on and has passed into the hands of private landlords (it is believed some 40%). As private landlords are ‘for profit’ rather than ‘not for profit’, these properties are being let out at substantially higher rents thus increasing the benefit bill
The dramatic reduction in social housing means that the government is not able to provide enough housing (through local authorities and social housing landlords) to those in need and is heavily dependent on the private sector.
However, the big problem for the government is that they have no or very little control over the private rented sector. Private landlords can
- Rent to whom they like
- Charge the rent that they want, and also
- Change the type of letting that they offer (I’ll come back to this in a minute).
Big Problems for Local Authorities
Local Authorities currently have big problems as they have a statutory duty to rehouse families in need (who are mostly on some form of benefit) but no longer have the properties themselves to do this with.
So they are dependent on the private rented sector. But the Private Rented Sector is on the whole unwilling to let to ‘benefit tenants’ as
- The benefit payment system is unreliable and problematic
- Benefit tenants are often perceived as ‘difficult’, and also
- The Councils themselves often tend to have a hostile attitude (despite their reliance on them) to private landlords meaning landlords are unwilling to work with them.
This means that in order to perform their statutory duty, Councils often have to work with landlords who provide substandard housing and/or are actually criminal.
Big Problems for Government
The problem with moving the responsibility for housing up to 25% of the population to private landlords is that Government has no control over them and what they do.
Government has finally woken up to the fact that vast numbers of tenants are unhappy with the accommodation provided to them and is putting in place a tighter regulatory system.
This is good and most landlords, most good landlords that is, will not have a problem with that (other than with the speed of the changes).
However more serious is the increased taxation and the threat to remove the right to evict under section 21.
Landlords are ‘for profit’ rather than ‘not for profit’. So if renting becomes unsustainable financially – either because they are being taxed too high or because they are unable to easily evict non paying tenants – then landlords will have to respond to this.
But they may not respond in the way that government want or expect. As I see it there are three things they could do
1 Sell up.
This may be what Government want as it will make more housing available for those potentially Tory voting first-time buyers and families.
2 Turn their properties to holiday lets.
Airbnb and their ilk have resulted in a huge increase in holiday lets and many traditional landlords are jumping on the bandwagon.
3 Change the way they rent and turn properties into serviced accommodation.
The big advantage of this for landlords is that the occupiers will be licensees rather than tenants. Meaning that they can be more easily evicted and without the need for section 21.
What this means:
None of these moves are going to help tenants – other than the lucky few who will be able to afford the properties sold. But these will be the richer tenants. For most tenants, property prices mean that home-ownership is an impossible dream.
Increased holiday lets will remove potential homes for families from the pool of available accommodation and also can have negative effects on nearby housing.
Increased use of residential licensing will make accommodation even more insecure for the licensees than it currently is for tenants threatened by section 21.
Having over the past 30 years moved some 20-25% of the population into private housing, government is now in a position where they are dependent on people they can’t control for performing one of the most important social needs – housing.
This is not a good position to be in.
And finally
Housing is a critical human need. It’s not something that should be messed around with lightly.
Although some changes have been good, the situation as a whole is not. The number of recent changes has caused many landlords to think again. And they may not respond in the way that government want.
My advice would be to be careful about further changes (at least until the Bexit crisis is over), remove the right to buy and build up social housing. So housing low-income families is not in the hands of an uncontrollable (and sometimes rogue or criminal) private sector. It needs to be brought back in-house.
Then you will be in a stronger position to introduce other changes.
Jacob Rees-Mogg recently produced a report on the housing crisis for a right wing think tank, in which he sets out a Libertarian view of housing issues, arguing precisely the opposite to you Tessa, that market forces are the best way to run housing.I couldnt agree less and there are good arguments that a housing shortage is not actually the issue, as there may be enough to go around but access to it needs changing.
Just as worrying is the way many councils are getting around the problem of building by cosying up to international property developers, knocking down cheap council housing and replacing them with mixed developments at “Affordable rents”, ie, @80% of market rents, thus further driving out the poor whilst gentrifying the area.
Its my loose theory that government attacks on small private landlrods is deliberate, to drive them out and let big corporates in. Graingers and Blackrock et. Further driving global corporate markets
Of course, if Government WANT a situation where they have no control over housing supply then what they are doing is fine. But then they won’t be able to do much if things go wrong.
Yes, they have wanted big corporations to provide housing for a long time. But the big corporations don’t seem to wnat to play ball.
Spot on about corporate landlords Tessa.
Some facts and figures here;
https://www.ft.com/content/17b26ffc-4cba-11e9-8b7f-d49067e0f50d
132,000 units in the pipeline.
-Wow! Sounds impressive!
Until you read that only 30,000 have actually been built since 2015 (enough to house about 0.05% of the population, corporate landlords in total make up less than 3% of the private rented sector).
‘Pipeline’ means stick a huge banner on a crane on a prominent London site, wait for more government bungs and the attacks on individual landlords to kick in.
‘Units’ means a large box room.
Targeted at the richest 25% of tenants. (i.e No DSS)
And then put it in proportion;
Private rental households increased to 4,700,000 in the decade to 2017, according to the EHS. It is forecast to reach 7,200,000 m by 2025, according to PWC.
Even if you double the bungs and scrap section 21, corporate landlords aren’t going to sort that little lot out.
I dont agree T. I think the corporates are already all over the shop, see here https://corporatewatch.org/delancey-tax-haven-tory-developer-devouring-neighbourhoods/ Whenever we deal with rogue properties with Westminster council, half the times the owners are based offshore. And foreign criminals are using our housing market to launder money. I’ve never seen so many cranes all over London putting up shiny glass monstrosities that nobody will be able to afford to live in.
I agree with Ben, this was the point I was going to make re: “Selling up”. I don’t think it’s going to significantly increase the number of first time buyers unless there is a major (and I mean major) house price crash.
Instead, small landlords are going to sell to intuitional investors and other corporates, both based in the UK and not. What we’d see is a consolidation of Britain’s housing stock and land into the hands of fewer, larger entities.
For example, disallowing the expense of a buy-to-let mortgage benefits those that have the liquidity to buy property outright. The argument that it would put landlords and first time buyers on an equal paying field holds no water at all to me.
There is an argument that these entities will behave with more professionalism and provide a better service. I have my reservations and would suggest that if this is the end-goal, then the recommendations in the recent ROPA report should be implemented ASAP.
Otherwise, I agree with both of you:
Even though empty glass towers don’t really exist this far north, what does exist is the constant development of fancy estates that are out of the price range of the majority of locals. The margins at the lower end of the market are, I assume, tighter. So those houses just don’t get built. “Affordable housing” is a lie that, I think, Ben has previously covered, so lets not.. Ben says that shortage isn’t necessarily the issue. I say that that’s true and isn’t: We should be talking about the shortage of specific types of accommodation, and not viewing accommodation as a monolithic whole.
Right to buy and a lack of development of social housing has also been a huge problem. Both of these things are related, and come back to a really obvious point:
The private rental sector will adequately not provide for people with low incomes, for people who are unemployed, for people who struggle with substance addiction issues, for people who have mental health issues or complex needs. It just won’t do it. It doesn’t know how to, and even if it did, there wouldn’t be enough money in it to offset the risk.
Tessa’s right. Right to Buy needs to end and the government needs to kick-start large-scale development in the social sector. But this is against the interest to those who are currently exploiting the situation, and guess what? They have more money to lobby the government than the RLA or Shelter do.
It is true that there is no absolute shortage of property. Indeed the excess of dwelling over households is higher than it has ever been,. But the properties aren’t always the right type in the right area.
The private sector knows how to provide housing for those on very low incomes. it did so for centuries and still does today. It is very low quality or slum housing. Today it is illegal but still happens.
RTB is not the problem. The houses still house the same number of households and the rents would have gone up anyway. They were only low due to how protected tenancies weren’t working as intended and that wasn’t sustainable.
Buiders make more profit from building higher value properties, so that is what they build. If we want cheaper housing to be built we need to subsidize it. The big housing association near me does that. They have their own builders. They builder some luxury properties to make profits they use to subsidize the cheaper ones. Maybe councils should be allowed to subsidize the building of the types of housing there is a shortage of in their area. My local council published a report in 2011 that there was a surplus of 2 bed properties in the area but a shortage of three bed ones, though I suspect the situation has changed.
Sorry Tessa, but your history is wrong. At the the time of the 71 census the PRS was 22% of households. It continued to drop to 11% in 81 an 9% in 91.The lowest point was 1986 when it was only 8.6%.
Margaret Thatcher’s government’s main aim was to replace social housing with owner occupancy. That is what RTB was about, Restoring the PRS was a secondary issue. RTB was introduced early in her first term. ASTs came in her third term and did not become the default for new tenancies until 1996 under John Major.
There was perhaps a lighter touch than in the 60s and 70s but the protected tenancies had failed. Their “fair” rents were supposed to be around market levels but in the absence of a working market the RCOs were basically guessing and they tended to favour the tenants so rents gradually got worse for landlords. This was proven in the late 90s when a working market for ASTs caused RCOs to stop guessing and rents for protected tenancies to start rocketing. Tony Blair had to introduce a law in 1999 to stop such rents being raised to the “fair” levels. The inttent of the 1965 Labour government when it introduced protected tenancies was good, and the system was good enough not to become unviable for decades, but by the 80s reform in favour of landlords was desparately needed.
Originally council housing was not for those in need but for the working class in general. In 1947 the Labour government removed that restriction intended that it should satisfy the needs of a wide range of society. The tenancy provisions including rights of succession meant that once allocated such properties might no longer be available for those in need for several generations. The availability of properties for those in need was a side effect of the large size of the social sector in the 70s, not its purpose.
Now for comments not about the history :)
There is another reason why landlords don’t like to deal with councils – the housing departments appear to be incompetant. That might be because they are underfunded but that doesn’t matter to landlords. When councils get things wrong repeatedly in a way that affects you business adversely then it is natural to try to avoid dealing with them. Of course sometimes they get it wrong in your favour, but that is less significant. It is the problems that can put you out of business.
I believe the regulatory system is roughly tight enough, too tight in some places, too loose in others. The proposals the government made recently seem reasonable to me. A more major problem is is not working well. Councils (mostl) do not seem to be enforcing the law strongly enough. Enforcing the law on bad tenants takes far too long. A clamp down on both bad landlords and bad tenants would benefit the rest of us, but at a cost.
Of course private landlords can only charge rents that tenants are willing to pay. In London it seems tenants are willing pay up to half their income. Around here is is closer to a quarter,
I do not believe council housing worked all that well for most people. Locally since most of the housing stock was sold to a housing association it seems to have been managed much better. I think the main problem was councils being responsible for policing their own housing. Having the roles separated makes perfect sense to me.
Not being a communist I do not believe that the government should control where we live (barring a war). Nor so I beleive that housing should be uncontrolled. The supply of land is limited so housing is not a natural “free market”. Thus government intervention is needed to make it as free as possible. (Just to be clear, free in the economic sense refers to individual transactions being made freely, not the market it self being uncontrolled.) The problem comes when new regulations are introduced that impose extra costs on honest landlords, but which can be bypassed by dishonest ones, making it harder for the honest ones to compete.
Most tenants (84% IIRC) are happy with their accomodation. Higher would be nicer of course.
Most landlords (51%) do not have a mortage and most (80%) are basic rate tax payers. S24 and the increased SDLT affect only a minority of landlords, though some of them are affected very badly. Removing S21 should not be too serious if the other changes the covernment proposed go through, particularly the right to evict to sell.
The problem for FTBs over the last few years has not been high house prices directly. Prices can not go higher than people are willing and able to pay. Low interest rates have meant that people have been able to afford larger mortgages and thus pay more. But the restrictions on mortgages, particularly the deposit size, since the credit crunch has made it much hader for FTBs than it was in the early noughties. That seems to be passing. Last year the owner occupier rate increased for the first time since the credit crunch. Of course, in some places where lots of rich people want to live (central London, Cheshire’s footballer belt) prices are actually too high for FTBs.
I thought I had finsished, but realized I wanted to say something about Tessa’s recommendations.
I wouldn’t remove RTB, though I would reduce the discount and wouldn’t extend it to housing associations.
Council housing wasn’t designed to be low income housing. It only became so by accident and there were issues with it. You can’t take it back in house using the same system as that is not what the system did.
The private sector solution to low income housing is to provide cheap low quality housing. That has been made illegal but still exists so there is a demand for it.
We need a new system.What we have now is doing what people want it to do. Of course people want cheap high quality housing, but that is not really possible. Cheap decent quality housing for those in need would be good, subsidize by the rest of us, but not such as to form a benefits trap.
I don’t know how such a system would work, though I have some ideas. Trying various one out would make sense. It is quite possible that different schemes would be better for different areas,