This article was first published by David Smith on LinkedIn.
The government is clearly confused about its approach to the Private Rented Sector and needs to make some rapid decisions about where it is trying to go.
Failing to integrate the PRS with the overall housing offering and not making clear what the position is fails landlords and tenants and will lead to the slow death of the sector, to everyone’s detriment.
Bigger, Smaller, Same Size?
One of the first things the government needs to consider is whether it wants the PRS to bigger, smaller, or about the same size as it is now.
The PRS has grown in recent years due to the abundance of low-cost lending, changes to pension structures, and an endless demand from people priced out of the purchasing market.
However, there is little value in blaming landlords for this. They are mainly people with one or two properties who have made a sensible investment in their pension as a result of tax changes in other areas.
If the decision is to shrink the PRS
Then this needs to managed sensibly. Some form of house-price crash or forced sell by landlords would not be beneficial. The UK economy is far too bound up in property values to allow this.
If the sector is to shrink then doing this in a managed way with practical incentives is the right way to proceed.
Contrary to comments from some, if landlords sell up then they are likely to evict their tenants first as mortgage lenders are often reluctant to lend against existing tenancies and other landlords are nervous of buying problems.
If the sale is to a homeowner then there will certainly be an eviction to allow that homeowner to occupy. Simply pushing out tenants who cannot afford to buy to allow wealthier tenants to purchase the place they currently call home is not all that productive.
In addition, a great many landlords are renting properties that are multiply occupied or simply too large for a first-time buyer to afford. These landlords are unlikely to be able to sell to a homeowner and forcing them to sell up will achieve little.
We should also not ignore the large number of people living with their parents or in overcrowded property. Leaving the PRS at its current size but improving options in other housing sectors would give new opportunities to those who might like to rent but cannot find suitable property. Letting this happen in a managed way would also avoid unexpected sudden drops in rents and house prices.
The government also needs to think about the perverse incentivisation inherent in local and national policy.
At a local level
The creation of landlord licensing without good quality enforcement simply leads to bad landlords moving further underground.
Enforcement that is unfair and goes after easy targets rather than tackling the hard core of bad landlords simply turns off good landlords and incentivises them to push back against local authorities rather than working with them.
The huge variability between local authorities in terms of costs of licensing, time to process licences, and the standards they require in property is not a incentive. Professional behaviour from landlords will follow professional behaviour from their front-line regulators.
Other perverse incentives flow from the taxation system.
Removing mortgage interest relief from landlords has a certain logic, albeit one that a lot of landlords disagree with.
But leaving the incentives in place for short lets simply encourages landlords in some areas to shift their property from the provision of badly-needed homes to short let holiday accommodation.
The same applies to repairs and improvements.
Repairs are tax deductible, improvements are not. So a landlord who leaves an old boiler until it fails altogether will be able to deduct the cost of replacement from their income tax. However, a landlord who pro-actively looks to improve energy efficiency by replacing that elderly boiler earlier with a more efficient one has no such tax deduction available.
There are clear issues with standards in the PRS.
This has hardly been helped by the complex web of legislation that has grown up in this area. The Homes (Fitness for Human Habitation) Act was a useful improvement in requiring all rental properties to be fit for human habitation.
The very fact that there were properties that were not fit for habitation was a terrible indictment.
However, it should never have been necessary. The legislation to require this has always existed but the government had failed to keep it up to date to it only applied to properties at laughably low rents.
Some of the complaints from landlords about the Act were caused by the fact that they perceived it as a radical changes whereas if the legislation had been maintained all along no such big change would have occurred.
Section 21 and retaliatory eviction
In relation to section 21 there is much talk of retaliatory eviction. However, there already exists a power to prevent eviction where a property is sub-standard.
Where a local authority has issued an enforcement notice under the HHSRS, the use of a section 21 notice is not permitted. Therefore, while every assertion of retaliatory eviction is an indictment on the landlord concerned it is also an indictment of the failure of the relevant local authority to operate an effective HHSRS scheme that tenants are aware of and have confidence in.
We could do so much better on property standards. Tidying up the legislation and providing a clear set of standards across the full range of areas would be a good start.
Shoehorning in new obligations on short notice, such as new electrical checks starting with just a few months’ notice, and then expecting underfunded local authorities to enforce all this without enough staff or decent training is not the answer.
Access to Courts
The time it takes for landlords to evict bad tenants continues to grow.
Using the government’s own figures the RLA has stated that it has reached 30 weeks in London. This is simply unacceptable.
Delays in possession
- damage landlord’s businesses,
- undermine their trust in tenants,
- leave tenants living in limbo, and
- leave tenants in breach of their contracts in property that could be made available to better tenants.
This is particularly egregious in relation to the issue of bailiffs where landlords who already have a possession order are expected to wait inordinate periods of time before obtaining access to their properties.
This is not helped by local authorities who breach their obligations under the Homelessness Reduction Act by telling tenants to wait until the bailiff gives a date before they will offer rehousing.
While local authorities deny this happens those who work on the ground are well aware that it goes on. This is damaging to landlords and also to tenants who must endure the stress of knowing they will be evicted and are then often housed in unsuitable temporary accommodation.
The effect on tenants
The lack of access to the courts affects tenants just as badly. The cutting of public funding for proper advice and the difficulty of commencing proceedings well leaves tenants either unable to secure their rights or, worse, failing in their efforts to get redress because they fail to understand the technicalities.
A plethora of new powers to demand rent back may seem like a great way to put justice in the hands of tenants but this really just provides a new market for unregulated businesses who will help tenants recover rent, for a price.
Some of them are very good, others are not. But there is no insurance or redress for tenants who have experienced poor service and suggesting that an unregulated pseudo-legal industry is a replacement for professional, high-quality justice is simply nonsense.
Investment is essential
The reality which the government does not wish to confront is that it must invest in the courts to improve their effectiveness and efficiency.
The good news is that this investment will be returned to them many times over if we can truly crack the problem of providing landlords and tenants with proper access to effective justice.
To me the greatest example of the confused approach in the courts is that the Ministry of Justice has stated that possession hearings are a profit centre as they have increased possession court fees to a level that is greater than the cost of running the process. However, court fees are tax deductible.
So the only profit the MoJ has managed to make is from the Treasury. This exemplifies the total lack of joined-up thinking between departments.
What does all this mean?
It means that if we are serious about solving the problems of the PRS we need to be serious about what we want and need. That means government setting out a clear strategy.
Undoubtedly landlords and tenants will disagree, possibly violently, with parts of it. But a clear route forward is the only way to address the scattergun approach that prevails.
Even if landlords and agents are not keen on all the proposals – if they come as part of an integrated whole where they can see that they will see gains, then sensible business will continue to work effectively.
The PRS does not need special deals but it does need a clear and consistent message from government about its future.