The Private Rented Sector – where next?

Clive Betts MP

Image: Clive Betts MP

In May of 2012, the all-party House of Commons Communities and Local Government Select Committee published a report showcasing the findings of their research entitled Financing of new housing supply within Great Britain.

We noted that the country has not come close to delivering the number of homes it needs for many years, and that this had been exacerbated by the recent financial crisis, which has reduced the resources available for new housing. On the demand side, levels of household formation in England are running at around 232,000 per year and yet in 2011, less than half this number of new homes was completed. The effects of this housing deficit are profound and becoming apparent: according to The Housing Report Edition 2, homelessness, private rents and the number of households in overcrowded conditions all continue to rise.

What is the solution? We found that there was no one ‘silver bullet’ for housing: action is needed across all tenures of housing, not least in the private rented sector which has faced ever-increasing pressure in recent years.

Our report concluded that increased investment from large financial institutions and pension funds might not be a panacea, but could make a significant contribution to the building of new homes in both the private and social rented sectors. We identified a number of steps that could be taken to bring in such investment, including: the contribution of public land alongside institutional finance; investment by local authority pension funds; and housing associations working closely with potential investors. During the inquiry, although we heard that securing such investment has long been a “holy grail”, we found optimism that the right conditions were now in place. For its part, the Government commissioned Sir Adrian Montague to look at the barriers to investment in privately rented housing: I hope that the outcome of this review will help to bring in much more finance from what has historically been an under-tapped resource.

However, while institutional investment could play a greater role, the private rented sector will continue to be dominated by smaller landlords. We proposed that the Government should bring forward proposals to simplify tax and regulatory structures to encourage private landlords to expand their portfolios and invest in new build housing.

It is suggested that Buy-to-let landlords now account for 89% of landlords and 71% of properties in the private rented sector, and that they have probably been the most significant source of private sector investment in housing over the past decade. This investment has largely been in existing homes and conversions, rather than in new build where the growth is required. Now, nearly 17% of all households rent privately compared to just 10% a decade earlier. This year, the proportion will probably overtake the number of households in the social rented sector.

However, the capital appreciation upon which the sector’s business model has been based may well have been a mirage and perhaps the elephant in the room is the view that housing is still over-valued and that, with the prospects for economic growth receding, house prices may still have some way to fall. Capital depreciation may have been mitigated until now by continuing increases in rental levels, but the government claims that its cuts in housing benefit will force reductions in rents. Suffice to say, there is no sign of that yet.

We must not forget housing standards. Whilst housing decency standards have improved over the last decade, the private rented sector still has the highest rate of non-decency; 37% compared to 25% for owner occupation and 20% for the social sector. And, the private rented sector disproportionately contains the very worst landlords in terms of management and maintenance. As the 2008 Rugg review concluded: “The existing regulatory framework does not offer sufficient sanction where landlords openly contravene regulations.” Although the government has set its mind against a national statutory licensing scheme, it will come under renewed pressure to act if landlords continue blatantly – and sometimes dangerously – to contravene the law.

Meanwhile, as statutory protection on tenure diminishes, an increasing proportion of tenants will be looking for more security, certainty and quality. Earlier this year, Shelter produced a briefing paper, Homes fit for families – the case for stable private renting, which spoke of a “new generation of no-choice private renters”. It found that almost three million adults expected to be renting privately for five years or more. It discussed the uncertainty experienced by many private renting families, and their concerns about the impact of any move on their children’s education and wellbeing. Depressingly, almost half the families with children responding to a survey commissioned by Shelter did not think of their privately rented housing as “home”. And, as the recent Joseph Rowntree Foundation report on housing options and solutions for young people confirmed, increasing numbers of 18-30 year olds are being ‘pushed’ into the private rented sector; for many of these young people stability and security of tenure will be vital.

We cannot, therefore, continue to see the private rented sector merely as a stepping stone to owner occupation. Many people have little choice but to see it as a long-term solution to their housing needs. In such circumstances, is an assured shorthold tenancy lasting six months or a year appropriate? Should we be looking at options for longer tenancies to give people and families the stability and security they need? And, if so, how can we encourage landlords to offer these? The Joseph Rowntree Foundation pointed to international evidence suggesting that incentives such as tax breaks could be given to landlords in exchange for longer tenancies for vulnerable or low income tenants.

The possibility provided in the Localism Act for councils in future to discharge their statutory homelessness obligations by offering properties in the private rented sector places further responsibilities on the public sector to ensure the standard of provision and the fitness of landlords and their agents. Increasingly councils are also seeking to address wider issues of anti social behavior and the poor quality of housing provision by looking to extend discretionary licensing arrangements over wider areas.

Given this big picture, perhaps it is now the time for an inquiry that would consider what can be done to address the quality of housing in the sector, examine the issues surrounding rents and regulation, and look at options for giving tenants greater security of tenure.

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