The Private Rented Sector comes under the spotlight
January 22, 2013
As we start off the New Year the Private Rented Sector (PRS) looks as if it will come under even greater focus than it has for a long time. The PRS is a hot topic among all political parties and as such The Department for Communities and Local Government (DCLG) Select Committee called for evidence on several issues surrounding the PRS. This is something that I, as MD of ARLA, will take a look at shortly but first I want to touch on an important development for the sector from the end of last year.
Just as we were all winding down for the Christmas break an amendment was tabled for debate in the House of Lords by Baroness Hayter of Kentish Town. The amendment proposes that the Estate Agency Act 1979 is changed so that both letting and managing agents are included. ARLA has long suggested that this is an opportunity to help tighten up regulation that has been repeatedly missed by successive Governments.
Of course, with the advent of the Consumer, Estate Agents and Redress Act 2007 the proposed changes would require all agents that provide lettings services or property management to belong to one of the Government approved ombudsman schemes. This would start to create a level playing field in the quality of service provided to consumers – both landlords and tenants – and perhaps at the same time assist with greater simplicity for leasehold property. There is abundant support for this proposal from both those within the sector and from consumer organisations. It will be interesting to follow developments and ARLA will be sure to keep its stakeholders informed of all the latest developments.
Returning to the main crux of this article and how ARLA answered the Select Committee’s call for evidence…
The quality of PRS housing & levels of rent
Ensuring the quality of private rented housing, and that there are adequate steps to guarantee it is of a suitable standard, would appear to be common sense. Most industry professionals reading this article will not have any issues with the quality of their portfolio as they would reject poor quality properties so as to not impact negatively on their businesses reputation.
Unfortunately though we all know of agencies that will take on sub-standard properties and of landlords who will rent run down accommodation with total disregard for the law and the tenant. Much of this could be addressed by local authorities dealing more robustly with the Housing Health and Safety Rating System (HHSRS), and some commentators are even of the opinion that the HHSRS legislation requires tweaking in order to not overburden the authorities. There is also a proposal being put forward that the responsibility of overseeing housing standards be transferred to the Trading Standards Office. Whilst there is much logic to this ARLA believes it could over stretch the TSO’s resources and, without adequate funding, it would be difficult to reach the desired outcome.
Also under consideration is the reintroduction of rent control and those of us with knowledge of the historical PRS can only be appalled that such a proposal is being put forward. 100 years ago the PRS accounted for over 90% of the housing stock in England and Wales. There were several reasons for the reduction over the years, one of those was rent control. They proved to be a disincentive to landlords, who were mainly of the institutional type, and also limited the funds available to repair properties from their revenue streams.
Without a shadow of a doubt the same would happen today if rent capping was to be introduced and this would deter investment in the UK housing stock.
At a point in time that the Government and politicians of all persuasion recognise the need for more housing stock, and that the PRS will grow exponentially when there is funding available, then why would one want to create artificial markets? The very simplistic answer is that if we have enough housing stock the market will control the rent level. It is simple economics of supply and demand.
Regulation of landlords & letting agents including fees and charges
Evidence was requested on how to deal with rogue landlords and letting agents. ‘Rogue landlord’ is a very emotive expression and much of their poor practice is due to a lack of knowledge. What is required is for any person managing a tenancy, be it a landlord or an agent, to have acquired adequate knowledge through training and study to know what they should be doing and then controlled to ensure they are doing it.
The issue of agency fees and charges is another hotly debated topic. The issue of fees could be partially addressed by requiring an agency to belong to an ombudsman scheme as this would mean they have to adhere to a code of practice which would cover transparency in fees. Part of the issue is that there is a lack of transparency until the tenant is committed to the transaction and so it is imperative that a total cost transparency exists and is enforced before a customer agrees to anything.
Many agents do not charge fees to tenants, many charge fees which can be very simple to justify or understand and some agents charge fees which are just illegal. The issue is, once again, around supply and the bad practices which build up when there is a scare supply.
Another factor is that some tenants impacted by exuberant fees are vulnerable, often with poor command of the language, and desperate for a roof over the head of their family. This is a very emotive situation, and something we fully understand, but fees have to be able to be charged as there is a service provided to the tenant as well as the landlord. What is not acceptable though is that both the landlord and the tenant are paying for the same thing.
The economics of running a business will always mean that, where commercial rents and staff wages are higher, the costs will likely be higher than where the business costs are lower.
Regulation of houses in multiple occupations (HMOs)
In the real world HMO legislation is like trying to make your way through the jungle due to the many different standards and interpretations. The case for mandatory licensing is fully understood and there are many examples where a well administered scheme has improved the standards of the very worst property – unfortunately some local authorities have barely engaged with it.
The operation of selective licensing schemes
Selective licensing is like trying to work your way through a labyrinth. A number of schemes have been introduced with most intending to last for around 5 years. It will be interesting to see how many authorities extend their schemes and how many authorities look to introduce another method of licensing after having studied the evidence from some of the early schemes.
Freedom of information requests have previously revealed that, whilst many licenses had been granted, not much enforcement has been carried out. This is not really a way to go about encouraging engagement by landlords or their agents.
Security of tenure
Security of tenure is a matter that has been raised previously and is a point put forward strongly by Shelter. While their argument is understandable, and somewhat laudable, we at ARLA believe there to be a number are issues. Mortgage lenders are not keen on longer terms and can have a restriction of a maximum rental period of 12 months at a time. Also a tenancy of 3 or more years requires a deed to be drawn up by solicitors and will which add to the landlord’s costs.
Rent arrears can also be another issue as in some judicial areas it can take up to 9 months to get vacant possession when a tenant stops paying. A landlord cannot be expected to bear this level of burden and the current practice of shorter tenancies allows risks to be minimised by using end of fixed term and a section 21 notice to gain possession.
ARLA are glad that various issues surrounding the PRS are being highlighted and examined by the government and we look forward to seeing the results from the DCLG’s call for evidence.
Managing Director, ARLA