The data talks for itself; low rents, longer tenancies, lower evictions, high satisfaction and better quality. When you look at the independent data, you would think that the PRS is, broadly speaking, on the right track in Wales. But there are dark clouds on the horizon for landlords in Wales, and the storm looks set to hit in 2018.
The PRS caters for many different types of tenants with very different requirements, however the sector as a whole receives very high satisfaction rates. The National Survey for Wales finds that 90% of PRS tenants in Wales are satisfied with their accommodation. This compares to 83% of tenants in social housing across Wales. While at the same time rents are kept relatively low (0.1% decrease in the 12 months to June 2016). Added to this the PRS has increased security, with the PRS making far fewer claims for possession last year than the social housing sector (4,265 in the social housing sector compared to 677 in the PRS*).
All of this data sounds great; there’s still work to do with the PRS, but it’s on the right track. Except when you begin to ask where the growth is now and where it’s going to come from over the next five years.
Two major pieces of legislation are due to hit landlords in Wales the hardest around exactly the same time, April 2018. The two in question are the Renting Homes (Wales) Act 2016, and the Finance Bill containing the much talked about reductions in Mortgage Interest Relief. These two pieces of legislation are very different, however the combined effect (especially after the introduction of Rent Smart Wales) could be enough to see investment dry up and, for the first time in years, the PRS shrink.
The Renting Homes (Wales) Act 2016 will result in landlords using a “standard Contract” made up of fundamental, supplementary and additional terms. It also includes a number of additional provisions on topics such as retaliatory eviction, abandonment, and most notably new requirements (yet to be laid down) on fit for human habitation. This is a major overhaul which will require landlords to spend a considerable amount of time and money understanding the new system of contracts, as well as meeting new requirements under the fitness standard. All of the regulations for the Renting Homes (Wales) Act 2016 have yet to be made, and isn’t predicted to come into use until early 2018. On top of this April 2018 will be when the full impact of the MIR changes are being felt by landlords, with the reduction down to just 20% in April 2018.
All of this makes dire reading for prospective investors thinking about the Welsh market. Why invest now when in two years the landscape is going to change dramatically and become much more difficult and complicated for the individual?
It’s difficult, with the onslaught from Westminster and the Welsh Assembly, to imagine the PRS growing in Wales beyond 2017.
Despite the cloudy outlook for 2018 there are silver linings which could give investors confidence and help the PRS to continue to grow in Wales. Stamp Duty is soon to be devolved, in April 2018 no less. Currently it is at the discretion of the UK government, which has imposed an additional 3% levy on second properties, including those purchased with intent to let.
Wales could decide to remove the additional levy on second properties that are purchased with intent to let. There is a lot of evidence that reducing Stamp Duty encourages investment and can even act as a stimulus to the economy, while increasing stamp duty causes a significant slowdown in investment. The Council of Mortgage lenders, following the stamp duty holiday in 2009, said that “House purchase loans fell by more than three times the decline in re-mortgages in January  …This emphatically demonstrates the effect on the mortgage market from the end of the temporary stamp duty holiday in December ”.
If the Welsh Government wants to continue with the good work the PRS is currently doing, then we need to see positive changes to Stamp Duty to encourage investment. Otherwise April 2018 could turn into the perfect storm for PRS landlords.
*This figure does not include accelerated possession claims, which do not identify the type of landlord. However, this figure was 710 claims.