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Private Rented Sector – ‘Fit for purpose’?

RLA
Written by RLA

On Wednesday 25th June, Shadow Housing Minister Emma Reynolds presented to the House of Commons Labour’s proposals for the private rented sector. Far from being not ‘fit for purpose’ as suggested by the Labour Minister, the RLA believes that the private rented sector provides a crucial service to a growing and varied demographic of tenants…

On Wednesday 25th June, Shadow Housing Minister Emma Reynolds presented to the House of Commons Labour’s proposals for the private rented sector. Far from being not ‘fit for purpose’ as suggested by the Labour Minister, the RLA believes that the private rented sector provides a crucial service to a growing and varied demographic of tenants.

Below is our response to a number of key points from the debate.

A Rent ‘Ceiling’ otherwise known as Rent Controls

The opposition used the term ‘rent ceiling’ to package their proposals for putting an upper limit on rent based on average market rates under a future Labour Government.  However, we believe that evidence from other countries shows ‘rent controls’ lead to poorer quality accommodation, fewer homes being rented and ultimately higher rents. ONS figures show very clearly that average rents across England have fallen in real terms over the last year as well as since 2005.

% rent increase 12 months to March 2014 9 YEARS March 2005-2014
Across England 1% 9.5%
In London 1.4% 12.5%
England excluding London 0.7% 7.9%
RPI over the period 2.5% 33.8%
CPI over the period 1.7% 13.3%

Source: Index of Private Housing Rental Prices (ONS, Published 25th April 2014)

In comparison, figures published by DCLG show that in the eight year period between 2005/06 and 2012/13 local authority housing average weekly rents in England increased by 42.5% and housing association rents by 43.8%.Source: Index of Private Housing Rental Prices (ONS, Published 25th April 2014)

Rent controls, linked to inflation would clearly leave many, if not most, tenants paying higher rents than they do already. Also, the evidence is clear that such controls would critically damage much needed investment in the sector.

Longer-term tenancies

The Shadow Housing Minister proposed that a minimum 3 year tenancy should be standard in the PRS in England. Whilst the RLA believes that longer tenancies should be used where needed, it does not believe that such a model should be the default position.

Under the RLA’s model, tenants would have a right to renew their existing tenancies based on the current short-hold tenancy agreement. Where a disagreement ensued about renewal, the landlord or tenant could take the matter to adjudication. Such a model would crucially be possible now, as unlike proposals for a five year tenancy agreement, it would require no new legislation.

In reality just nine per cent of tenancies are ended by a landlord, showing that the majority much prefer to keep tenants on than face an empty property.

Using Ireland as a model for PRS in England

The Shadow Housing Minister used Ireland as a case study for how a four year tenancy could be used in England.

However in Ireland, landlords find that they are operating in a system that makes it incredibly difficult to regain possession for legitimate reasons even after 6 months. For a tenancy between 3 and four years 84 days’ notice would be required. This leaves the landlord in a potentially damaging situation if that tenant is not paying rent in their notice period and the fall behind on Mortgage repayments.

We feel that if this model was rolled out in England on a basis of using a minimum 3 year tenancy landlords would simply leave the market altogether. Landlords will not take on the development and lease of properties if they are facing potential problems such as prolonged eviction procedures with no protection. Instead you will end up with a huge number of empty homes with no investment coming in from private investors like Landlords.  This is the reality of what is actually happening in Ireland.

The banning of letting agents fees

Under the Labour party’s plans estate agents would no longer be able to charge a letting fee for renting out properties in addition to requiring a deposit and the first month’s rent upfront. Currently, letting agents share the costs of providing their services including, marketing, contract preparation and credit checking between the landlord and the tenants. If all the fees are loaded onto the landlord, they will have to pass these on to the tenant through the rent.

We feel that such a policy would in fact leave many tenants far worse off than they are at present from paying a one-off fee to letting agents. The RLA is calling for letting agents to provide tenants and landlords with a breakdown of what is covered by the fees they charge. Such transparency would enable tenants and landlords to shop around for agents them to offer competitive fees. 

Going forward

Conservative and Liberal Democrat MPs voted against the Labour Party’s motions at this session.

The RLA believes that the only way to reduce the cost of living for tenants is to boost the supply of homes to rent .We think that Labour’s policies will have the opposite effect by discouraging landlords from investing altogether.

 

About the author

RLA

RLA

The Residential Landlords Association (RLA) represents the interests of landlords in the private rented sector (PRS) across England and Wales. With over 23,000 subscribing members, and an additional 16,000 registered guests who engage regularly with the association, we are the leading voice of private landlords. Combined, they manage almost half a million properties.

8 Comments

  • How would this affect student lets? They only require a 12 month let ( some wnat even shorter, if that is offered) No student would want a 3 year agreement. If there was a break clause, they would be using that and where would the landlord be? Again, a thoughtless proposition.

  • You are right that rent control does not work.We, I mean the north past Watford Gap are been compared with the southern housing market and housing shortage and shortage of rental property. Rental investment is a long term investment and I will give a good return. We in the British Isles are hell bend of short term gains. That will lead to boom and bust. The continental model of rental varies but it is generally more secure for the Landlord and therefore secure for the tenant. We already have good and reasonable laws to prevent rogue landlords. Housing associations and private landlords are 90% in favor of a good tenant landlord relationship.Landlords and social housing are in the business to let properties. I am all in favor of long term tenancies but the get out clause should always be there for the tenant and the landlord. If the tenant wants to get out he should be able to. If the landlord does not receive rent he should be able to get rid of the tenant quickly and easily. The Labor party administration and of the present government does not understand if a commercial contract has been broken there are consequences. And a good Landlord makes that clear from the outset.
    We do not need more interference by ministers who are that remote from reality and every day life full stop.

  • A typical wide of the mark idea by Comrade Milliband and his collective bunch of idiots.

    I let 2 flats in Ipswich, built in 2007 on a popular and nice estate, on average all tenancies are 12 to 18 months, the tenants have all been early / mid 20’s young professionals and this has been their first home, they move normally through career progression or to a larger property. How would a 3 year tenancy help this kind of tenant?

    How do the Labour Party expect Letting Agents to make a living? It’s a simple rule of economics, if the fees are loaded on to the Landlord they will have to be passed on to the tenant.

    The ONC statistics make interesting reading particularly when related to the LA increases. No doubt the Westminster Kremlin AKA the Labour Party HQ are secretly planning to nationalise the private housing market.

    The private sector is far from perfect but I fail to see how this idea would improve anything, if a Landlord has good tenants why would he want to change them? All it does is add costs and increase void periods. Rent, like house values, has a market determined ceiling and is linked to the property value, private landlords do not influence sale prices, buyer’s do that by what they are prepared to pay.

  • Whoever thought of this must be an angel living on cloud 9.
    Obviously not living in the real world. How is it possible without juggling the two to get fairer rent and better accommodation.

  • My portfolio yields, net of all expenses, less than 2% per annum. Those expenses (money, time and hassle) would drop if I kept the properties empty and held them purely for capital gains.

  • I certainly agree with all that the RLA says, We all like to keep good tenants and the majority of us landlords will responde to concerns or problems that tenants have and put things right, call in a repair man or respond in the appropriate way for the tenants.

    The Labour party, for their own political reasons, want lots of council houses, they do not like the free market. Labour just want to turn the clock back.

  • Labour tried rent controls a long time ago and they didn’t work. I am a landlord but behave responsibly toward my tenants. Landlords and tenants both need protection but three year tenancies are not the way forward. Why can’t Labour understand this.

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