Opinion RPI

Small is beautiful – except in the private rented sector?

John Stewart
Written by John Stewart

Once again we read headlines predicting a grim future for the smaller landlord due to a combination of legislation change and increasing costs. Tory think tank Onward is proposing further tax changes to dampen investment in buy-to-let homes, with finance firms claiming more and more landlords are setting up as limited companies.

In an article first published in Residential Property Investor magazine, policy manager John Stewart reflects on why our collective love of all things independent does not extend to landlords.

We all love small and independent businesses, except, it seems, in the PRS. 

It’s seen as a push back against globalisation and big corporates – backing small, local independent businesses like coffee shops, craft breweries and boutique hotels.

Thumbing our noses at tax-dodging majors like Starbucks, bland products like Carlsberg and the predictable any-city sameyness of Premier Inn.

We’re even prepared to pay a premium to generate the feel-good happy glow that comes from putting money into the pockets of hard-working locals, instead of fuelling the bank balances of anonymous shareholders.

In fact, it’s become so common that big business is jumping on the bandwagon, passing off own brand products and outlets as independents, be it supermarket bakery produce, or Waterstones bookshops. 

Yet, when it comes to private renting, everybody wants to kick the small, independent providers.

The Government, councils and tenant groups are falling over themselves to back huge corporates and institutional investment in the housing market.

And social housing providers are getting in on the act, too.

Many are already massive organisations managing tens of thousands of homes, and their chief executives taking home six-figure salaries.  Even their names sound more corporate than charitable – Affinity Sutton, L&Q, Gentoo.

Increasingly, they are moving to provide new build housing at market rental, directly, through subsidiary companies, or in partnership with banks and pension funds. 

Why, when it comes to housing, are the very small independents that would be welcomed in any other sector, under attack? 

Firstly, there is the image perpetuated by tenant campaigners, picked up by the media and politicians, of greedy landlords with dozens of sub-standard, dangerous properties, cramming in tenants at sky high rents.

While there are undoubtedly criminals in the sector, these are a small minority and local authorities have the powers they need to root out the worst operators.

But while the focus of housing lobbyists and the media is on the very worst of the sector there will be little public sympathy for the independent private landlord. 

Secondly, the impression that renting property is easy money.

All landlords have to do is sit back and rake in the cash – there’s even tax relief on the mortgage payments!

Rents are rising ‘out of control’ and if tenants can’t afford it, they can always be evicted and replaced with another who can pay.

This ignores the fact that the length of tenancies in the PRS is growing and that for the self-managing landlord, renting property is hard work.

There are costs to borne in maintaining a property, a greater burden of regulation, and landlords can effectively be on call 24/7.

In many parts of the UK, rents are not out of control – they are rising in line with wages and below inflation.  Even in London and the South East, rents are stabilising. 

Finally, the Government doesn’t approve of investors taking their future into their own hands by investing in property, instead of stocks and shares.

They, too, see private renting as passive investment that does nothing to boost the economy, and want to redirect that cash to boosting productivity in industry.

This ignores the pitiful returns from savings, and the mistrust in pension funds, bonds and shares following the financial crisis.  For those who can, investment in rental property provides a better return and a secure asset. 

The Government has taken a number of steps to boost institutional investment in private renting.

Their Build to Rent Fund provides up-front cash to spur the development of major schemes, albeit recoverable at commercial rates and there is expert advice and guidance available through the Build to Rent Taskforce.

Corporate investors are exempt from the restrictions imposed on small independent landlords claiming mortgage interest relief.

A move to also exempt the big boys from the additional stamp duty rate on second homes was reversed after pressure from the RLA. 

What is so intoxicating about build to rent?

The product is seen as high quality new build development, offering a range of services in additional to a roof over your head.

Many build to rent developments have spun out of a successful student market in large-scale purpose built rental accommodation.

With an eye on a fixed yield and regular returns, it’s anticipated that build to rent will offer longer tenancies as standard, providing security for renters.

Dedicated maintenance contracts means tenants should expect a responsive repairs service, and many will provide a range of communal services such as gyms, cinemas and social spaces. 

This love affair with build to rent must come with a warning, however.

The sector has been slow to grow.

Even with the enthusiastic backing of government there have been fewer than 20,000 completions and only a further 50,000 homes in the pipeline  – a fraction of the additional private rental housing that traditional landlords have supplied over the same period – and a fraction of what the country needs.

Crucial to the success of build to rent is volume.

Much like social housing of the 50s and 60s, and suburban new build, developments may lack diversity of design and location, and speed of construction can compromise quality, leaving tenants ongoing issues.  

‘Professional and expensive’

Build to rent, even when undertaken by social housing providers, is aimed squarely at young middle class urban professionals.

The product is professional and expensive – a stepping stone from student accommodation to eventual home ownership.

There is little in the build to rent offer for families, rural communities, and those on in-work benefits, and nothing for the out of work or on long-term benefits – the very areas where demand for PRS accommodation is growing fastest.

Again, the traditional private rented sector is expected to take up the slack, while the Government encourages institutional investors to cherry-pick low risk tenants.

It’s the much-maligned buy-to-let brigade who are providing accommodation for working families and those on benefits, locked out of a shrinking supply of social housing, despite welfare cuts, additional regulation and an increasing tax burden. 

So while build to rent will be an important part of the housing mix, it’s certainly not the solution.

The independent private landlord will continue to be crucial to meeting housing need, particularly for those shut out of owner occupation and high end rentals. 

So it’s time to re-evaluate the private rental market, to bring the same caution to big development as we do with retail, and celebrate the small independents who can be the heroes of the housing crisis. 

About the author

John Stewart

John Stewart

John is the Deputy Director of Policy and Research for the NRLA. He has over 20 years experience working in politics, as a successful election agent, MP’s assistant, local councillor and council leader, and is a former charity chief executive.

He oversees RLA policy work across all levels of government – central, devolved and local – working to ensure that landlords’ views are represented and officials, MPs, Assembly Members and local councillors have key information and evidence about the PRS before they take decisions.

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