All posts tagged: Private rented sector
Could housing determine the outcome of the next election? Given that only around 10 percent of the public identify housing as one of the key issues facing the country this seems unlikely, but there is growing evidence that housing is becoming a key issue for a significant cohort of voters. This recent blog by the Research Director at IPSOS MORI reveals that 62 percent of private renters voted for Coalition parties in 2010, but only 37 percent would do so now. The Conservatives have lost support among outright owners and social renters (both down 6 percent), and among private renters (down 10 percent) but support for the Lib Dems has fallen by double digits for all four tenure groups. How much of this is due to government housing policies is debatable but MORI found that Labour had a 13-point lead on the Conservatives for “Having the best policies on housing.” This rose to a significant 37-point lead among social renters and a 15-point lead among private renters.
The private rented sector may form a key battleground at the next general election. According to Shelter, private renters, especially working, aspirational families aged between 24 and 35, could become the new “Mondeo men”, courted by all parties in the swing seats. These voters have effectively been priced out of the housing market and are increasingly dissatisfied with their prospects and may vote for those parties that offer the best housing deal. Shelter’s surveys suggest that 73 percent of renters can save only £50 a month after they have paid the rent and other essentials. Their chances of buying a place without external support are remote and with housebuilding figures heading downwards their plight will only get worse.
Some of the key swing seats in London and the south east are also the places with the greatest increase in private renters and the greatest increases in rents. It’s not surprising that Labour is therefore concentrating on policy issues in the private rented sector.
This is all well and good, but as a sector we also need to find a new tone and a new language to make the case for housing that appeals to this disenfranchised public and makes housing a genuine election issue, pushing it up the political agenda. Apologies for going off on a tangent here, but with “Lincoln” in the news I have been re-reading the U.S. constitution. It is a beautiful document – elegant, simple and clever. Take the first amendment: the Founding Fathers wanted to create “a more perfect union” where there would be no established religion, where citizens would be free to worship whichever god they chose – or none, where free speech and free assembly would be guaranteed and where there would be a free press. They could have written thousands of words setting these rights in stone. Instead they simply turned the notion on its head and wrote: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” Forty five words that have endured for over two centuries. No law means that these basic human rights are protected for all time. Job done.
What has this got to do with housing? Well, we also need to find simple, clever and elegant ways of communicating complex ideas. As well as building better campaigning links with organisations like Shelter and Pricedout UK, we also need to find great communicators (Lincoln again!) who can get our message across to a wider public. In my view we have only one at present – David Orr. We need more.
But we also need to tackle head-on the issue of immigration. My recent blog on this topic reached over 500 comments. Any public debate about housing need and supply is now being hijacked by the anti-immigration lobby, as in “no immigration, no housing problem.” If these views prevail then housing will continue to occupy a low priority in the minds of politicians and the wider public. We need hard facts and hard arguments to face down this vociferous lobby.
So: appealing to the disenfranchised with clever, elegant and simple messages and facing head-on the immigration arguments against new housebuiding. These are our twin tasks. The housing outcome of the next election could depend upon them.
So, another year over and a new one just begun. The key events of 2012 have been admirably summed up by Jules Birch in his diptych of blogs, but I get the feeling that 2013 will be a different animal altogether. For me, the past eighteen months have been like the period from September 1939 to May 1940, between the fall of Poland to the fall of France – the Phoney War. There has been plenty of sabre rattling but the actual impacts of change have been relatively slight and the welfare bill is still going up. This year will be different, with many of the coalition’s reforms starting to bite.
This is my take on some of the key areas to look out for during 2013:
- The bedroom tax starts in April. Most of the housing providers I talk to know exactly who is affected but no one can tell you how it will unfold. Most tenants appear to be resigned to staying put and paying the extra rent from their own resources. But will we end up with a growing cohort of tenants who want to move, can’t move, won’t or can’t pay the rent and can’t be evicted? Only time will tell, but we should start to know the answers by late summer.
- The Universal Credit pathfinders kick off in April and the first new claims will start nationwide in October. Again, all the housing providers I talk to have plans in place but no one really know how it will unravel. We should be a little clearer by the autumn, but my hunch is that the implementation of Universal Credit will be further delayed, mainly due to ongoing IT issues, as suggested by this story.
- We should start to understand the impact of homeless people being placed in the private sector. Will local authorities be able to source enough decent private lets or will we have a growing rash of stories about homeless people being exported to the north? Will the new policy just set up a revolving door where we trap people in poverty on high private sector rents and see the same faces coming back again and again? Rents in the private rented sector are likely to increase and more cases of rogue landlords and squalid conditions will be uncovered. Rising PRS rents will also cause the housing benefit bill to increase. The picture should be clearer by the early summer.
- Most future completions in the social rented sector will be under the affordable rents’ programme with rents set at up to 80% of market rents. The average affordable rent in London is £180. Most of the providers I speak to don’t have a cunning strategy in place for letting these properties, other than through existing allocation schemes (as set out in HCA guidance). Does this mean that we end up trapping thousands of households in poverty, unable to work and unable to pay the high rents? Again, the outcome of this programme will become clearer during 2013.
- The localised Council tax benefit scheme kicks off in April, with many working age claimants required to pay up to £10 per week from their existing income to cover the 10 percent cut in national funding. This could be the hidden assassin, a Poll Tax mark two according to some commentators. By the early summer we will know how this is panning out.
- In May CLG will release house-building figures for the last quarter of the year. My hunch is that completions for 2012/13 will fall below the totemic figure of 100,000 and there will be a furious debate about government incompetence. The evidence from local planning suggests that house-building targets have been considerably scaled down from the now-abolished regional targets, despite my initial optimism that the new National Planning Policy Framework would stimulate growth. It hasn’t, and the consequences of allowing Nimbys to dominate the agenda will be plain for all to see by the early summer.
- In the wider housing market you can take your choice of a range of predictions about future house prices, but with interest rates at historic lows, households increasing, mortgage lending easing and a lack of supply I think we can expect to see some increases in prices during 2013.
The combined outcome of all these changes could make housing a top story during 2013 and unleash a wave of public anger about the failure of housing policy. Or not, as the case may be! All the evidence suggests that the housing situation for millions of people will only get worse during 2013, yet our sector seems curiously passive in the face of the growing crisis. Perhaps 2013 will also be the year that we get our act together and campaign more widely and more effectively for a better housing settlement. Don’t hold your breath.
Laurie Penny wrote a moving piece this week in response to the suicide of a 23-year-old and the growing despair of the priced-out generation, faced with rising rents and poor quality accommodation in the private rented sector.
According to Shelter, complaints about private landlords have increased by 27 per cent in the last three years and almost two thirds of these were about life-threatening hazards. This is hardly surprising given the dramatic growth of the sector in recent years, (it represents over 25 per cent of the stock in parts of London) and the fact that rogue landlords and scammers increasingly see the sector as a place to make a fast buck on the back of other people’s misery. But partnerships between social housing providers and reputable private landlords are going to become increasingly important in order to discharge homelessness duties. The distinction between the two sectors is already starting to blur, as this story about the acquisition of a private management agent by Places for People demonstrates.
Given these trends you would expect local authorities to be upping their game in terms of the advice and assistance they give to both landlords and tenants, but this is not the case according to a recent survey by David Lawrenson, a private rented sector consultant at Lettingfocus.com. He scrutinised the websites of 12 London boroughs and found that the quality and scope of information for tenants and landlords in the private rented sector ranges from mediocre to very poor. For example, only two boroughs gave any advice about unexplained letting agency fees - something that tenants repeatedly complain about. The problem on fees is so serious north of the border that the Scottish Government has just announced that it is to ban letting agents and landlords charging tenants any fees for any reason in connection with the set up of a tenancy. We should follow their example.
Similarly only two boroughs (not the same ones) made any mention of fraudulent and fake letting agencies ripping off prospective tenants – again, something that is a growing phenomenon in London.
Information about houses in multiple accommodation was also seriously lacking, he found, even though these properties represent the most ‘at-risk’ part of the sector, due to the dangers of fire and related health hazards. Local authorities have rigorous standards that they are required to enforce and yet the quality of information for both landlords and tenants was generally poor. Two boroughs had no information at all about HMOs on their websites. One unaccountably referred to the legal situation in Scotland, (the dangers of cut and paste).
Lawrenson feels that local authorities could do much more to help private landlords and tenants. He challenges local authorities to “significantly up their game” with the information that they make available to private landlords and tenants in the PRS.
But as the private rented sector grows, local authorities will also need to invest more resources in enforcement. It will only take a serious fire or serious incident for a spate of hand-wringing to ensue. The social housing sector and the majority of reputable landlords in the private rented sector have a vested interest in maintaining standards and driving out bad elements, but local authorities are also a key part of the equation and it seems they need to do better.
Most people accept that our housing market is bust. House prices remain stubbornly high even though a whole generation can’t afford to buy. The planning system won’t deliver the homes we need, and builders won’t build them even if it did. The private rented sector is growing yet rents are still rising and in many parts of the country it costs more to rent than to buy. Bed and breakfast is booming. Every year, the government invests around £1 billion on new “affordable” housing, yet spends £23 billion on propping up high rents through the housing benefit system. It’s a crazy world.
But it’s important to remember that this dysfunctional housing market does not just create personal misery, it also has damaging economic consequences.
A recent piece of research by Shelter shows that if private rents had risen only at the same rate as general inflation since 2001 private tenants would now have an additional £8 billion in their pockets, that’s an astonishing £2,000 per household each year. Imagine what an impact that extra income could have on the economy.
But it strikes me that the Shelter research could also be applied to the owner occupied sector. House prices have increased at roughly four times the rate of general inflation over the past thirty years. That means bigger mortgages, which means less disposable income for home-owners. As a result, our housing costs are the third highest in Europe. I haven’t been able to source any figures on how this impacts on household incomes, but my back of an envelope calculations go as follows: the LSE calculates that rents would have risen by only 22% if they had followed CPI since 2001 compared to an actual increase of 76%. If we apply the same ratios to the 11 million home-owners with mortgages, paying an average of £500 a month, (that’s £66 billion a year), then homeowners would have an extra £19.5 billion in their pockets every year if house prices had increased in line with CPI. That’s £1,770 for each household. (Of course interest rates are at an historically low level and a like-for- like comparison is difficult, but I think my figures are in the right ball-park, unless anyone out there is prepared to challenge them?)
So that means private renters and owners have effectively been robbed of a staggering £27.5 billion per annum as a result of inflation-busting house prices and rents. That’s roughly half of the entire annual spend on education. Imagine if that money was available for spending by households in the UK economy instead of being poured into the pockets of landlords and mortgage companies, and then swallowed up by the the sub-prime debt mountain. Is it any wonder that our economy is suffering from a lack of demand? And of course, high rents also add to the cost of goods in the shops, as they increase the overheads of all traders.
Compare and contrast this to Germany where house prices have fallen by ten percent in real terms over the past thirty years and where housing costs are significantly lower, due primarily to their willingness to release sufficient land to keep housing markets in balance, to restrict the amount of mortgage credit and to regulate the private rented sector making it an attractive alternative for potential home-owners. As a result, Germans enjoy stable housing rents and house prices and some of the highest standards of living in Europe. They can invest their surplus cash in savings, cars, holidays and other consumer products that benefit the economy.
The clear message from this is; yes housebuilding can provide a major economic stimulus, but it is low rents and low house prices relative to incomes that will create the greatest economic benefits in the long term. David Cameron’s attack on the NIMBYs this week was a welcome development but we still have miles to go before we reap the benefits of a balanced housing market and restore the pounds missing from our pockets.
Recent revelations in The Guardian and elsewhere about people living in sheds and a walk-in freezer (a phenomenon that is bound to increase as the housing crisis deepens) are building up pressure on the government to regulate the private rented sector.
The government is resistant to any notion of added regulation, fearing that it will drive landlords out of the rental market: “Over-regulation would reduce the number of properties to rent and wouldn’t help tenants or landlords” says the CLG. The government seems to believe that existing voluntary schemes are sufficient. They are not, and the clamour for regulation is bound to increase as further revelations about the seedy recesses of the private rental sector emerge.
Trade bodies within the sector want regulation, tenants want it and the public will increasingly want it when they see the scale of the problem. Last November I wrote here that we are creating a housing underclass and that we would see more of this kind of thing in the future. As Hannah Fearn in The Guardian points out, “money always follows a market”. The raising of the room rate to 35 and other changes to the benefits system are bound to increase the pressure on the lower reaches of the private rented sector. My prediction is that an individual will shortly emerge to replace Peter Rachman in public mythology as the slum landlord of our times.
The key requirement is that any system of regulation or licensing should be simple, subtle, supported by both tenants and a majority of landlords and easy to administer. It should not penalise the vast majority of good landlords for the sake of a few rogue elements. I was lying awake in the night and it came to me that local authorities already operate a number of licensing schemes that are simple, easy to understand, self-funding and have widespread public support. The system for licensed premises is an example.
It is illegal to sell alcohol in this country without a licence. You need both a personal licence and a premises licence that have to be displayed prominently in the property. The individual licensee has to be of good character. In England there are around 166,000 licensed premises and fees range from £100 to £635 for a new application and between £70 and £350 for the annual renewal of the licence. The beauty of this system is its simplicity. Everyone understands the notion of licensed premises and licences are usually renewed without any fuss. It is only where there have been complaints from neighbours or the police that licensing authorities will consider non-renewal of a licence to drive out the rogue elements. Is there any reason why the same principles could not be applied to the rental market?
Imagine a similar scheme applied to the private rented sector. The licensee would either be the landlord or a reputable letting agent who would be required to meet basic requirements relating to decent standards, deposits, safety and tenancy management. An annual fee of £100 (a mere £2 a week on the rent) would yield an income of around £400 million across England. That’s an average of over £1 million for every local authority – enough to fund a significant team of licensing and enforcement staff. Every self-contained let property would have to display a licence and tenants would have the comfort of protection under the scheme. As with licensed premises, the vast majority of licensing activity would focus on rogue landlords, following up complaints from neighbours and others, whilst the vast majority of properties would see their licences renewed annually without any fuss. Of course, it could lead to a slight reduction in the number of properties available across the country as sheds and other illegal and unsatisfactory premises were driven out of the sector, but that is a good thing surely? Conversely, it could also attract new landlords who were attracted by the simplicity and reliability of the scheme.
I can’t see any flaws with this system. Can you?
During a recent Andrew Marr show interview, George Osborne justified his determination to change England’s planning rules by referring to the speed and efficiency of the German planning system (“…it takes a third of the time to build a warehouse in Germany than it does in Britain”).
I’ve written previously about the sense and stability of the German housing market, (a reduction on real house prices of 10 percent over the past thirty years), but in the ongoing debate about the need to regulate our private rented sector it’s also worth comparing the German system to ours. Whichever way you look at it, we come off worse.
Germany’s PRS differs from ours in several significant ways but to begin with the level of regulation is greater. Although rents vary across the country they are generally lower than ours and reflective of house prices. A landlord cannot increase the rent by more than 20 percent in a three-year period and tenants have a high level of security. Leases usually have no end point and landlords can only evict if there has been a serious breach of the contract. To reclaim the property for any other reason they would need to prove a ‘legitimate interest’, for example they would have to provide credible proof that they or a close family member wanted to move in. Where properties are sold, sitting tenants retain their protection. This level of security allows stable communities to develop, in contrast to the “churn” that our sector experiences, with all its attendant neighbourhood and management problems.
Most PRS properties in Germany are owned by small landlords and they are charged a lower rate of tax on rental income and can depreciate their investment. The German PRS comprises almost 50 percent of all housing stock, rising to 90% in Berlin (a function of reunification). So Germans see private renting as a safe and reliable form of tenure and they are not desperate to become owners - partly because house prices have declined over the long term and partly because ownership is taxed as an item of consumption. As I’ve said before, this reduction in house prices is mainly a result of making more land available for housing development – more than twice as much as we do pro rata. So the Germans have managed the trick of having falling house prices and a stable, secure and attractive regulated private sector. Is there any reason why we can’t do the same?
The issue of fixed term tenancies is interesting. In the UK, many landlords are forced to grant assured shortholds because their lenders insist on it. Yet many landlords would love to let for longer terms and enjoy the benefits of lower rates of churn.
Property expert David Lawrenson told me;
“The trouble is most buy to let lenders do not currently allow their landlord borrowers to issue Assured Shorthold Tenancies with fixed terms over 12 months…actually there is no good reason from the lenders point of view why such a restriction is in place. Indeed, up to 7 year fixed term ASTs are possible.
Also, many buy to let mortgages still contain terms and conditions that do not allow landlords to let to people who are on benefits whilst other lenders do not allow their landlord borrowers to let under long lease schemes to housing associations and local authorities. Both restrictions also make little sense from the lenders point of view, because where a private landlord is investing up to 25% of the equity, the lenders risk in a repossession situation will be very small.”
As the PRS grows, the issues of regulation and longer-term security will become a hotter topic for policy makers. Ken Livingstone is making limited regulation a key element in his re-election campaign. The Association of Residential Letting Agents also favours regulation as a way of driving up standards and driving out the cowboys. What’s more, a simple local authority licensing scheme would be self-funding and cost the taxpayer nothing -selective licensing of HMOs is already working well in some cities. In seeking to improve the image and reputation of our private rented sector we could do worse than study the German system.
Do you fancy a one-bed apartment in Berlin for £35,000 or a four- bed detached house in the Rhineland for £51,000?
In many parts of Germany house prices are a fraction of their UK equivalents – in fact, German house prices have decreased in real terms by 10 percent over the past thirty years, whereas UK house prices have increased by a staggering 233 percent in real terms over the same period. Yet German salaries are equal to or higher than ours. As a consequence Germans have more cash to spend on consumer goods and a higher standard of living, and they save twice as much as us, which means more capital for industry and commerce. Is it any surprise that the German economy is consistently out-performing ours?
There are a number of reasons for the disparity between the German and UK housing markets. Firstly, German home ownership is just over 40 percent compared to our 65 percent (there are stark regional variations – in Berlin 90 percent of all homes are privately rented) and the Germans do not worship ownership in the way we do. Not only is it more difficult to get mortgage finance (20 percent deposits are a typical requirement) but the private rented sector offers high quality, secure, affordable and plentiful accommodation so there are fewer incentives to buy. You can rent an 85 square metre property for less than £500 per month in Berlin or for around £360 per month in Leipzig. There is also tight rent control and unlimited contracts are common, so that tenants, if they give notice, can stay put for the long-term. Deposits must be repaid with interest on moving out.
In addition, Germany’s tax regime is not very favourable for property owners. There is a property transfer tax and an annual land tax. But the German housebuilding industry is also more diverse than ours with more prefabraction and more self-builders. The German constitution includes an explicit “right-to-build’’ clause, so that owners can build on their property or land without permission so long as it conforms with local codes.
But the biggest advantage of the German system is that they actively encourage new housing supply and release about twice as much land for housing as we do. German local authorities receive grants based on an accurate assessment of residents, so there is an incentive to develop new homes. The Cologne Institute for Economic Research calculated that in 2010 there were 50 hectares of new housing development land per 100,000 population in Germany but only 15 hectares in the UK. That means the Germans are building three times as many new homes as us pro-rata even though our population growth is greater than theirs. This means that German housing supply is elastic and can respond quickly to rising demand - hence their stable house prices, whereas in the UK our restrictive planning laws and tight green belts do not allow developers to respond to increased demand, so our supply is inelastic. More demand combined with a fixed supply of homes means steep price rises, volatility, and boom and bust.
For me, in the ongoing debate over our deepening housing crisis and the National Planning Policy Framework there are two stand-out lessons from the German experience. One, we are failing to release enough land for housing and this is causing volatility and unsustainable bubbles within our housing market that cause damage to our people and our economy. Two, a high quality, affordable, private rented sector benefits from regulation and rent control.
(Thanks to Andreas SchulzeBäing and ImmobilienScout for assistance with this article)
The CIH says that 720,000 private rented properties in England will become unaffordable to people on benefits from this week, as the local housing allowance caps kick in. The prediction is that some people affected by the changes will be forced to migrate to low rental areas, like Margate and Hastings in the South East, creating benefit ghettoes in some of our decaying seaside resorts. I know Margate well (I grew up on the Isle of Thanet) and it already has a reputation for poverty and decay, with some of the most deprived wards in England. In comparison to the rest of the South East it is an incredibly cheap place to live. You can rent a two-bed flat for as little as £66 per week. The closure of Dreamland and the disastrous decision by the District Council to build a huge new out of town shopping centre at Westwood Cross has devastated the town centre. Margate is making huge efforts to regenerate itself and the recently opened Turner Centre is starting to have an impact, but a further influx of the poorest and most desperate will hardly raise the town’s fortunes.
I spoke about the CIH report to PRS expert David Lawrenson, the author of the top-selling UK book on property who told me:
“Obviously, the whole problem is one of housing market failure – a much wider issue. But looking at the PRS on its own, one really key issue is that private landlords don’t want to let to people on Local Housing Allowance for a number of reasons.
“A non-LHA let has a number of advantages over most LHA lets: a landlord gets rent paid in advance (not arrears), they get a deposit they can bank and earn interest on and a lot less paperwork. Also, payments are less likely to stop without warning simply because the tenant’s working circumstances have changed. They also know that under buy to let mortgage conditions, some mortgage lenders (scandalously in our view) still preclude a landlord from letting to “non working” people.
“If the government could level the playing field, they would find lots more landlords coming forward and the problem substantially resolved.”
You may recall that Iain Duncan Smith predicted a fall in private sector rents as a result of the benefit changes. That hasn’t happened so far, due primarily to the increasing demand for PRS lets from frustrated first time buyers. But 720,000 dwellings represents 20 percent of the private rented sector in England, so if all of these properties are vacated by claimants it could have a significant impact upon the housing market as a whole. The reality is likely to be more complex and will depend upon the reaction of landlords and tenants. My guess is that three things will happen. A few tenants will negotiate lower rents that meet the caps and will be able to stay put. Secondly, many tenants will be forced to move to cheaper areas (this is already happening). But remember that the PRS has increased by around 1.4 million properties over the past eight years, an increase from 12 percent to 17 percent of all homes in England, and yet rents have continued to rise. That looks like a bubble to me and all bubbles eventually burst, so my third guess is that the more astute landlords will start to offload their stock for sale, since they know that demand for their properties is going to fall in the longer term. This could have the paradoxical effect of keeping PRS rents high and lowering house prices in the short term as more properties flood the market. Of course, the bigger issue is overall supply and the availability of mortgages, but that is a subject for another time!