All posts tagged: David Lawrenson
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.
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.
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!