In the report, the Committee suggests that the growth of the sector predates the 2008 global financial crisis and has occurred over the past 10 years or so. Constraints on owner occupation and the social housing sector as well as the growth of buy-to-let lending are all factors in the change.
Chart 1 shows the proportion of owner occupiers, social renters and private renters in England in 1999 and in 2011/12. In 1999, only 9.9 per cent of English households rented privately, compared with 69.9 per cent who were owner occupiers and 20.2 per cent who lived in social housing. By 2011/12 only 65.3 per cent were owner occupiers, 17.3 per cent were social renters and 17.4 per cent were renting privately.
Shortcomings
However, the news is not all good. Evidence given by many of the 170 or so witnesses to the Committee pointed to serious sector shortcomings. For example, housing charity Shelter described the private rental sector as having developed “unintentionally and largely unchecked” resulting in an “unsuitable climate” for renting families. It says that while private renters make up 17 per cent of the English housing population, they constitute 43 per cent of its clients. It points to growing unaffordability. It reveals nearly 40 per cent of private rented homes are non-decent compared with 30 per cent of owner occupied homes and 27 per cent of social rented homes.
As a result, the report calls for longer tenancies because, as the private rented sector has become more mainstream and more families with children use it, they require tenancies to be longer than the standard six or 12 months. However, some buy-to-let lenders specify in their products that tenancies can not exceed 12 months. Most tenancies are assured shorthold, giving landlords automatic right of possession once the tenancy period comes to an end. The fear is that they may not be able to get vacant possession in the event that a landlord defaults on his mortgage. In June this year The Mortgage Works changed its terms and conditions to allow buy-to-let borrowers to offer tenancies of up to three years. In its report, the Select Committee urged other lenders to follow suit.
Sharp practice
The Committee describes the private rented sector as “developing”, and in need of help to “edge its way to maturity”. It suggests that both landlords and tenants are likely to have suffered at the hands of letting agents whom it accuses of sharp practice and abuses. Evidence of problems with letting agents came from several witnesses, including Shelter and the Office of Fair Trading (OFT). One witness described letting agents as “the property industry’s Wild West”. It was pointed out that anyone could set up a letting agency with no prior knowledge or experience of the industry necessary. There were complaints about poor customer service, mishandled deposits, rental income not being passed on to landlords and failure to vet tenants properly or inspect properties adequately.
The OFT found 30 per cent of complaints about letting agents to Consumer Direct were about fees and charges, while the second biggest area related to the holding of deposits. It is investigating problems in the lettings market, looking at the role of agents and the responsibilities of landlords to tenants and will publish a report based on its findings.
The 2013 Enterprise and Regulatory Reform Act will require letting agents to belong to an approved redress scheme. The Government suggests that such a measure will act as a deterrent to those providing unacceptable services and engaging in unlawful practices. Other witnesses argued that it should be underpinned by a mandatory code of practice.
In the course of its investigations the Committee visited Germany, which has a mature private rental market governed by a clear legal framework. The UK, by contrast, has “a mass of often unnecessary, overly complex legislation that does not work efficiently”, according to one witness. The report also calls for high levels of awareness of the rights and obligations of all the parties concerned.
Consequently, as well as recommending longer tenancies and intervention in the lettings market, the Committee has also called for better, clearer regulation of the private rented sector and greater empowerment to enable local authorities to act appropriately locally. Ultimately, the ball is now back in the court of the government, which the Committee recommended should carry out wide ranging reviews and consultations of the sector. One major outstanding issue that affects the quality of housing in the sector and levels of affordability is the housing shortage. Although widely acknowledged by the industry as well as the government, it is not an issue that is quickly and easily addressed.
