Removing small landlords isn't the answer to the issues in the rental market

Rents increased on average by 12.1 per cent in the UK last year, far ahead of the 6 per cent increase seen in average earnings. 

This has been fuelled by a chronic mismatch between rental supply and demand, with demand pressures made worse by house prices that are keeping the prospects of homeownership out of reach for many and forcing them to stay renting for longer. 

At the same time, protections for renters have not improved and there has been no clarity on when the much anticipated renters reform bill – which will ban no-fault evictions – will become law.

But if we do see small landlords leave the market, what are renters left with?

When the prospect of homeownership is made unattainable for an entire generation it’s no surprise that the anger about this will be directed at the people most visibly benefiting from the system.

While this anger is justified, I would argue that small landlords, who often face the brunt of criticism, are not the source of the problems with the UK’s rental system and that we shouldn’t be so quick to force them out.

Interest groups like the National Residential Landlords Association take the view that landlords are being unfairly vilified by the government and that regulations being imposed on them are going to drive small scale landlords out of the market.

There is little to no evidence to suggest we are seeing any great exodus of landlords from the market just yet, but the increase in mortgage interest rates seen in the past six months are certainly having an impact.

For a lot of landlords with mortgages, they are faced with the choice of either increasing rents or selling up.

But if we do see small landlords leave the market, what are renters left with?

Build-to-rent

Government policy in recent years has skewed in favour of institutionalisation with growing support given to build-to-rent developments.

Arguments in favour of a more institutionalised rental market tend to highlight the benefits of better insulated and higher quality housing stock, both of which are absolutely needed. 

But rental properties provided by institutional landlords tend to come at a higher cost for tenants and many are simply not in a position to afford it. 

Recently I asked Renters' Rights London if they see much of a variance in complaints and issues between small scale landlords and institutional landlords. 

My hypothesis was that because of the shorter chain of contact, smaller landlords are in general easier to reach and quicker to resolve issues. 

The argument also follows that landlords with only one or two rental properties are more likely to be hands-on and proactive with the management of the property.

Portia Msimang, project co-ordinator at Renters’ Rights London, said she strongly suspects that it is easier for a tenant to secure the desired outcome from a smaller landlord when there is a problem.

In most industries small businesses are encouraged, they’re seen as vital for local economies. The rental sector is one of the few that is not seen in this way.

But she noted that most people who contact the organisation rent from small-scale landlords. This, she suspects, is because small landlords tend to own older stock with which there is more likelihood of encountering issues.

Msimang gave the example of one renter who contacted the organisation who was paying a premium for 'hassle-free living' in a build-to-rent development where he endured seriously poor indoor air quality as a result of bad finishing in the build, among other issues.

The management company was owned by the developer but it proved so difficult to get them to execute necessary works that the tenant moved out instead. 

“I suspect that's what happens in those developments,” Msimang said.

“The people who can afford the premium charged to live there simply move away if a problem is not resolved within a reasonable time. So, I don't hear from those people at all often.”

In Msimang’s view the biggest problem with institutional investors is that their pricing is set to attract ‘professionals’ – renters who earn above average income.

So remove smaller landlords from the equation and where are their tenants supposed to go? 

Ireland's example

The UK only needs to look across the Irish sea to its neighbours in Ireland to see what happens when a government puts all its eggs in the basket of developers. 

Since 2010 average rents across the EU have risen by 18 per cent, in Ireland they have risen by 82 per cent.

Jude Webber recently outlined in the Financial Times the issues those living in Ireland are grappling with after a decade of inadequate housing policy.

The reasons for the crisis are nuanced and largely fuelled by a lack of supply, but a government deference to build-to-rent investors and vulture funds in recent years has caused further issues.

You only have to go on daft.ie, one of the country’s rental property sites to see the issues with quality and affordability.

I don’t know about you, but I wouldn’t want – or frankly could not afford – to pay €1,400 (£1,250) for a studio flat where I can reach the oven and fridge from my bed.

In most industries small businesses are encouraged, they’re seen as vital for local economies and provide necessary competition. 

The rental sector is one of the few that is not seen in this way, but in the absence of an affordable sales market I think we could do with a rethink.

Jane Matthews is a reporter at FTAdviser