Long ReadJun 14 2022

Private renting has changed and regulation needs to catch up

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Private renting has changed and regulation needs to catch up
(FT Money)

Last month the government unveiled a new deal for renters as Boris Johnson announced plans his government said would "improve lives of millions of renters".

Such plans will have sounded familiar given former prime minister Theresa May announced a similar deal in April 2019, with little to nothing done to progress the reforms since.

With significant shifts in the sector over the past few decades and ongoing issues on quality, stability and affordability, the proposals were belated in 2019 and long overdue by the time they were re-announced in the Queen’s Speech last month.

Not fit for purpose

The stark truth is the private rented sector is no longer fit for purpose. It has changed and grown beyond all recognition over the past three decades.

The sector is now home to 19 per cent of households (4.4mn), 400,000 more than council homes and those owned by housing associations.

Many more people now expect to live in the private rented sector for longer, this includes 1.4mn households containing nearly 3mn children. Many of those children will grow up, go to school and transition into adulthood in homes rented from private landlords.

Yet, as our findings at the Institute for Public Policy Research show, the rules and regulations that underpin the private rented sector have not kept pace with this growth. Tenants face unaffordability, poor conditions, a lack of tenure security and limited control over the place they call home.

Many landlords see these houses as an asset to earn from rather than a home for tenants to live in.

The private rented sector is insecure. Around one in 10 tenancies that come to an end do so as a landlord has terminated them, typically through a no-fault eviction, called a section 21. Tenancies ended by landlords remain the biggest cause of homelessness.

Private rents are unaffordable for many. Analysis by the housing charity Shelter pre-pandemic showed that in two-thirds of the country working families on low wages could not afford to privately rent a typical home without turning to housing benefit.

Indeed, a third of private renters (1.8mn) now claim housing benefit, up 32 per cent on pre-pandemic levels.

A higher proportion of private rented homes are of poor quality compared to other tenures, with 21 per cent of homes failing to meet the decent homes standard. Meanwhile, cuts to benefits and welfare reform, a slow court system and a lack of strategic policy mean that the structural foundations that are essential for a thriving sector are being eroded.

Problematic motivations

A comprehensive survey of private landlords by the government, also released last month, lays bare the fundamental problem. Asked why they became a landlord, the two most prevalent answers were ‘investing in property’ (42 per cent) and as a ‘pension contribution’ (40 per cent). Just 4 per cent said they had become landlords to let the property as a full-time business.

Is it sensible, in 21st century Britain, to leave the sector so woefully unregulated when many landlords see these houses as an asset to earn from rather than a home for tenants to live in? Yet we still expect the sector to house one in five of the population and millions of our children.

England is an international outlier with the sector being highly deregulated in comparison to its international counterparts.

Dig deeper and the survey exposes yet more problems: many landlords are simply unwilling to let their homes to a whole host of people, many of whom will struggle to buy a home of their own or access public housing.

More than two-fifths (44 per cent) are unwilling to let to tenants on either housing support or universal credit and nearly half (45 per cent) refuse to let to tenants with pets or tenants requiring adaptations to the property (44 per cent). An astonishing 15 per cent of landlords are unwilling to let to parents with dependent children.

It does not have to be like this. Our own work at IPPR shows that England is an international outlier with the sector being highly deregulated in comparison to its international counterparts. Many other countries have thriving private rented sectors that incorporate much greater rights for tenants.

In Germany, Sweden and the Netherlands, for example, tenants benefit from indefinite contracts, far from the invidious position of English tenants who have only have the security of two months’ notice after which they could be evicted.

The private rented sector has changed. The legal and regulatory framework must change too.

These and many other countries also have tighter rent controls, offer greater freedoms for tenants to decorate their homes and there are fewer legal grounds for evicting tenants – in Germany, selling your home as a landlord is not one of them. Homes are instead sold with tenants in situ.

Yet in many other countries the private rented system is often bigger than it is in the UK, which gives lie to the accusation that greater regulation means that landlords will exit the market. It simply means a rebalancing of power between landlord and tenant, a situation that works well in multiple countries around the world.

Much more to be done

The government’s proposals will go some way to bringing about this much needed rebalancing. Their proposals include the abolition of section 21; reformed possession grounds including new and stronger grounds for repeated rent arrears and shorter notice for anti-social behaviour; and the introduction of the decent homes standard in the private rented sector, among other reforms.

These are welcome measures, but the reforms could and should go further. They should include introducing new mandatory open-ended tenancies to give tenants much greater security and limits on rent increases to once a year, capping them in line with CPI.

The reforms should offer tenants greater control over their homes. This means preventing landlords from banning tenants from undertaking reasonable decoration, having pets or those on social security. There is also a strong case for ‘property MOTs’ for private rented property run by local authorities to drive up standards.

The private rented sector has changed. The legal and regulatory framework must change too.

It must recognise that the sector is no longer there to offer, if it ever was, a short stay of last resort, but instead a place for tenants to call their own – not just an asset to invest in, but a home to live in.

Luke Murphy is associate director for energy, climate housing and infrastructure at the Institute for Public Policy Research