The private rented sector (PRS) plays a vital role in our housing market, having doubled in numbers of households in the last 20 years.
The number of households in the sector rose by 25% between 2010-11 and 2017-18, from 3.6 million to 4.5 million households. It is now the second largest tenure in England and is home to a fifth of all households.
Continued government interference in the PRS has caused disruption: with landlords leaving the market; with the leakage of stock into sale compounding issues that are emerging and decreasing stability; and standards for tenants.
RICS supports and is currently working with Lord Best and his Regulation of Property Agents (ROPA) working group, however more must be done in the immediate to bring transparency and standards to the PRS industry.
With tenants within the PRS paying the largest proportion of their household income to their tenure, those within the PRS would expect to have higher standards. However according to the 2017/18 English Housing Survey, the highest proportion of dwellings that failed to meet the Decent Homes Standard were within the PRS and had the highest proportion of homes with a category 1 hazard. Though the proportion of homes failing to meet the Decent Homes Standard has decreased since 2008, the rate of decrease has stalled in recent years.
Dwellings within the PRS tenure are also the most likely tenure to be an older dwelling, least likely to have one working smoke alarm, and least likely to have central heating.
We believe that the way to raise standards in the PRS is to ensure that all individual lettings, estate and property management practitioners and firms are consistently regulated and subject to a single, consolidated residential property code, by new regulator with powers to delegate regulatory functions to selected designated professional bodies, as advised by the recently released ROPA report.
A regulated PRS would enhance the landlord-tenant relationship, as well as build institutional investor confidence in a growth sector that offers housing solutions to increasing numbers of households. As a sector leading body, RICS already create and regulate professional standards in property and of our professionals who work within the industry.
To assist this regulation, we in collaboration with industry are currently developing an updated PRS Code of Practice, to be released in autumn 2019. This is produced in consultation, as part of our commitment to professionalising the sector, improving transparency and consumer service, as well as ensuring that any new guidance is within the public interest working for both industry and consumers.
We would like to see an extension of standards within the industry eventually extended to private landlords, ensuring tenants can expect minimum standards within their tenancy, whether it is handled by a professional or private landlord. Minimum standards within the social sector apply universally - we believe those within PRS should as well.
Under the current legislation, assured shorthold tenancies (AST) can be offered for up to seven years with a deed, although technically there is no maximum term length. Anything over seven years must be registered with the Land registry; despite the lack of maximum length, the most common tenancy length is 12 months.
Despite longer tenancies being mutually beneficial, key reasons for the continued norm for short term tenancies is a lack of understanding of longer tenancies, and their benefits including stability in residence and rent payment levels.
Landlords tend to prefer a long-term stable tenant and to not uplift rent, rather than to have a continually changing tenancy with the opportunity to raise rents. This notion is supported by the government's 2018 landlord survey which found around 70% of landlords kept the same rent when negotiating new tenancies with existing tenants.
In the most recent government survey of English private landlord's, 40% of landlord's and agents were willing to offer longer tenancies and a further 38% are willing with the inclusion of a break clause.
The desire to keep existing tenants and not have continuing turnover is further strengthened by the changes in June 2019 when the Tenant Fees Act came into force, which increases a landlord's or agents costs to replace tenants.
Not all tenants favour longer-term tenancies. There are many factors that may impact the duration a tenant would want to stay in a property, for example, those with visa commitments, those renting with roommates or in house share situations, and those working in secondment or seasonal jobs. It would be better for potential tenancy term limits to be advertised with rental adverts to offer tenants choice-based lettings.
Longer tenancies can bring the changes to the industry aspired to by the changes announced by government to remove s21 including making it harder to evict. However, there needs to be clear notice periods to end tenancies that are applied equally to both tenants and landlords through clearly set out break clauses.
Any break clause or notice period to leave a property must be treated the same for both landlords and tenants, in the interests of balance.
Government has announced that they are committed to removing s21 as a route to eviction, RICS supports removal of s21, but not until thorough changes have been made and established to the current s8 process including full streamlining of the court process to make it a viable alternative.
The focus on landlords ending tenancies needs to be seen within the context that evictions are rare and that in 2017/18 around three quarters of tenancies were ended by tenants.
An efficiently functioning sector should allow for landlords to easily evict troublesome tenants whilst also giving security to tenants that they can't be evicted on a whim.
The current court process after a section 8 notice has been served is an issue which exacerbates the problems of landlord's removing tenants with reasons defined in Schedule 2 of the Housing Act 1988 with long waiting periods for court dates and for bailiffs.
For landlords waiting for court dates to seek possession, long delays allow for wilful non-payers and those with poor motivations to game the system and, along with court application fees, add financial burdens upon landlords. This is compounded by the issue of court bailiff availability. For non-payment evictions, landlords face the large financial burden of going at least eight weeks (depending on rental payment schedule) with no rental income before they can even start the eviction process. This non-payment is then continued as the application for possession proceeds through the system. For those evicting for anti-social behaviour or damages, long waits for repossession also create further issues and could see the original reasons escalate.
RICS supports the creation of a new housing court as proposed by government in a consultation which closed in January 2019, which can simplify and streamline the dispute resolution process. We also welcome the industry transparency this would bring. All those involved, including tenants, landlords and leaseholders should be confident that they are receiving decisions that are consistent across the sector, made by highly trained and knowledgeable decision makers. We would also like to see Alternative Dispute Resolution (ADR) incorporated into a preliminary stage of adjudication, with the right to proceed to legal process.
Given the issues in evicting anti-social or non-paying tenants, many landlords are using s21 no fault evictions either instead of, or in conjunction with, s8 evictions. However, s21 is also possible to be misused by landlords to evict tenants with no genuine reasoning. Whilst rare, this was the given reasoning that prompted the government to announce moves to abolish the s21 eviction process.
More must be done to create a system where landlords can evict tenants in a prompt time period with little cost and financial burden to landlords, including for their own needs for the property, not just removal under current schedule two reasoning while also giving certainty and security to tenants that they won't be evicted on a whim or retribution. Through the Private Housing (Tenancies) (Scotland) Act 2016, in 2018, Scotland removed their no fault evictions by implementing a substantial and thorough list of valid reasons to remove tenants that ensures that when landlord's need their properties they can repossess it, but tenants have security in the knowledge that only good reasoning can be applied to remove them from the property.
There are, however, some issues within the Scottish system, with changes needed to clarify what constitutes "family", and the need to greater reflect rural housing and it's unique needs for farm workers within the list of reasons for repossession.
The PRS has always been a careful balance between landlords' and tenants' rights and obligations and any changes and interference from government should aim to maintain and enhance this balance.
RICS will be responding to the recent government consultation regarding the proposed changes to remove s21.
There is a risk that any attempts to cap or control rent increases will increase disruption within the PRS, with the possible leakage of stock into sale, as landlords react to recent fiscal and legal changes.
With the long-term nature of the housing market, attempts to link increases to a measure may result in larger increases than if the sector had been allowed to retain flexibility.
As previously mentioned, landlords tend to prefer a long-term stable tenant and to not uplift rent, rather than to have a continually changing tenancy with the opportunity to raise rents. This notion is supported by the government's 2018 landlord survey which found around 70% of landlords kept the same rent when negotiating new tenancies with existing tenants and only 42% of landlord's increased the rent when letting to a new tenant.
Within RICS Residential Market Survey, when asked members highlighted rent increases due to a diminishing rental stock with landlords citing the many government interventions in the market over the last period.
Whilst rent caps or increases linked to a measure aim to mitigate higher rents and create a better consumer market for tenants, they will not alleviate current affordability issues and could risk further affordability as private landlord's leave the market, with rental properties no longer demonstrating a good investment.
Approximately 4% of private landlord's let property as a full-time business, with the majority either using it to contribute to pensions or as a preferred investment vehicle. It is not within the interest of landlords to want to charge extortionate rent, especially as many see rental properties as long term investments for long term financial stability not short-term gain.
The current rental market affordability issue is a reflection of a lack of supply across all housing tenures, not of landlords and agent's desire to maximise profit.
The latest insight into the state of the residential property market in the UK from the industry's leading indicator.
As the new government beds in, the July 2019 RICS Residential Market Survey results show some of the improvement seen in near term expectations for sales and prices partially reversed.
The Build to Rent sector has potential to deliver homes to the tenure to help alleviate the affordability issues created by lack of supply. However, the focus in trying to bring forward build to rent has been wrongly aimed at finance and not helped delivery. The focus needs to be on the hurdles around planning permission, not on making investment into build to rent attractive.
The National Planning Policy Framework (NPPF) recognises build to rent as a sector, as well as a contributor to affordable housing, but many local authorities still don't recognise the contribution build to rent can make in the affordable private rented market.
There is also planning issues around the smaller space sizes of the units. Rental dwellings are not priced per foot, as those for market sale are, with bedroom numbers determining price points with shared or living space highly desirable; more so than bedroom space. This results in build to rent sometimes failing planning space requirements. However, building to specifications that work for build to sell, can make build to rent units unviable.
The availability of land is a continued and growing issue within the housing sector; however, the long-term investment return nature of build to rent means that they don't have the capital to invest in land in competition with other asset classes. As there is not unit sale, they can't recoup the land cost fiscally as quickly as the other asset classes. They must find their price point of market survival.
The economic nature of build to rent means that developers of this tenure have a longer economic outlook and investment in the areas where they are building, they want to ensure that the local area grows and maintains its attractiveness as a place to live. This creates a greater sense of community and cooperation, increasing liveability of the area.
The build to rent sector can provide many of the ambitions that government wants; including, longer tenancies, professionalised management, affordable rent, and transparency for tenants. However, the sector needs greater understanding from governments of all levels.