EMPO S Response to the Inquiry Into the Private Rented Housing Sector (Jan13)

EMPO’s response to the inquiry into the private rented housing sector (Jan13)

East Midlands Property Owners (EMPO) response to the Communities & Local Government Commons Select Committee inquiry into the private rented housing sector.

This response was compiled by Giles Inman (Business Development Manager) for EMPO. The contact telephone number for EMPO is: 01159 502639

INTRODUCTION

1.1 Thank you for this opportunity to contribute to this inquiry.

1.2 EMPO is a not for profit residential landlord association whose primary function is to support and represent the interests of residential landlords, letting agents and property investors across the East Midlands. EMPO is based at 78 Lenton Boulevard, NottinghamNG7 2EN. EMPO currently has 350 members who own or manage in excess of 10,000 residential properties.

1.3 The private rented sector (PRS) has played a critical role over the past 20 years in terms of supporting the following:

The significant growth in the student population would not have been possible without the expansion of the PRS.
Labour mobility would have been significantly constrained without the growth in the PRS.
Without the PRS fewer people would have been housed at a time of shrinking social housing stock and the requirement for high mortgage depositsfrom first time buyers.
The PRS prevented an acute shortage of affordable family homes due to years of insufficient investment and failed polices in addressing the shortage of social housing due to large amounts of social housing stock sold off under the Right to Buy and not replaced.

1.4 EMPO has been encouraged by Housing Minister Mark Prisk recent announcement of a new £200 million fund for the construction of new homes specifically for private rent.However we are dismayed with the relentless level of locally implemented regulations impacting upon landlords; for examplelicensing schemes and other measures which are adding unnecessary cost resulting in higher rents and slower investment activity in the PRS.

The quality of private rented housing along with the steps that can be taken to ensure all housing in the sector is of an acceptable standard?

2.1 We accept the sector does have its problems with rogue landlords and they should be tackled robustly at a local level whilst avoiding intervention measures that impact adversely on the majority of good landlords following good standards and practices. These landlords deserve to be treated well as they conduct themselves in a business like fashion and pre-dominantly supply accommodation above the standards required by law and in many instances offer housing of a better standard than owner occupiers in the same location.

2.2 There are a large number of tools within the various Housing Acts to deal with the property and the skills of those who manage them. We believe local authorities need to make better use of and utilize these provisions in pursing enforcement activities to ensure compliance by the small number of rogue landlords.

2.3 We support and recognise professionally operated landlord accreditation schemes as being an excellent and invaluable tool for landlords in ensuring they are kept up to date with their responsibilities in terms of landlord management and housing standards. We believe these voluntary schemes can play a significant role in improving standards, providing local authorities are more focused in ensuring adequate marketing spend being made available to promote them.

2.4 We support a landlord register (or fit and proper license) where the landlord registration number is recorded on the tenancy agreement along with the registration number for the accreditation scheme. Landlord charges for such a register would be on a sliding scale depending on membership subscriptions to accreditation schemes and landlord associations.

2.5 We support and salute Government policies such as Green Deal and the Energy Companies Obligation to Affordable Warmth as workable and cost effective schemes for landlords to effectively improve the energy efficiency of their rented properties.

Levels of rent within the PRS-including the possibility of rent controls and the interaction between housing benefits and rents.

3.1 At present rents are below CPI in the majority of local authorities across EnglandWales.

Average rents from the 12 months to June 2012 grew by 1.76% in England.
In 160 out of the 325 authorities, rental growth was below 2%.
In 80 out of the 325 authorities, rental growth was negative.

Data released by Valuation Office Agency (VOA)

3.2 “Rent Affordability” over recent years has been being impacted by a combination of factors including slow wage growth, the cost of local authority discretionary licensing, an acute shortage of affordable homes and high mortgage deposits for first time buyers.

3.3 Experience shows Landlords will tend not to invoke rent rises every six or 12 months for tenants in situ, but rebase their rent to market when a tenant moves on, which on average is every 24 months.

3.4 The open market is the best determinant of rent levels. Rent controls would distort the market by deterring new institutional investment in the rental property whilst leading to an exodus of current investors. This would have the affect of leaving social housing providers with the responsibility of meeting the subsequent housing demand from these market changes. House prices would fall and any talk about institutional investors “beefing up” the residential market would vanish.

3.5 Rent inflation across the UK as a whole tends to correlate very strongly with average earnings and therefore linking rents to average earnings might be a good way of setting rents and would mean that rents would have the same affordability in the future as they do.

3.6 The interaction of housing benefits and rents.

With the recent announcement by the Chancellor that benefits will be capped at 1% from 2014 and therefore no longer linked to inflation will undoubtedly mean some claimants will experience a rent shortfall, which will have to be met out of their own pocket. As we have shown in our earlier analysis of rents by the VOA, some areas will experience little rental growth and therefore claimants will not need to make up the shortfall. However there will be instances where claimants will need to seek alternative cheaper accommodation or take advantage of the fund being made available by Government to cushion the impact of these changes where claimants live in areas where rent increases are highest.

Regulation of landlords and steps that can be taken to deal with rogue landlords; regulation of letting agent’s fees and charges.

4.1 Effective regulation requires all PRS stakeholders to be part of the process from a very early stage. Regrettably our experience with local authorities demonstrates this early engagement is not present.

4.2 Existing regulation imposed by local authorities is not properly or actively enforced or marketed/promoted to the wider landlord community. This allows rogue landlords to operate under the radar and amateur landlords to operate while being unaware of their responsibilities.

4.3 We would like to see all agents offering client money protection services and being part of a self regulating body such as RICS or ARLA.

4.4 We do not believe in caps on fees, but are very supportive of full and transparent disclosure of all fees and charges at the commencement of the client relationship.

The Regulation of houses of multiple occupation (HMOs), including the operation of discretionary licensing schemes imposed by local authorities.

5.1 With Government benefit changes now only offering 25-34 year olds support for shared accommodation, the need and requirement for this type of accommodation in the community is essential. In Nottingham 32% of the population is aged between 18-30 years and the local authority policy is to restrict the use and growth of HMOs in the city. At a time where shared accommodation is the only option available to many young people and where forthcoming changes in welfare reform will make this type of accommodation even more critical within housing provision. .

5.2 Our concerns are compounded by the fact that often decisions to constrain the growth of HMOs are taken without any early consultation with the PRS or evaluation of the need for HMO’s in a local area. The sole decision process is based around reducing student housing densities. Shared housing does not form a part of local authorities strategic housing plans, although for many young people this type of housing is the only accessible housing option open to them.

5.3 We believe discretionary licensing schemes do little to improve communities and standards. In fact we suggest they only really impact upon the good landlords as effective enforcement procedures to deal with rogue landlords are lacking under such schemes. Furthermore landlord costs associated with complying with such schemes are passed onto tenants in the form of higher rents. There is also evidence these schemes create homelessness as landlords opt out of licensing by serving possession notices to tenants so properties can be re-marketed with fewer tenants at higher rents.

Tenancy agreements and length and security of tenure

6.1 Most tenants in the PRS are on Assured Shorthold Tenancy Agreements (AST).

6.2 Tenancies fail for specific reasons such as changes in circumstances by the tenant. For example when a tenant loses their job or experiences a relationship breakdown. Other reasons include rent arrears and anti social behaviour. It is perhaps more appropriate to focus policy intervention on these reasons for tenancy failure, rather than on a tenancy framework that appears for the most part fit for purpose.

6.3 There are several reasons why longer tenancies are not used more extensively by the PRS.

Valuation- Most PRS Landlords view property as an investment and as with all types of investment opportunities there is a requirement for flexibility in terms of having the ability to sell investments relatively quickly. A property with a sitting tenant will negatively affect its selling price.
As part of the terms and conditions for a buy-to-let mortgage, restrictions are placed on the type and length of tenancy agreements permitted in order to protect the value of the mortgage company’s asset in the event of repossession.
There is a huge fear amongst landlords that the continued roll out of regulation into the PRS will make the PRS sector less attractive as an investment option. Landlords want the flexibility to sell their investments quickly which would not be possible with long term tenancy agreements in place.
The best outcome for occupiers and investors is a policy environment that delivers choice and where the well proven AST co-exists with longer-term tenancies.
Forcing long tenancy across the whole market would be a high risk strategy for the Government. The PRS needs to grow and attract new investment in order to meet the future demands for housing. Increased regulation and interference such as index linked rents tied to longer tenancies will reduce the investment levels in the sector.
There are a number of simple ways where longer term tenancies would become attractive to investors. These include measures introduced by local authorities to help landlords deal effectively with anti social behaviour (ASB). Giving landlord the ability to terminate tenancies swiftly, without having to go to court where the reason is landlord sale, rent arrears or ASB. Gaining the support from mortgage lenders for longer term tenancies.

How local authorities are discharging their homelessness duty by being able to place homeless households in the PRS.

71. There is strong demand for accommodation from tenants not on benefits and combined with future welfare reform changes we expect to see significant increases in demand for accommodation in the PRS. Regulation such as Article 4, discretionary licensing and Government interference in the sector is inhibiting future investment in the PRS. In Nottingham there is local authority resistance to PRS investment in providing housing other than family housing under the City’s Article 4.direction. This approach will create a problem for Nottingham City and other local authorities in discharging their homelessness duty into the PRS.

Conclusions

Recent studies show that since 2001 the number of private rented households has grown by 75%. By 2025 it is predicted 22% of all households will be living in the PRS. Therefore the importance of the PRS in providing affordable, safe and decent homes is crucial if the housing needs for England and Wales are to be achieved.

Overall we believe the PRS functions well in providing the homes people want to live in at rents they can afford. Future investment necessary to meet demand will only happen in the sector if investors are confident government will treat them in a business like fashion and not over burden them will regulation.

Our recommendations include the following:

To include a simple compulsory registration scheme for landlords.
To recognise that a significant concentration of HMOs is limited to a few wards in the Country and extended planning powers on HMOs will constrain a desperately needed type of accommodation in many of our communities
Local authorities need to provide robust evidence that mandatory licensing is under full control and properly managed prior to looking at discretionary licensing schemes.
Local authorities need to introduce robust measures to tackle the problem of rogue landlords and agents.
Local authorities need to properly consult on policy matters with all PRS stakeholders from an early stage therefore ensuring respect and buy in from the PRS.
Local authorities need to ensure they have adequate resources to advertise new regulation prior to it being rolled out.
Policy such as rent controls will damage investor confidence, the sector and ultimately housing provision.