Policy Position Statement: Private Rented Sector in England

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 has doubled since 2002 to 4.6 million households for the year 2018-19. 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.

Standards within the Private Rented Sector

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 2018/19 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.

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.

Recommendations:

• Government to adopt and support ROPA recommendations for agents and landlords, with minimum standards, accreditation of practitioners, and compulsory continuous professional development.
• Government should adopt an industry approved Code of Practice as a placeholder to bring standards to the industry in the immediate while waiting for a new regulator and standards to be established through ROPA.
• Government to detail plans for extension of regulation to cover all private landlords with a clear timeline of implementation.

Indefinite Tenancies/Long Term Tenancies

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, however the average length of residence within the tenure was 4.4 years. 

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.

Recommendations:

• Government to produce How to Let and How to Rent guides that include the benefits to both landlords and tenants of longer tenancies.
• Government to require tenancy term limits to be advertised with rental adverts to offer tenants choice-based lettings.

Evictions and Section 21

RICS would encourage the Government to ensure that any changes they make to the eviction processes are done in close collaboration with the sector, to guard against the potential for unintended consequences impacting negatively on those most vulnerable within society.

The focus on landlords ending tenancies needs to be seen within the context that evictions are rare. In 2017/18 around three quarters of tenancies were ended by tenants and with some section 21 notices issued upon a landlord receiving a notice to end a tenancy to ensure finalisation of the tenancy on part of both parties.

RICS supports the removal of section 21, but only when a viable alternative is established and embedded including significant reform to the court processes. The Government must review the court processes to streamline evictions which meet schedule 2 grounds, especially mandatory grounds to allow for prompt finalisation of a tenancy.

The current court process after a section 8 notice has been served is often lengthy, further exacerbating the issues around the grounds the landlord was removing the tenants. 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. This along with court application fees, add significant financial burdens upon landlords.

RICS supports the creation of a new housing court as proposed by Government in the call for evidence which closed in Jan 2019, which would simplify and streamline the dispute resolution process. We welcome the transparency this would bring for tenants, landlords and leaseholders. 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.

The section 8 process to remove tenants can be lengthy which may result in landlords or agents with the most vulnerable tenants having less flexibility to help them and aim to start eviction as soon as they can.

There is also the possibility that vetting processes may become more strenuous or discerning with those prospective tenants offering less risk to a landlord in both property care and rental payments being prioritised due to the harder process of removing troublesome tenants. As a result, those at higher risk including families or those on lower incomes could find it harder to get into properties.

This will lead to the creation of a two-tier market where good tenants with an intact credit rating will be able to secure accommodation and a suitable tenancy agreement, whereas those who do not will be forced towards more informal arrangements and possibly towards more rogue landlords and lower standard homes. It would create a shadow market where the less empowered, marginalized and vulnerable tenants will take whatever accommodation they can find and will not necessarily report breaches.

We also have concerns around how Local Authorities will assess those who present themselves as homeless following a section 8 eviction order for arrears, breach of tenancy agreement, anti-social behaviour etc. as they could be deemed intentionally homeless. An advantage of a section 21 no fault eviction is that a Local Authority is blind to the reason for eviction- with section 8 the landlord is forced to ascribe blame, and this may lead to difficulties for those seeking rehousing.

The PRS has always been a careful balance between landlords' and tenants' rights and obligations. Any changes and interference from Government should aim to maintain and enhance this balance and not cause disadvantage to tenants, particularly those within the tenure who are most vulnerable.

Another possible impact of the removal of section 21 is around finance and investment especially as Government tries to encourage investment into the sector. Rental properties are generally valued on their vacant property rate. If it is harder to gain possession of a property, these changes might well result in investment values of residential investment property falling or portfolio owners seeing their portfolio capital value reduce purely as a function of the change of tenure from an assured shorthold tenancy to an assured. This impacts viability and is likely to deter larger scale landlords from future investment.

The removal of section 21 will potentially impact buy to let landlords who may be in breach of their loan to value covenants and there is the possibility that lenders will become more restrictive in their lending criteria.

RICS responded to the recent Government consultation regarding the proposed changes to remove section 21. While we welcomed the ambition to make section 8 fit for purpose, we believe this should be done regardless of the removal of section 21.

Recommendations:

• Government must ensure the removal of s21 doesn't result in unintended consequences which disadvantage tenants, especially those most vulnerable within the sector.
• Government to prioritise streamlining and simplifying the court processes for landlord's wanting to repossess their properties under Schedule 2 and release their response to the considering a case for a housing court, call for evidence.
• Government to work with financial sector to ensure removal of s21 doesn't unfairly affect buy to let mortgages and property values.

Rent control

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.

Recommendation:

• Government must not impose rent caps on the market.
• Government must build across all tenures to the actual need of areas, recognising that affordability is a supply issue.

Build to Rent

The Build to Rent sector has potential to deliver homes to the tenure to help alleviate the affordability issues created by lack of supply. In 2018 4% of dwellings within the sector were high rise purpose built flats. 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.

Recommendations:

• Local Authorities must include build to rent into their strategic planning, especially in areas of high rental need.
• Government needs to look NPPF requirements and how they can better accommodate build to rent.
• Government must produce clearer guidance about affordable housing and the benefits of affordable rent not just homes to buy, giving clarity on the contribution of build to rent to the wider affordable housing market.