The Private Rental Sector is Broken and Needs to be Fixed

15 September 2022


As controversial and dramatic as this may sound, there is a housing crisis, and it is only likely to get worse.

 

If you have read my newsletters over the last couple of years you will have seen some similar trends and comments – there has never been a better time to be a landlord and here we go again, more new legislation – but what does that all mean?

“There’s never been a better time to be a landlord.”

Supply is at an all-time low, rents are rising dramatically, and tenants are fighting over good properties. So, while this is good for landlords, it’s not great for the private rental sector as a whole and, ultimately, won’t be good for landlords as pressure grows for rent control – which has already been announced in Scotland.

“More and more new legislation.”

This is where it all seems to be going wrong. The intentions, for the most part, are good. Keeping tenants safe in properties that are fit for purpose and protected from rogue landlords and agents – who can argue that this isn’t good for the sector? Well, actually I can. I won’t argue against the good intention but, as ever, it’s the unintended consequences that make the difference.

The legislation changes are generally intended to protect the most vulnerable tenants (broadly those paying the least rent on the lowest incomes) from the worst landlords (generally those providing the poorest standards of property, or those offering ‘loopholes’ to tenants who are unable to rent elsewhere due to financial or other difficulty).

But it affects all – landlords, agents, and tenants – and when landlords are faced with more hoops to jump through, generally two things happen.

They either take on the new challenge, accept there is more to be done (Right to Rent checks, smoke & CO alarm checks, EPC minimum standards, etc.) and the cost of these are passed on to the tenants – but not by way of sharing the cost in fees, as this was stopped in 2019 with the Tenants Fees Act. Instead, rents increase to cover the administrative burden.

The alternative is that the landlord gets fed up with jumping through hoops – investing in property is now far less appealing thanks to stricter criteria, additional Stamp Duty surcharges and other changes in taxation – so they decide it’s time to sell.

Typically, when a landlord does sell, it isn’t to another landlord which means there is one fewer property available to rent, increasing demand and pushing rental prices up as a consequence.

That’s the real irony of the Tenants Fee Ban and other well-meaning legislation, it's driving up the cost of renting and reducing supply. Then there is the real killer blow, the worst landlords still don’t comply, but the good ones (hopefully, that’s you if you are reading this) do!

More and more legislation is being introduced to fix something that, in the vast majority of cases, isn’t broken. We don’t need more legislation, we need better enforcement of existing legislation.

 

So, what needs to happen to fix the private rental sector?

We need landlords to feel loved again and the government can make this happen with a simple change in approach:

 

  1. Additional surcharges. Recent taxation changes stopped landlords from offsetting their mortgage interest payments against their income tax and, at present, they are required to pay an extra 3% when buying an additional property. If this additional Stamp Duty levy were to be removed and the recent tax changes were reverted back, more landlords will surely return to the private rental sector.
  2. Employ a true long-term housing strategy. Adopting an approach with genuine foresight and vision for a longer timeline in mind would give greater insight to the longer-term issues, rather than the crash-and-fix mentality which we have from very frequent changes in government.
  3. Housing ministers. I’ve honestly lost count at this point but I think we are about to see our 13th Housing Minister since 2010. Let’s get some faith and continuity in the role and allow them time to see some progression. This also means some form of real help for first-time buyers to get onto the housing ladder, building more reasonable homes and a joint approach to Right to Rent and social housing.
  4. Enforcement.
    With a better understanding of the issues should come better policing of bad landlords. The mechanisms to do this are all in place in existing legislation, we just lack the joined-up approach from central government through to local authorities to make it happen.
  5. EPC minimum standards in rentals.  We just need to be sensible here. We already protect tenants against the worst-rated properties (F & G) and it’s likely that this will increase to stop E & D-rated properties from being lettable in 2025. Landlords will be forced to spend more money to improve ratings and it will come as no surprise that these costs will only be passed onto the tenant or landlords will end up selling. Delaying or phasing in these changes over a more gradual timeline would make a real difference to the effectiveness of the well-intended legislation.

 

These five things will make a huge difference to the number of landlords coming back into the private rental sector and those now considering leaving may just see the bright side of staying.

Supply of property will surely increase, reducing demand and returning rents to more sensible levels again.

 And, don’t worry, it will still be a great time to be a landlord – it might even be better!  Our experts are here to answer all your letting questions, so get in touch today. 

Until next time,

jb

Jason Bunning
Managing Director of Lettings