Is rental regulation inevitable?

Is rent regulation inevitable?  It seems so with the Labour Party opportunistic appeal to the 4.8 million households that now rent privately.  It appears that landlords and the private rental sector has become a victim of it's own success.  Back in the the early 1980s with less than 10% of the population renting privately it had become a political irrelevance and surely it was just a matter of time before it disappeared under the unstoppable juggernaut which was private home ownership ownership.

The saviour of the private rental sector

It was the actions of Margaget Thatcher and some of her advisors that rightly saw that a vibrant private rental sector was not only ideologically important but a practical necessity for an increasingly mobile and youthful workforce to be able to live where the jobs were and without the shackles of home ownership.  In essence housing policy was borne out of economic necessities.

The rebirth of the private rental sector

The rebirth of the private rental sector has continued a pace over the last 30 years and now is rapidly approaching 20% of the total housing stock.  This means lots of votes for politicians and in particular the Labour party who naturally see renters are part of their voting constitution.  The latest proposals for the private rental sector from Labour are essentially a 'throw back' to the waves of regulation introduced by successive Labour governments during the whole of the last century.  The result then - a contracting private rental market, less choice, less investment and a flight of capital away from landlords renting their residential property to them selling property into owner occupation when they could.

What has changed since 1988?

Since the arrival of the Assured Shorthold Tenancy with the original Housing Act in 1988 we have seen a slow evolution of the private rental sector away from just providing short term accommodation for young professional before they buy their own property to an increasing permanent rental class particularly in London and the bigger towns & cities ....the so called 'generation rent'.  Originally it was envisaged that assured tenancies with their greater security of tenure would become the default tenancy for many landlords.  However, their inflexibility and the granting of a considerable amount of security of tenure meant that it failed to appeal to both tenants and landlords.

Need for change for 'generation rent'

The private rental sector does need to change to respond to the needs of todays 'generation rent'.  The option for longer term tenancies are probably not only a good idea but essential to cater for demands from the new army of renters.

Labours proposals for rent regulation

Labours proposals however wrongly assume that rents are escalating at an unprecedented rate.  They may be in certain upmarket parts of London where Labour Party apparatchiks reside.  In the rest of the UK real rents have been falling.

Controlling rents in any meaningful way is likely to create a massive wasteful bureaucracy.  This all to regulate something that for the odd anomaly regulates itself through competition.  What are we really gaining?

Is rent regulation inevitable?

If the current government can lead the evolution in the private rental sector by incentivising landlords to offer the choice that today's generation rent demand then there is every reason to believe that heavy handed regulation is avoidable.  In fact by leveraging the interest in investing in residential property as an investment politicians could kick start the sector into several more decades of growth and stimulate the all important need for more new properties to rent.

The question for all of us including our politicians is do we want to go backwards to the dark days of rent control and a shrinking private rental sector or do we have the courage to go forward and adapt and evolve it to cater for a changing world.

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Labour's proposals for rental properties

Not many of us could have avoided Labour's proposals for tenancies on the news last night.    

Labour have said that they want to provide tenants with stability by introducing a  rent cap and three year  tenancies.

So how will this affect landlords?

Rent Increases -  rents will be based on market value and reviews of rent could only be carried out once a year.  There sill be a statutory limit on rent in place and Landlords will be prevented from increasing rents any higher than that.

Length of Tenancies - tenancies will be for a fixed period of three years  with a 6 month probation period, followed by an automatic 2.5 year extension.  Tenants will be able to give one month's notice after 6 months, landlords however will  have to give 2 months notice and have good reasons for terminating the tenancy.  The examples given of good reasons are rent arrears and anti-social behaviour.   This will cause all sorts of difficulties in gaining possession - presumably you will have to wait until there are significant rent arrears or anti-social behaviour before issuing the 2 months notice, and then following that will have to go through the court process, thus extending the period for possession considerably.

I think this will have a huge affect on whether people decide to go into, or stay, in the rental market.  a fixed three year tenancy is going to put many landlords off, even when landlords want a longer tenancy I never advise entering into a tenancy that is any longer than a year.

There is also the issue with mortgages, I am not sure how many mortgage companies would be willing to grant mortgages if there is a three year tenancy.

If you do require any advice on tenancies please do not hesitate to either telephone me on 01623 448331 or email me at rbrough@fidler.co.uk

Rebecca

Labour want to take a bite out of landlords

Labour are eyeing up private residential landlords as easy political fodder for their re-balancing of society. The pair are looking to propose an increase of the standard tenancy period from the six months AST to a three year standard tenancy.

According to Emily Maitlis of BBC's Newsnight, the two Eds' consider landlords to belong to a "predator" class that could do with having a bite taken out of. 

Labour's two 'Edded' monster

This potential re-dress, fits into Labour's 'cost-of-living' narrative, they have constantly being barking on about now that all their other economic yelping has been largely silenced. 

The Labour party are considering changes to the standard tenancy agreement as key to their election manifesto. With 9 million people in rented properties you can see that's its a potential vote winner.

So far, Labour are not proposing a return to rent controls, but they are considering putting controls over rent increases, possibly linking increases to average market rents.

Two Eds are also looking at banning letting agency fees charged by letting agents.

With only 2% of the population being private landlords, many of which are not likely Labour voters , what have they got to lose by hitting us hard. With nine million tenants to win over don't be surprised if Labour don't see us as an easy piece of political meat to take a big bite out of.

Read further comment on Labour's proposals to change tenancy agreement

Double digit property price growth

The Nationwide's House Price Data show have reported double digit growth in prices.  With the average UK property price increasing by 10.9% between April 2013 to April 2014 according to the bank's figures.

Robert Gardner, Nationwide's Chief Economist, said:

“After several months of moderation, the pace of house price growth picked up in April, with prices rising by 1.2% during the month. As a result, annual house price growth has reached double digits for the first time in four years, with the price of a typical home 10.9% higher than April 2013."

He did then caution that the new more restrictive lending practices brought about by the recent introduction of the Mortgage Market Review (MMR) could impact on market activity over the coming months.

London and the South East is still out performing the rest of the country, with prime property in these areas still fuelling much of the boom.

Robert Gardner commented 

“Interestingly, price growth in London and the South East appears to be being driven by the top end of the market, with higher priced locations recording stronger price growth."

More comment on the Nationwide's property price data from the Financial Times. 

New tenancy agreement needs incentives

The Government proposal to promote a new longer term tenancy agreement is a great idea.  Having a longer term tenancy is good for tenants (greater security) and landlords in that it gives them long-term tenants and less chance of a costly void.  In my view it also needs an incentive for landlords to adopt it or else it is destined to fail. Landlords will not give up the opportunity to obtain vacant possession and raise the rent regularly unless their is a significant advantage in these tenancies to compensate them for this loss of control (why would we?!).  I would suggest that the Government should use so call 'Nudge Economics' to incentivise landlords to adopt longer-term tenancies.

A long-term tenancy
The Government could and should incentivise landlords to embrace a longer term tenancy agreement of say 3+ years by giving them certain tax advantages in return for granting these types of tenancy.  For example, one clear additional deduction would be to allow a landlord to offset the whole of their borrowing cost against rental profits (not just the interest charges).  This would incentivise landlords to buy and invest for longer-term tenants.  Something that many of us in the private rented sector recognise is a good thing for tenants, landlords and general housing policy.

Free property management software, Free tenancy agreements

Greater protection for tenants

The Housing Minister Kris Hopkins announced earlier this month that the Government intends to bring in a range of extra measures to protect tenants later this year.

The initiative is entitled : "Stronger protection for tenants & leaseholders"

It smacks of talking tough (possibly to please their coalition partners).  Maybe the Tories are trying to  appeal to the tenant vote.  However, the raft of proposed measures thankfully lacks real teeth and most importantly any additional regulation.

In this case most landlords can breath a sigh of relief.

It's a case of being gummed by a toothless lion!  The measures are:

• a new voluntary code of practice for the management of property in the private rented sector.
• new help to rent guide.
• a model tenancy agreements for longer lets (good idea - but unlikely to be popular with landlords) - what the government need to do is practice a bit of nudge economics and give landlords letting with these tenancies additional tax advantages.
• extra guidance for local councils on how to tackle rogue landlords
• a discussion document on the conditions in the private rental sector

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