Over the past few months I have been getting increasingly concerned about the political rhetoric that is beginning to surround the Private Rented Sector (PRS) and in particular the pressure and influence of Shelter in trying to bring about drastic and disastrous change. I therefore sent an email to Shelter, which is printed below.
Dear John,
Following our email correspondence and subsequent telephone conversation, I am writing to set out my concerns in relation to the recommendations made by Shelter in their policy report 'A Better Deal'.
As you know, I am myself a Lettings Agent and for your information I am enclosing a link to my submission to the Governments investigation into the PRS, made in Dec 2012.
https://www.publications.parliament.uk/pa/cm201213/cmselect/cmcomloc/writev/953/prs01.htm
As you also know, I am writing a piece on the PRS for the estate agency trade magazines Estate Agent Today and Letting Agent Today and I intend to base my article, at least in part on our dialogue.
However, despite my obvious interest, I have endeavoured to be objective and to consider the needs of landlords and tenants, not just lettings agents.
The most important point is that if you disturb the delicate balance that currently exists in the market by transferring more risk to the landlord, the market will break down completely.
A Summary of your Policy Report:
- Shelter wants five year tenancies to become the norm during which the Tenant has security of tenure unless the landlord sells and to have the right to keep pets and decorate as they wish.
- You think this change is needed because of the number of evictions you are seeing in the PRS and the need to give families stability in a place they can call home.
- You accept the current legal framework does not need to change but you want to change what you see as misguided convention by introducing a series of 'nudges' to encourage landlords to stop renting for one year only and offer what you call 'the stable rental contract' which you intend to develop.
- One of the nudges you suggest is to force landlords to apply for a special permission if they want to let for a shorter term.
- You accept that the changes you are suggesting would mean the end of many lettings agents' businesses.
- You cite several European markets as examples we should follow, notably Spain. You acknowledge that lenders and the courts would have to come on board to make these changes work.
My response:
I have identified following major flaws in your report:
- You show a lack of understanding about how the modern PRS came about
- The problem you say you have identified is not proven
- Your recommendations if implemented won't reduce evictions
- Your tenants survey uses flawed methodology
- You fail to take into account the landlord's position
- Your comparison with other countries is inaccurate and misleading
- Your suggested nudges would lead to additional ineffective bureaucracy
- Court procedure won't change and 5 year tenancies increase landlord risk
- Forcing landlords to allow pets and decorations without consent will cause problems
- Most lenders will not lend on this type of Tenancy at the moment and will not in future
- You unfairly favour institutions over private landlords
- The demise of many lettings agents is not given any consideration
In your report you fail to recognise that the key driver that gave rise to the modern PRS was the housing act 1988. In particular, Campbell Robb's introduction is inaccurate and misleading.
You said that the PRS came to Shelter's attention when you realised that most of the people seeking your advice about being evicted were private tenants.
You went on to passionately make the case for continuity in home life, more than once citing your own experience of having to move schools during childhood as a disruptive, unwelcome thing.
However, most of these evictions are as a result of non-payment of rent and other breaches of the tenant's contract that allow for eviction through the courts, as well as the landlord selling up, or moving back in.
As all the current grounds for eviction continue under the proposals in your report, none of these types of eviction would be avoided by the introduction of the stable rental contract.
I can tell you that instances where tenants leave because of a rent increase are rare and are offset by far more cases where landlords don't apply any increase to rent because they want to keep good tenants.
The current system may not be perfect but your suggestions would make it worse and overall lead to bigger rent increases and vastly less supply.
Your research revealed tenants would prefer the right to stay in their property for a longer period than at present and would like to retain the option to leave if they wanted to. It also revealed that tenants would like to keep pets whether or not the landlord agreed and to decorate their properties how they wanted to without having to seek permission.
It's a bit like asking someone if they want a pay rise, of course they will say yes please. But, if you explained to that person that if they take the pay rise their employer will go bankrupt and in two years they will be unemployed then they would choose their job over the extra money.
You accept that the current norm is a one year fixed term, and acknowledge that the current legal framework presents no obstacles to longer term tenancies.
You propose no solutions to ensuring there would be mortgage lending for five year tenancies; neither do you explain how you think court procedures could be changed to give comfort to landlords.
You twice hold up Spain as an example to follow because of their five year contracts and similar regulations to the ones you recommend when in actuality, the introduction of these contracts led directly to a decline in the Spanish PRS from 19% to 7% of housing stock since the 1980s.
It is also relevant that Spain has the strongest employee protection framework in Europe whereas the USA has the weakest, yet Spain has persistently high unemployment whereas in the USA unemployment is relatively low.
You also referred to the German PRS as a model to refer/aspire to. In Germany the demographic imperatives are almost the exact opposite of those in the UK, the following quote is taken from a learned report prepared for Government in 2010:
Because of an oversupply of dwellings nationally total dwelling production has decreased to the lowest point since World War II (BBSR/BBR, 2010; Bundesregierung, 2009). This also applies to the rental sector
So Germany has a housing glut whereas we have a shortage.
A better example of a successful PRS is Australia, it is no coincidence that it is the healthiest and the least constrained. The following quote is taken from the same report as above:
Berry (2000, pp662-663) argues that Australia has largely been free from the onerous and prescriptive legislative controls constraining landlords in many other advanced capitalist societies during the current century.
The PRS in the UK cannot survive unless it retains the support of landlords; that much is obvious. Equally obvious is that anything that takes away that support will damage or destroy the sector.
There are two crucial planks that have to be in place to retain landlord support, the first is an economic source of financing (mortgages) the second is an economic return that provides an acceptable balance between profit and risk. Your suggestions, if implemented, would remove both these planks.
Lenders are worried that if longer term contracts become the norm that they will have great difficulty realising their security if needed to and even if the mechanisms are put in place for them to do so, they (rightly) fear it would give them bad publicity to be throwing families into the street.
They are therefore unlikely to relax the current rules unless they are given comfort in this area, it's hard to see how this comfort could be given but without it there would be no significant lending and without the lending the sector as we know it would end.
Assuming the lenders could get on board with your plans, the landlords also have to be persuaded that the risks involved with offering a five year tenancy are worth it, especially if they are giving up the right to say how their properties can be used and decorated and subsequently have to trust that tenants will return them in good condition.
Housing associations and some councils already procure property from private landlords and offer them contracts on similar terms to the ones you want implemented. The crucial difference is that the housing association or council become the tenant and sublet the property to benefit claimants, thereby ameliorating all of the landlord's risk.
This element of risk is already substantial for landlords, even with short-term tenancies. A failed tenancy can already cost a landlord thousands of pounds in fees, damage and lost rent. Extending their liability fivefold would - without additional security and guarantees - make the proposition unviable.
At present it is possible for landlords to protect themselves either by buying rent guarantee insurance or getting a rent guarantee from a company like us, it is unlikely this type of protection would be as available for five year contracts on an economic basis because of the risk.
I don't think Shelter realises how precarious the PRS really is, the reason it has grown so fast is partly because of low interest rates and partly because many people see residential property as the only way to achieve financial freedom and independence.
However, the returns from the sector are tight, hence institutional reluctance to enter it. Reduce these returns even a bit, or raise interest rates by too much, and the sector could decline even if no changes are made.
The real housing crisis can only be solved by matching the housing needs of the population (demand) with the availability of housing (supply) and no amount of meddling with the PRS is going to change that.
For the economic reasons I have highlighted it is not possible to place social housing responsibilities onto private landlords and expect them to carry on participating, they won't, they will withdraw as they have done in the past in the UK and other countries.
I cannot speak for the Lettings Industry but I am confident that if asked, it would work with Shelter and Private Landlords to introduce meaningful improvements to the sector on a self-regulated basis and I am sure this is the best way forward for everyone.
I look forward to your response.
If you agree with my stance, please sign the following online petition:
'We the undersigned strongly disagree with the policy report into the private rented sector commissioned by the Charity Shelter entitled 'A Better Deal' and believe that if the changes recommended in this report were implemented it would lead to disastrous consequences for Private Landlords and their agents and would lead to massive shrinking of the sector overall'
It is my serious belief that if we don't do something quickly and decisively, as a united industry, we face the possible extinction of our hard won lettings businesses.
If you would like to lend your support to what will be an ongoing debate, I want to hear from you, please email me at: simon.shinerock@googlemail.com.
*Simon Shinerock is Chairman of Choices Estate Agents. For more information on Simon, see his LinkedIn profile: https://www.linkedin.com/in/simonshinerock.
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Comments
I am an agent myself but have witnessed shocking behaviour on a personal basis & professionally.....whist there are a great number of responsible pet owners the pet clauses are there in private leasehold properties for good reason.....what happens if you get-as I did-a neighbour who let his dog wee in his hallway -leading to charming "water leaks" all over my ceiling or another which I valued in a smart area where the third bedroom had the blinds drawn and a newspapered floor covered in charming large piles of dog doo (it was the height of the summer and I'd had a cold-fortunately).I have let properties to fantastic tenants and yet another professional couple caused massive damage/costs in normal -constant cooking and not clearing up ,outdoor shoes worn throughout ,floors not swept/dried in just one year approaching 15000 minimum damage .....that house is now going out of the sector ....the existing legislation could be tweaked but not radically altered otherwise private landlords will move away from the sector as they did throughout the 1960's and 1970's because legislation was firmly anti landlord.
my father sold all his tenanted property during that period as soon as it became vacant (death of the existing tenant in every case!)