Longer Tenancies Consultation

July 27, 2018

The government has issued a consultation called ‘Overcoming the Barriers to Longer Tenancies In the Private Rented Sector’ and to the surprise of many has proposed a minimum three year mandatory tenancy.  This has been a core campaign for Shelter and was adopted as Labour Party policy in Ed Miliband’s 2015 election manifesto, but has not previously been put forward by the Conservatives.

The key argument for three year tenancies is that the size of the private rented sector (PRS) has increased from 9% to 20% of housing since the introduction of no fault eviction and six month assured shorthold tenancies in 1989.  38% of households in the PRS are families with children who prefer stability and security of tenure and benefit from continuity of health and education services for their families.  Advocates of three year tenancies argue that families are often forced to move after 6 or 12 months as landlords increase rents or simply evict tenants with no fault section 21 notices.  The consultation suggests this is happening because tenants complain about repairs, yet there is specific legislation now to protect tenants from so called ‘retaliatory eviction.’  Campaigners point to more stable private rented sectors in other EU countries and say that this creates a more stable society.  BBC Radio 4’s Moneybox programme recently cited Holland where tenants are granted 9 year tenancies.

I want to examine each of these arguments that campaigners rely on.  Firstly, the assumption that because tenancies are currently 6 or 12 months in length, most tenants are having to move every 6 or 12 months.  The latest English Housing Survey tells us that the average tenancy lasts 3.9 years.  Landlords want good tenants to stay as long as possible and most only raise rents when there is a change of tenants.  That means that many long term tenants are paying below the market rent.  Over the long term, rents rise less than inflation.  Rent increases have hit the headlines over the past few years because wages have grown less than inflation and so the cost of living has become greater for tenants.  Rents in Greater London fell by 0.2% in the 12 months to May according to the Office of National Statistics.

Campaigners argue that most evictions take place in the private sector and cite no fault eviction as the main cause.  The vast majority of tenancies are ended by the tenant, only 11% were asked to leave by the landlord according to the English Housing survey and 5% ended because of a poor relationship or rent increase.  Two thirds of evictions by landlords are because tenants are in arrears.  Many more will be because the landlord is selling or wishes to move into the property.  So the vast majority of tenants have security of tenure.  They get on well with their landlord and 82% are satisfied with their property.  A CAB report said that only a third of tenants want longer tenancies.

On comparisons with other country’s tenancy arrangements, Chris Norris, Director of Policy & Practice at the National Landlords Association is scathing: “I get so tired of hearing international comparisons.  Yes the way we structure our framework for housing, for private housing in particular, is very different from a lot of other countries.  So is every aspect of their economy, their political landscape, their community and the way that they treat housing, whether that be as an asset or not.  One of the issues that comes up time and time again is the way that we treat property or homes as an asset rather than simply a home for a household to live in.  We are structured very differently, therefore the laws are going be very different

The key objection from landlords about 3 year tenancies is the huge increase in risk.  The government’s proposal is that after a six month break clause, landlords will only be able to evict tenants using a section 8 procedure which requires a county court hearing and decision from a judge.  Many grounds are discretionary.  Even where grounds are mandatory, for example where there are 2 months of arrears, the tenant can turn up on the day of the court hearing and pay one weeks arrears and then the decision is discretionary.  Issues like subletting fall under breach of contract.  If the landlord suspects subletting, he or she has to give 24 hours notice to inspect the property which is enough time for evidence to be removed, making it difficult to construct a case that would persuade the judge.  Because the court procedure takes an average of 22 weeks in PRS cases, landlords would far rather use a no fault eviction.  Until we have more confidence in the court process, having no alternative but a section 8 process makes mandatory 3 year tenancies unfair and a risk too far for many landlords.  Many are already aggrieved – or indeed will become unprofitable – because of section 24 tax changes, increasing difficulty in gaining mortgage finance and mounting criteria: this could be the last straw.  The timing is poor and looks more like an attempted grab at the younger renter vote than a well thought through housing reform.  Housing campaigners accuse landlords of overusing section 21.  Many of us avoid section 8 because the court service is slow and cumbersome.  The consultation document hints at improvements to the justice system, but can you see the government pumping huge resources in to speed up and reform the courts?

Tax and mortgage changes are causing more landlords to sell properties and sadly evict their tenants.  The freezing of local housing allowance (LHA) and the total welfare cap are also forcing tenants into arrears and these policies are the root cause of many evictions.  LHA rates are now well below market rents in London and some other parts of England.  Many landlords did offer rent cuts in the past to help ease the situation, but the freeze has been imposed for too long.  Landlords also want housing benefit to be paid directly to the landlord to reduce the likelihood of arrears and yet the government persists with direct payments to tenants because of its ‘responsibility agenda’ dogma. We all want people in receipt of benefits to be able to budget as though they are in work, but many are vulnerable and need considerable support in a period characterised by cuts in public services.  Government policy causes arrears, landlords are then blamed for evicting tenants as a result.

What role do agents play in security of tenure?  Most agents have a commission-based model and earn more commission if the rent is increased.  They also earn more commission if there is a change of tenant.  It is my contention that it is the less scrupulous agents not landlords that are primarily  responsible for the 6 and 12 month churn that housing campaigners are concerned about.  Letting agents will be transformed in the next 2 years with compulsory client money protection and membership of a trade body plus a legally enforceable code of conduct.  We should wait for these welcome changes to take effect and measure the impact.  We are likely to see a thinning out of agents and only the more reputable and robust will survive.

The consultation suggests exemptions for students and short term lets, but it is difficult to know how this will work in practice.  Presumably the tenant will have to request a shorter term contract and or sign away their rights to a three year contract.  There will need to be some way of ensuring that landlords and agents have not coerced them into doing so, possibly through the involvement of education providers or other agencies.

I am pleased to see that the consultation refers to possible financial incentives.  I have long favoured a better tax regime for accredited landlords – perhaps being allowed to rollover capital gains into further investments or an exemption form section 24.  How could incentives only be offered to landlords who provide 3 year tenancies?  Would they have to provide them to all of their tenants to receive the incentive or would it be per tenancy offered?  The consultation points out that whilst housing is devolved in Scotland, taxation is partially devolved so there are some administrative hurdles that could be difficult to overcome.  I think the best way to manage tax incentives is to abolish property licensing in England and replace it with a light touch registration scheme which records whether a landlord is accredited and compliant.  Those who are, get more attractive tax relief and prove it with their registration status.  Landlords who aren’t accredited don’t get tax incentives and would lose their registration (and right to let) if they commit housing offences.  Offering long tenancies could be worked into this type of regime.

Chris Norris has suggested that there might be an allowance similar to the now abolished 10% wear and tear allowance.  He also said that government officials had suggested tax incentives in the order of £150, a clear indication that they were oblivious to the much higher level of risk involved.

The proposal for three year tenancies is not the government’s preferred option, it is simply one being put out to consultation until 26 August 2018.  It is an option built on misinformation and the saturation of bad media stories about landlords perpetrated by public officials and housing campaigners who by the nature of their job mostly hear the negative stories.  Make sure you contribute to the consultation and explain why compulsory three year tenancies are not the way forward.

 

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