Memorandum by the National Landlords Association
(NLA) (SRH 23)
The Committee's inquiry into the supply of rented
housing is necessarily wide-ranging. In our response we intend
to focus on the aspects which affect our members most closely:
the role and effectiveness of private rented housing in meeting
housing needs and the effectiveness of housing benefit as a means
of providing access to rented housing to those in need.
1. BACKGROUND:
ABOUT THE
NLA
1.1 The National Landlords Association is
the largest single landlords association in the country. It has
members right across the United Kingdom, including five special
corporate members, Birmingham Midshires, Bristol & West, Mortgage
Express, Mortgage Trust and Paragon, and 40 local authorities
who are associate members.
1.2 The NLA protects and promotes the interests
of private landlords of residential property and represents their
views to government, local authorities and the media. The NLA
seeks a fair legislative and regulatory environment for the private-rented
sector while aiming to ensure that landlords are aware of their
statutory rights and responsibilities. It campaigns to raise standards
in the private-rented sector whilst fostering a professional and
amicable relationship between landlord and tenant.
1.3 We deplore, and do what we can to dispel,
the notion of the "get-rich-quick" phenomenon of speculative
investment. The NLA believes that property investment is a long
term proposition which must be managed properly and that private
landlords must make themselves aware of the regulatory and commercial
environment in which they operate. We offer our members the services
they need to achieve this via, for example, our advice line (which
is available to members every day of the working week) and bi-monthly
magazines.
2. THE ROLE
AND EFFECTIVENESS
OF PRIVATE
RENTED HOUSING
IN MEETING
HOUSING NEEDS
2.1 What is the role of the private rented
sector in meeting housing needs?
2.1.1 The private rented sector offers a
vital supply of housing which complements the role of social housing
and owner-occupation. Private rented stock varies from houses
and flats at the top of the market to houses in multiple occupation
rented to students and housing benefit tenants.
2.1.2 The flexible nature of private tenure
makes it ideal for accommodating people for whom property ownership
is not an option at the moment but who do not want or need a long-term
social tenancy. Private renting is used by young professional
people and students: people who cannot afford to buy (or whose
lifestyles do not suit home ownership) although they may aspire
to do so in the future.
2.1.3 Probably the most significant contribution
that the private rented sector makes is to labour mobility in
this country. This is an essential contribution that has been
recognised by ministers.
2.1.4 The sector provides homes for people
visiting or staying in this country whose homes are elsewhere,
from international business workers and their families to migrant
workers from Eastern Europe and elsewhere.
2.1.5 In addition, the growth of a flexible
private rental market has enabled UK workers to move across the
country for work while maintaining a home for their family elsewhere.
If they make the long-term decision to move to another area for
work the flexibility of the sector enables them to sell their
home and rent in the new locality for the short-term, getting
to know the neighbourhood and buying once they are confident of
the area they wish to live in.
2.1.6 At the same time as providing an alternative
to home ownership, the private rented sector can also complement
the accommodation that is on offer through the social housing
sector. For several years privately rented housing has been used
as temporary accommodation for those people which the local authority
has a duty to house. Its role is now spreading beyond this. Local
authorities are already entering into long-term leasing arrangements
with private landlords under which the local authority will have
exclusive use of a property for a period (usually up to five years)
in order to place their suitable tenants.
2.1.7 The growth of choice-based lettings
schemes offers another route for greater involvement of the private
rented sector in housing certain tenants who local authorities
have a duty to house. We recognise that the private rented sector
is not suitable for all housing applicants. Many local authority
tenants will have support needs that are better addressed with
a long-term social sector tenancy. However, for those who are
capable of sustaining a tenancy in the private sector this may
offer a better route than a long wait for a social tenancy. Local
authorities, especially in areas of high demand, are taking measures
to support the use of the private rented sector to house their
tenants via the provision of rental deposits, rent guarantee schemes
and other support packages for landlords and tenants so that tenancies
can be sustained.
2.1.8 Although the private rented sector
does not offer the security of tenure of the social sector, it
is not the case that tenants are inevitably evicted at the end
of the initial six month tenancy. Provided that a tenant pays
the rent and causes no damage to the property or nuisance to neighbours
a landlord will continue to house them. The average tenancy is
estimated to last around 18 months in the private rented sector
and most tenancies are ended by the tenant moving elsewhere because
of changes in their lifestyle. The private rented sector can provide
the flexibility for tenants on housing lists who may not want
or need to stay in one area for the long term. Some local authorities
are also attempting to ensure longer tenure by offering generous
packages to landlords who are prepared to grant guaranteed longer
tenancies.
2.1.9 The Government, in its enthusiasm
for the extension of choice-based lettings schemes, has recognised
the role that the private rented sector has to play in offering
housing for housing list applicants and in its latest invitation
for bids for Choice Based Lettings scheme it has made clear that
it wishes to see initiatives which actively involve the private
rented sector.
2.1.10 We have concerns about the operation
of the housing benefit system which may impede efforts to involve
the private rented sector in the growth of choice-based lettings.
These concerns are outlined towards the end of this response in
our comments on the effectiveness of Housing Benefit as a means
of providing access to rented housing to those in need. In particular
the move towards Local Housing Allowance, paid direct to the tenant
with no scope to change this arrangement, risks making this sector
unattractive to private landlords.
2.1.11 If the private rented sector is to
participate successfully in choice-based letting schemes it is
important that landlords are supported and given reasonable information
about potential tenants' tenancy history. Housing providers
in the social sector will share information about potential tenants
particularly about their previous tenancies and whether antisocial
behaviour has been a problem. This information must also be available
to private landlords housing candidates on the housing list. Private
landlords are unlikely to be encouraged to work with Choice Based
Letting schemes if such schemes are perceived as a means of decanting
bad tenants out of the social sector. This will particularly be
the case if the private landlord incurs financial losses and damage
to their property and reputation as a result.
2.2 The impact of the private rented sector
on the overall availability of housing
2.2.1 There have been allegations that the
activities of private landlords in local housing markets affect
the availability of properties for homeowners, particularly first
time buyers. The Committee heard references to such fears in its
earlier evidence sessions and these are mentioned in its report
"Affordability and the Supply of Housing".
2.2.2 We believe that there is little evidence
that private landlords' investment decisions are responsible for
pricing out first time buyers. We believe that the private rented
sector is too small to have such influence. The Survey of English
Housing shows that the size of the private rented sector has remained
relatively static at around 10-12% of households (18% in London)
since 1981 while the owner-occupied sector has grown by nearly
30% over the same period to 71% of households.
2.2.3 We believe that there are too many
other reasons for properties to be unaffordable to first-time
buyers, many of which will have been heard by the committee during
its first enquiry. In brief it is a problem resulting from young
professionals incurring greater debts as students, demographic
factors causing greater demand such as the increased trend for
people to live alone (and living longer), immigration, and the
reduced size of the social housing sector. At the same time the
low number of new houses being built combines with the level of
second home ownership in desirable neighbourhoods to lever up
prices. (On this point it is worth noting that once a private
landlord has bought a property it will be used to house somebody
rather than being left empty when not in use by the owner, or
rented out as holiday accommodation.)
2.2.4 Finally, despite the growth of developments
of flats marketed at the buy-to-let investor, many landlords will
be looking to buy larger properties and are therefore not in direct
competition with first-time buyers. On this point it is also important
to recognise the role of landlords in bringing sub-standard properties
back into use. Private landlords and investors will buy properties
that require work to bring them up to standard, will spend time
and money on doing that work to a high standard (including going
through all the necessary planning procedures, building regulations
etc) and will sell on at a deserved profit because they have increased
the value of the property by their own work.
2.2.5 It is unlikely that many first-time
buyers will have the resources, experience, contacts or patience
to be able to improve these properties. Furthermore if the property
is a large one the landlord may decide to sub-divide it into flats
which can then be sold on to first time buyers or rented, thus
increasing the supply of housing. Private landlords have a vital
role to play in bringing otherwise neglected properties back into
use.
2.3 Affordability of the private rented sector
2.3.1 A common complaint about the private
rented sector concerns the rents that are charged. The Government's
figures[72]
show that the average weekly rent in the private sector is £117
compared to £54 for council tenants and £68 for tenants
of registered social landlords. Given the wide variation in the
size, type and location of private rented accommodation we do
not believe this to be an unreasonable figure.
2.3.2 The reality is that rents are dictated
by the market. Potential tenants will be deterred by property
which is at too high a rent in comparison to similar properties
in the neighbourhood. The landlord will be left with an empty
property which presents a problem of significant extra costs from
maintenance and marketing but generates no income. It is true
that private rents are higher than those in the social sector
(in part because generous subsidies are available to RSLs and
local housing authorities) but within the private sector the rents
in a neighbourhood will be broadly similar for similar types of
properties.
2.3.3 Rent capping led to the decline of
the private rented sector both in terms of size and quality and
would do so again if it were introduced. It still exists in a
minority of tenancies in the sector (6% of tenancies are regulated
tenancies) [73]and
presents significant problems where it exists.
2.3.4 It presents problems for the tenants
in that the rent does not cover the landlord's costs. Regulated
tenancies are nearly 20 years old or more (the Housing Act 1988
brought them to an end). The capped rents do not cover the cost
of maintenance of the property, let alone improvement. And since
it is older tenants who will be in these tenancies some of the
people most in need of decent housing are living in properties
where the landlord does not have the money to provide it.
2.3.5 If there is any form of rent capping
in place it will increase the difficulty for landlords in funding
maintenance and improvements via loans or mortgages secured on
the properties. Lenders are highly unlikely to offer money on
a property with a sitting tenant and declining rental income.
2.3.6 Rent capping would simply cause the
private rented sector to decline in both quality and quantity.
Existing landlords would sell up and potential investors would
never be able to get into the market because the buy-to-let mortgage
providers would be certain to pull out of the market.
2.3.7 It would have an adverse effect on
homelessness figures as potential private tenants would swell
the housing lists at the same time as less private housing would
be available to share the demands placed on the social sector.
2.3.8 It is worth noting that in Northern
Ireland rent capping still exists for new tenancies and the Executive
(or Northern Ireland department) is currently taking steps to
end it for precisely the reasons that are outlined above.
2.3.9 The Committee should note that the
tenant currently does have the right, within the first six months
of a tenancy, to apply to a rent assessment committee to determine
the maximum rent that the landlord should be charging for the
property. The committee cannot set a level beneath the market
rent but if the current rent is excessive it can be brought down
to a more reasonable level. The decision remains in force for
12 months.
2.4 Quality of the housing stock
2.4.1 There has been a tremendous improvement
in the quality of private rented accommodation on offer over the
past 10 years. For the first time since at least 1996 a majority
of private rented properties (52%) meet the Decent Homes Standard.
[74]This
may be only a narrow majority but it is a 15% increase in decent
homes in the private rented sector since 1996, only 2% behind
the social sector over the same period at 17%.
2.4.2 The Government's Decent Homes Target
for the private rented sector is by 2010 to have increased the
proportion of private housing in decent condition occupied by
vulnerable groups. The Government's own figures[75]
show that there has already been a significant improvement over
the past 10 years. 50% of vulnerable households in the private
rented sector now live in decent homes. This is an improvement
of nearly 100% since 1996 when only 28% of vulnerable households
in the sector lived in decent homes.
2.4.3 The improvement in the quality of
private rented housing is due to a number of factors but chief
among them is the introduction of the Assured Shorthold Tenancy
as the main tenancy type in 1996. The shorter tenancies have given
landlords the necessary periods of time to improve their properties
and has provided the incentive for improvement: poor quality properties
will remain empty for longer as potential tenants walk away, costing
the landlord money. The AST has also given landlords the resources
(via market rents) to fund improvements.
2.4.4 The flexibility of the AST has also
attracted back to the sector professional investors who want to
manage properties properly and offer good quality accommodation.
It is worth noting that in surveys 79% of private sector tenants
say they are satisfied with their landlord and only 10% are dissatisfied.
71% are happy with the way the landlord carries out repairs and
maintenance.
2.4.5 Various measures are already in hand
to continue to secure improvement in the sector. The growing use
of accreditation schemes enables local authorities to recognise
the work of responsible landlords who choose to become accredited.
Accreditation and the use of landlords forums enable local authorities
to engage with responsible landlords to keep them abreast of the
regulatory environment in which they operate and provide financial
assistance to make improvements to their properties.
2.4.6 Landlords associations have a vital
role to play in providing their members with the information and
support that they need to manage their properties properly. Five
of the biggest buy-to-let mortgage providers recognise this fact
which is why they are special corporate members of the National
Landlords Association and why they strongly encourage their borrowers
to take up membership themselves. We believe that landlords who
are operating outside the existing associations and acting alone,
should be offered every incentive and encouragement to join a
professional landlords association.
2.4.7 In addition to these voluntary measures,
the private rented sector is very highly regulated. In our view
regulation should be used only as a last resort because it catches
the reputable landlord, leaving the rogue operators to continue
as before. In the long term we believe that the solution is for
the industry to be self-regulating with a single representative
body which could be the source of advice for Government on the
impact of further intended legislation on the sector. Over 50
Acts of Parliament and over 70 regulations govern the private
rented sector. This morass of legislation needs to be codified—a
recommendation made by the Law Commission which we support.
2.4.8 The most recent major piece of legislation
was the Housing Act 2004 which introduced in particular, licensing
of certain Houses in Multiple Occupation, a new housing fitness
assessment regime (HHSRS) and tenancy deposit protection. The
former two aspects came into force in April this year while tenancy
deposit protection is due to come into force in April 2007.
2.4.9 We have concerns about certain aspects
of HMO licensing. The fee levels that are being charged by local
authorities vary widely with some charging next to nothing while
others are charging up to £1,500 for a five year licence.
We can see that a cap on fees might have encouraged local authorities
to charge to the maximum cap, regardless of their actual costs.
However, the Government could have worked more closely with local
authorities to ensure that greater transparency of the fee levels
being charged.
2.4.10 It is early days in the application
of HMO licensing but it is important that local authorities are
flexible in the way that they consider the treatment of HMOs.
For the first time houses which are shared on a joint tenancy
are being brought within the definition of an HMO but the needs
of these properties and their tenants will be different to standard
"bedsit" HMOs and this needs to be reflected in their
treatment by local authorities. For example, while we recognise
the importance of fire safety, we believe it is inappropriate
for the same fire safety standards to be applied in houses where
the tenants are living together as a group and where statistics
show the fire risk to be only slightly greater than a family house.
Local authorities also need to be flexible about the location
of amenities such as kitchens and bathrooms within such properties.
If they are not flexible then they will lose the low-cost accommodation
as landlords sell up or let their shared houses as family homes
instead, removing the need to comply with HMO legislation.
2.4.11 We believe that local authorities
should not be imposing higher standards than they would apply
to their own properties or properties belonging to RSLs. In order
to gain an HMO licence the property has to have suitable amenities
for the number of tenants it is used to house. The Government's
national minimum amenity standards have specified that for properties
with five or more tenants a wash-handbasin should be provided
in each room. We believe that this is unrealistic and unreasonable
to provide in all HMOs. In a house shared by a group of friends
on a joint tenancy this provision is unnecessary: provided that
a satisfactory number of basins are available in or near other
washing facilities the tenants will not have a problem in sharing
them. In these circumstances the requirement to provide a washbasin
in each room will give additional unnecessary cost as well as
the increased risk of water damage in the longer term as plumbing
problems develop.
2.4.12 One of the next major regulatory
developments in the future will be the introduction of Energy
Performance Certificates which is due to take place in 2007. These
will form part of the Home Information Pack for all property which
is sold in the UK but a certificate will also be required for
all property which is rented out. We are working with the bodies
involved in the development of these certificates. Traditionally,
it has been very difficult for a landlord to promote the energy
efficiency of a property: the information has simply not been
available to the landlord (who does not pay the fuel bills) and
it has not been a key area of interest to potential tenants.
2.4.13 We have worked closely with the Energy
Efficiency Partnership for Homes and the Treasury on the development
of tax incentives for landlords to improve the energy efficiency
of their properties. This work continues in progress. A significant
problem is the need to raise awareness among landlords of the
tax incentives which are available to them and how to claim them.
Provided that this problem is addressed we are confident that
the tax incentives, together with the Energy Certificates, will
encourage the improvement of energy efficiency in the sector.
The energy efficiency certificates will include recommendations
for measures that could be installed to improve efficiency. We
do not want to see the certificates used to require measures to
be installed, especially if this requirement was targeted at private
landlords alone.
2.4.14 We have concerns about the more general
tax situation for private landlords. We recognise that taxation
anomalies exist (for example with regard to Capital Gains Tax)
and need to be addressed However, this is a very complex subject
and we believe any consideration of the taxation situation should
take place in the context of a proper economic assessment.
3. EFFECTIVENESS
OF HOUSING
BENEFIT AS
A MEANS
OF PROVIDING
ACCESS TO
RENTED HOUSING
TO THOSE
IN NEED
3.1 The effectiveness of housing benefit
is an issue of key concern to our members. In a survey carried
out in December 2005, 13% said that said that local authority
administration of housing benefit was a cause of concern to them.
3.2 57% of all those surveyed said that
they would not be prepared to let to housing benefit tenants.
46% of this group had let to housing benefit tenants in the past
and were therefore answering from experience.
3.3 Nearly 44% of those who were not prepared
to let to housing benefit tenants gave as a reason the risk of
rent arrears as a result of local authority maladministration.
Of those who had let to housing benefit tenants in the past and
were not prepared to do so again 47% had faced problems with local
authority maladministration of benefits.
3.4 Even among those who were prepared to
consider letting to housing benefit tenants again 41% of the group
had faced problems with local authority administration.
3.5 Housing Benefit administration must
be improved, especially if the private rented sector is to be
included successfully in choice-based letting schemes. Many of
those accessing the private rented sector from CBL schemes are
likely to be in receipt of housing benefit. If landlords are to
continue offering their properties through CBL schemes there must
be clear support for the benefits applications of tenants accepted
through the schemes. Delays in payment or other problems will
damage trust in how the scheme is run.
3.6 Our members also have deep concerns
about the Welfare Reform Bill. Under this legislation it is proposed
that housing benefit in the private rented sector will be replaced
by Local Housing Allowance. This will normally be paid direct
to the tenant, based on local average rents and with the recipient
able to keep up to £15 a week where their rent is lower than
the LHA payment. This differs from the current housing benefit
system where payments are normally made direct to the landlord,
the benefit payment is specific to the property and the payments
can only be used to cover rent. The Government intends that paying
LHA to tenants will encourage financial responsibility and give
them greater choice. LHA has been trialled in 18 Pathfinders around
the country starting in 2003.
3.7 Local Housing Allowance paid direct
to the tenant will remove the security of steady rent for the
landlord and will make housing benefit tenants an increasingly
unattractive option. Most tenants at present are happy to have
their housing benefit paid direct to their landlord, since this
ensures their rent is always paid.
3.8 From the same survey of our members
carried out in December 2005, 55% of those who were not currently
prepared to let to housing benefit tenants gave as a reason rent
arrears owing to the tenant not paying rent. Of those who had
let to housing benefit tenants in the past, 46% of them had experienced
rent arrears owing to the tenant not paying.
3.9 38% of those who had let to benefit
tenants before and would be prepared to again had experienced
rent arrears because the tenant had not paid rent. 58% of those
who had let to benefit tenants before and would not be
prepared to again had experienced rent arrears because the tenant
had not paid rent.
3.10 Under certain circumstances LHA will
still be payable direct to the landlord. A tenant will have to
be declared as "vulnerable" but this declaration will
be the choice of the local authority and will involve a doctor
and other agencies.
3.11 The overwhelming message from our members
is that unless they are sure of receiving the rent by receiving
the benefit direct they will not be prepared to let to benefit
tenants. Mortgage providers may also look poorly on housing benefit
recipients—some lenders already refuse to mortgage properties
used for housing benefit tenants and this condition may be increasingly
used.
3.12 The introduction of LHA is also likely
to worsen the administration of benefits. Councils will have to
set up parallel arrangements for LHA and housing benefit in the
social rented sector. Furthermore, putting the responsibility
on the tenant to manage their finances also puts the responsibility
on them to negotiate their way through the complex bureaucratic
maze which causes the delays in payment. With the landlord removed
from the benefit arrangements an important safeguard against fraud
is also eliminated.
3.13 The NLA has also joined with a range
of campaigning organisation such as Shelter and the Citizens Advice
Bureau to call for an end to the Single Room Rate (SRR). This
limits the Housing Benefit of those aged under 25, restricting
their access to accommodation and often leading to shortfalls
between the benefit paid and the market rent. The Welfare Reform
Bill and the transition to LHA provides a good opportunity to
end SRR for the benefit of both landlords and tenants.
3.14 In order for the supply of private
rented stock not to dry up to housing benefit tenants we believe
it is essential that tenants should continue to have the right
to request that their benefits be paid direct to their landlord.
At the very least, there should be a national definition of "vulnerability"
to ensure that landlords know that certain tenants will automatically
be given the right to have the rent paid directly to the landlord.
3.15 Consideration must be given to how
landlords can better be protected from tenants who wilfully and
without reasonable excuse fail to pass on their LHA by paying
rent to their landlord. Finally, the levels of support for the
scheme seen in the Pathfinders should be continued when the scheme
is rolled out nationally.
72 Survey of English Housing Live Tables 2003-04. Back
73
Survey of English Housing Live Tables, 2004-05 Department for
Communities and Local Government. Back
74
Source: English House Condition Survey 2003. Back
75
English House Condition Survey 2004.
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