Examination of Witnesses (Questions 299
- 319)
MONDAY 5 FEBRUARY 2007
PROFESSOR MICHAEL
BALL, MR
ADRIAN TURNER
AND MR
MIKE STIMPSON
Q299 Chair: Can
I welcome you to the beginning of this afternoon's session. Can
I ask if the witnesses could say who they are and who they are
representing and, when we come to questions, given that there
are two of you from the Association of Residential Letting Agents,
I hope you can avoid duplicating each other?
Mr Turner: My name is Adrian Turner.
I am the Chief Executive of ARLA, the Association of Residential
Letting Agents. We are a voluntary, self-regulating body for residential
letting agents. We have just over 2,000 members' offices throughout
the country.
Professor Ball: I am Professor
Michael Ball. I am Professor of Urban Property Economics at the
University of Reading. I wrote a report for ARLA last year, and
so they asked me to come along. The report was on buying to let
after 10 years.
Mr Stimpson: I am Mark Stimpson.
I am the Chair of the National Federation of Residential landlords,
which represents landlord associations, and also Chair of the
Southern Private Landlords Association, which has 500 members,
and a landlord for 50 years.
Q300 Chair: The
acoustics in this room are not brilliant. Mr Stimpson, could you
possibly move over so you will be in front of a microphone. It
will probably pick up your voice better. Can I start by asking
some questions in relation to security of tenure in the private
rented sector and ask whether you support calls for reform of
the types of tenancies your members offer to tenants and, in particular,
your views on either the two contract tenancy agreements favoured
by the Law Commission or the sorts of tenancies that they have
in the Republic of Ireland under the Residential Tenancies Act
2004?
Mr Turner: I think, in broad terms,
the Association has greeted the Law Commission's report with favour—simplification
of landlord and tenant law is long overdue. The opportunity for
landlords to let on longer-term tenancies is a good idea, as long
as there are suitable safeguards in place for them to be able
to regain position when it is appropriate for them to regain possession.
At the moment most landlords let on short-holds. The average length
of the tenancy is over 15 months, even though the minimum under
the regime is six months.
Q301 Chair: Mr
Stimpson, do you have any comments?
Mr Stimpson: Yes. I agree with
Adrian. The situation that deters landlords from letting for longer
periods than the minimum, even though the tenancy may extend well
beyond it, is because the means of possession are difficult, especially
some of section eight—that is the default grounds—and
if there were proper changes for rent arrears (tribunals, as in
Australia), then landlords would know they can regain possession
quickly if, in fact, the tenant defaults on the rent, and then
would be encouraged to grant longer tenancies, such as seven years
or even longer. I should add that the average length of tenancy
in my properties, and I let to the economically poor, is seven
years.
Q302 Mr Olner:
Could I follow that briefly. While Shelter talks about greater
security of tenure, would you think that that was linked by the
fact that smaller landlords, who are predominantly in the private
rented sector, have a particularly bad record in maintaining their
property to high standards, and, if they are, how can their management
standards be improved?
Mr Stimpson: There are two main
factors that have increased standards. One was the 1988 Housing
Act, granting short tenancies, which reversed the downward spiral
of letting and, secondly, the buy-to-let phenomena. The vast majority
of buy-to-let landlords buy new-build flats. These are not trashed
property, old properties, and a good number are normally let through
agents and they are normally in very good condition.
Q303 Mr Olner:
Can I ask what the percentage is on that? I have got a conception
in my mind that the majority of houses that are bought to let
were not purposely built let.
Mr Stimpson: Most of the properties
bought on the buy-to-let are purpose built flats. That is the
vast majority?
Professor Ball: In fact, there
is quite a wide range of housing in the buy-to-let market. Buy-to-let
tends to cover properties which are roughly the broad range of
properties that you see throughout the UK, except they do not
cover the top range. So what you will see is lots of terraced
houses, lots of refurbished housed and conversions and, as was
pointed out, most of the purchases in recent years have been of
properties that have either been refurbished or are flats. In
fact, the majority of the buy-to-let accommodation is suburban
housing and is not inner city flat accommodation, although in
certain areas like Brighton there are an awful lot of flats as
well.
Q304 Mr Olner:
So you would refute the claim that the great majority of properties
in the private buy-to-let sector are of poor quality?
Mr Stimpson: Yes, I would. I let
to the economically poor, the people who struggle to find a deposit,
in fact, most times cannot do so. We still let properties to them
in the same condition as we would let to anybody else and we do
our best to let reasonable quality properties. We would accept
that our properties are older properties, often built before 1900,
and do not have some of the benefits that cavity wall properties
and the later properties have, but I would not like to think that
we do not keep our properties up to a good standard, and, in fact,
where I come from, there are the registration schemes now, the
Housing Act and the local authority ensure that the properties
meet good safety standards and are of a reasonable condition.
Q305 Mr Olner:
It is irrefutable that the stock in the private rented sector
is of poorer quality than owner/occupier or social/rented, which
is different from buy-to-let. What we are asking is what more
can be done to improve the poor quality within the private rented
sector, Professor Ball?
Professor Ball: The issue here
is one of averages. I think there is a terrible danger in simply
taking averages. What has been happening in the private rented
sector is, because it deals a lot with the mid-range of the market,
in the UK a lot of properties are bound to be older within that
type of range and, therefore, you will see a lot of the property
is older and, therefore, some of it will be in particularly poor
condition. Surveys by governments, the English House Condition
Survey and so on, do show, overall, that there are some problems
of repair in the private rented sector, but they do not show that
the average private rental dwelling is worse than is the case
in other areas. I think there is a section of the private rented
sector which is undoubtedly like that, but not the majority, and
since the growth of buy-to-let the quality has increased very
substantially; so I think there is a real danger in how one uses
this word "average" when looking at this issue. To say
it means that if you buy a rented property by definition you will
have worse accommodation is not factually true.
Mr Olner: I do not think anybody was
suggesting that.
Q306 Emily Thornberry:
There has always been a balancing act between ensuring that the
tenants get rights and ensuring that there is sufficient property
out there for the private sector so that tenants, in the end,
get properties and get somewhere to rent, but given that we have
got this boom in the buy-to-let market, is not now the time, in
fact, for us to put a bit of steel in our backbone and start regulating
more of the private sector?
Professor Ball: No, quite the
opposite. The reason why there has been a boom in the private
buy-to-let market is twofold. One is the demand for houses rising
very, very substantially, and that underlies investor interest
and also owner/occupier interest in the housing market, and that
is a core factor. The other reason why there has been a great
deal of interest is that regulation has actually been much softer
over the last 20 years than it was in the past, and we have seen
the benefits of that. Whereas previously the private rented sector
was declining, it has been increasing quite substantially; and
so my fear is that if you introduce regulation, you will simply
raise the costs of investors and also scare a lot of them off.
If you introduce it at the peak of a boom when you think that
the boom may be tailing off, it is precisely not the time to interfere
in the market. You will worsen the situation, not make it better.
Q307 Emily Thornberry:
Is not the growth of the buy-to-let sector one of the things which
is fuelling the boom in house prices and that, if we were to do
something that might have the effect of pricking the bubble and
might make people think twice about buying to let, perhaps that
is better for all of us anyway?
Professor Ball: Again, for that
model to work you have to have a very high vacancy rate amongst
the buy-to-let sector, and there is no evidence of a high vacancy
rate within the private rented sector. Rather, the private rented
sector is providing supply for a very high demand for housing.
So, in fact, what you see is it is the demand driving the investor
interest and it is the demand driving house prices in a situation
of generally short supply, and it is actually very difficult to
say it is the landlord that is doing that.
Q308 Chair: Can
I pick you up on that, because the oral evidence that we had from
Lord Best of the Joseph Rowntree Foundation expressed his concern
about the number of new homes purchased by investors being left
vacant, and it is a point that has also been raised with us by
Barking and Dagenham District Council and English Partnerships.
They would suggest that buy-to-let investment clubs, at least,
are buying up properties and leaving them vacant.
Professor Ball: Vacancy rates
in the English House Condition Survey do not point out this phenomenon.
Q309 Chair: Mr
Turner?
Mr Turner: I have spoken to Lord
Best a number of times on this, and his particular concern over
this aspect is more to do with the unsavoury element: the criminals,
the crooks, the cowboys buying up large chunks of very cheap properties
in areas where they can then either leave them empty and wait
for the council to put compulsory purchase orders on them—
Q310 Chair: I
am sorry, can I stop you there. That may be what was said to you,
but the DCLG have said, "Buy-to-let investors are more likely
to purchase new-build", and DCLG has highlighted a number
of empty units in newly built blocks that are apparently owned
by investment clubs. We have had repeated evidence.
Mr Turner: In any market there
is an element of speculative buying, whether that is in stocks
and shares or in property, and I think it is fair that we would
not generally class these types of speculative investment where
the intention is purely to benefit from capital growth. They are
buying properties off plan; they are not even coming into the
market place. That is not buy-to-let as we call it, that is speculation.
That is using the market to make money, which is what people do,
is it not?
Q311 Chair: Which
you would not think is a good idea?
Mr Turner: No, that is not buy-to-let.
They very rarely come into the private rented sector.
Q312 Chair: If
there were some mechanisms, fiscal or otherwise, which discouraged
people from buying properties and leaving them empty, it would
not bother you and your members?
Mr Turner: No.
Q313 Sir Paul Beresford:
But you still think that new built buy-to-let left vacant is an
insignificant proportion, I gather?
Professor Ball: I would certainly
believe that. There is a bit of concern at introducing taxes.
They were introduced in Ireland in the early 2000s to discourage
investors. They introduced higher taxes. All they found was that
it scared an awful lot of investors away, rents went up and it
did not actually make much new supply available because of the
strength of demand within the Irish situation. I would suggest
that that might well happen in the UK, if such measures were introduced,
as well. That was as a result of the second Barker Report.
Q314 Mr Betts:
On this issue of standards, I presume it is quite a good idea
that people should have a home that meets decent standards. I
think most people would accept that. By 2010, even if it slipped
a little bit, by 2011, 2012, all houses owned by housing associations,
local authorities, ALMOs are going to meet decent standards in
this country. Therefore, the only properties that will not in
the rented sector are those in the private rented sector. What
would you suggest we do about that?
Mr Stimpson: That is not exactly
correct. There will be a lot of properties that do not meet decent
home standards in the private ownership sector. This year we are
introducing energy efficiency for all private rented sector properties,
and I think that is the biggest area where improvements can be
made, and I support improvements in energy efficiency in properties.
Q315 Mr Betts:
I am sure we all do, but that is only one issue, is it not? I
will rephrase that. The only properties owned by landlords in
this country which will not meet decent home standards will be
in the private rented sector. What are we going to do about it?
Professor Ball: One factor that
is going on within the social housing sector, of course, is the
level of subsidy that is given. There was a suggestion that subsidies
should be extended, that that would clearly raise the level of
standards, but I am personally not wholly convinced, and I have
written about this before, that one should necessarily want to
raise everything to a high standard. Along with a high standard
goes a high rent.
Q316 Mr Betts:
So some people should be living in properties that do not meet
the decent homes standard?
Professor Ball: I would not be
entirely convinced that all the criteria within the decent standards
set-up are necessarily suitable for all households. If you are
denying people cheaper accommodation by insisting on it all being,
you are removing supply.
Q317 Mr Betts:
So, if some people are too poor, they should have to accept standards
below a decent standard. Is that what you are saying?
Professor Ball: It is not a question
of poverty. You are putting the words into my mouth. There could
be groups of households that maybe want to live in a place for
a few months, as often happens in the private rented sector; there
may be particular groups that do not want a particular facility
and they are not allowed to express their desire for it because
it is banned. It is like the hotel trade: there are different
levels of accommodation. We all know.
Q318 David Wright:
Is that not a problem for the wide regeneration of areas, because
one of the difficulties when you are trying to get people to invest
in property in a particular neighbourhood is that they will invest
if they see landlords around them investing and lifting the value
of a neighbourhood? Do you not think what you have just said is
a problem? We have had this issue with landlords in relation to
things like student accommodation, have we not, where whole areas
get designated de facto as student accommodation areas?
I am not saying that all student accommodation is bad; I am just
saying that sometimes it is. I think that there is a whole issue
about regenerating areas that is a problem in terms of standards.
Mr Stimpson: I come from an area
that has a very, very high demand in all areas of accommodation.
There have to be minimum standards, I agree with that entirely,
but I do not believe that those standards should be at a maximum
for all properties. I agree with Professor Ball entirely. Let
me give you examples. We deal with people who are on £150
a week. If the properties had to be brought up to an extremely
high standard, we would be charging two-thirds of a person's wage
in rent. We give our tenants a choice. Many of our tenants live
in non self-contained accommodation with shared facilities. I
do not think that should be a standard; I think it should be abolished;
but it is not. We try to move them to self-contained accommodation.
Many will not move because they prefer the choice of cheaper accommodation
as compared with self-contained accommodation. I think those choices
have to be available to people. In Brighton and Hove the planning
policy does not allow the de-conversion of non self-contained
accommodation, you cannot convert it into self-contained flats,
for the very reason they want cheap accommodation for those people
who need accommodation and cannot afford expensive accommodation,
and I think that is very important indeed.
Professor Ball: As a general comment
on regeneration, the amount of investment that has been put in
by buy-to-let landlords over the last decade constitutes a very
substantial amount of investment in what is essentially regeneration.
Most of the location of those properties is in inner and suburban
areas, as I mentioned, at the lower level of the housing market,
below the top, and those were precisely the areas that have been
identified for a long time as being in decline, and so that level
of investment has been an enormous boost to regeneration. I think
if one worked out the numbers, it is actually larger than the
private sector investment.
Q319 Anne Main:
We did explore a lot of the concerns over homes in multiple occupancy.
How have private landlords been affected by the new licensing
regime for HMOs?
Mr Stimpson: They now have to
licence their properties. No properties normally meet the initial
standards that are set by local authorities. We have no arguments
whatsoever with the properties of three storeys and five being
licensed, we have no arguments about safety.
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