Select Committee on Communities and Local Government Committee Minutes of Evidence


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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