House of Commons - The Private Rented Sector - Communities and Local Government Committee

The Private Rented Sector - Communities and Local Government Committee Contents

5 Tenancies and rents

87. In this chapter, we will first consider the tenancies on offer and any changes that could be made to tenancy structure, before turning to rents and affordability. We will then consider a number of related matters, including the placement of homeless households in the private rented sector, the calculation of local housing allowance, the quality of data about the sector, and steps that can be taken to tackle tax evasion.

Tenancies

88. The Housing Act 1988 introduced two forms of tenancy: assured and assured shorthold tenancies. The Housing Act 1996 made the assured shorthold tenancy the default,[173]and today it accounts for the vast majority of tenancies.[174]It has become the norm, and it gives landlords an automatic right of possession without having to give any grounds once the fixed term has expired. In this case, a landlord must give two months notice in writing (a "section 21 notice").[175] Under assured tenancies, which are now far less common, the landlord does not have an automatic right to repossess the property when the tenancy comes to an end.[176]

89. The routine use of the assured shorthold tenancy has been thrown into relief by the increasing number of families with children living in the sector. We heard that there was a case for longer tenancies in some circumstances and some calls for greater security of tenure. The housing charity, Shelter, stated:

Renters in England typically have short contracts of only 6 or 12 months, resulting in uncertainty for renters and high levels of churn in the sector. [...]

This is a particular problem for families with children. Renters are eleven times more likely to have moved house in the last year than people with a mortgage. Moving house this frequently is not only extremely expensive, it can have a negative impact on children's education and well-being. Government research found that frequent movers are significantly less likely to obtain 5 A* to C GCSEs, or to be registered with a GP.[177]

We heard from some of those looking for more security of tenure, including one renter, Carl Thomas, whose ten year old daughter had "already moved 7 times in her life".[178] In contrast in Germany, we found that there was much greater security of tenure, with tenancies generally being indefinite and tenants having strong protection against eviction.

90. As well as providing longer-term housing for families, the sector still has to retain its traditional function as a provider of housing for those in need of flexibility. Richard Blakeway, Deputy Mayor of London for Housing, Land and Property, saw a challenge in trying to

balance the flexibility that the PRS offers, which is critically important, particularly for labour mobility and for our economic competitiveness, with greater security, particularly for families, who are forming a larger proportion of private tenants, certainly in London.[179]

Dr Julie Rugg found the market "immature in getting a good link between what people want and what the market is supplying".[180]She said that "we could maybe start encouraging landlords who want long-term tenants to gather together, and let them badge themselves slightly differently from landlords who really only want short-term tenants".[181]

91. A number of those representing landlords and agents pointed out that the assured shorthold tenancy already offered flexibility. The National Landlords Association (NLA) said that the "existing tenancy structure is more flexible than many realise" and suggested that there was "a lack of understanding in all quarters about what can be achieved with the Assured and Assured Shorthold Tenancy".[182] The UK Association of Letting Agents agreed that the current structure was flexible but said that "the full extent of this flexibility has yet to be fully explored by the market, given a number of limitations and the relative youth of the PRS in its current form".[183] It was also suggested that, while initial tenancies might only be for six months or a year, in practice tenants would often stay in a property for much longer. Mark Prisk, the Minister, told us that half of tenants were "over two years in tenancy, and in fact about 19% are over five years".[184] Richard Lambert, Chief Executive Officer of the NLA, suggested that we draw "a distinction between the term of a tenancy and the duration of a tenancy". He said that

if you are dealing with somebody for the first time, you want to get to know them; you want to understand them; you want to see if it works for you and it works for them. In the same way that you do not get married on a first date, you are not going to offer somebody a longer tenancy straight off.[185]

92. We heard about proposals and work underway to promote longer tenancies. Shelter set out details of its proposed Stable Rental Contract which it described as a "mutually beneficial rental product".[186] It said that a "more stable and balanced private renting offer can be developed from the existing legal framework".[187] Under its model, tenants would be given "five years in their home, during which landlords could not end their tenancy without a good reason". At the same time, renters would be allowed two months' notice to end their tenancy.[188] The Residential Landlords Association was consulting on a different model for longer term tenancies,[189] and the Mayor of London would be "inviting major landlords to participate in a pilot to test out how they can offer tenants longer contracts and greater certainty over rent increases".[190] The Mayor's Deputy, Richard Blakeway, said that they were keen to explore whether longer tenancies could be achieved within the assured shorthold tenancy framework rather than having additional legislation.[191]

93. We noted that where institutional investors and housing associations were moving into market renting, there seemed to be greater scope for longer tenancies. The website of Genesis Housing Association states that "on most of our properties we offer rental tenancies for 1, 2, 3, 4 or even 5 years".[192] Neil Hadden, Chief Executive of Genesis, confirmed that these tenancies would give a tenant, after six months, the opportunity to bring the tenancy agreement to an end with two months' notice, and that this provision would be built into the tenancy agreement.[193] Qatari Diar Delancey, a joint venture between the Qatari Sovereign Wealth Fund and the principal client fund of Delancey Real Estate Management Ltd, was offering tenancies in the former Olympic village for up to three years (with tenants able to give two months' notice after the first six months).[194]

94. The demographics within the private rented sector are changing. No longer can it be seen as a tenure mainly for those looking for short-term, flexible forms of housing. While some renters still require flexibility, there is also an increasing number, including families with children, looking for longer-term security. The market, therefore, needs to be flexible, and to offer people the type of housing they need. The flexibility of assured shorthold tenancies should be better exploited, and the option of using assured tenancies should also be considered where these meet the needs of landlords and tenants. That we are beginning to see some institutions and housing associations offering longer tenancies under the current law suggests that we do not need legislative changes to achieve them. Rather, we need to change the culture, and to find ways to overcome the barriers to longer tenancies being offered. We shall consider three of the principal barriers.

Barriers to longer tenancies

GAINING POSSESSION

95. It was suggested that landlords preferred shorter tenancies because they wished to retain the ability to gain possession without going through lengthy eviction procedures. The British Property Federation said:

'Bad-tenants' exist and long-term fixed contracts create another hurdle that a landlord must overcome to get an investment generating a viable return. Landlords often defer action and rely on the tenancy coming to an end to save costs associated with potentially more complicated litigation.[195]

One landlord, Oliver Cornes, said that it took between four and six months to evict a tenant.[196] Shelter said that, alongside the introduction of its Stable Rental Contract, the Government should investigate "ways of increasing confidence in court processes and landlords' ability to use possession grounds to end the tenancies of tenants who breach their contract".[197] Tessa Shepperson, a solicitor specialising in landlord and tenant law, suggested that

landlords be entitled to prompt possession orders against non paying tenants as of right, and that if tenants seek to defend and counterclaim, for example because of the property's poor condition, they be required to pay their rent into court (or an authorised organisation) to abide the event.[198]

96. Landlords also need confidence that they will be able to gain possession promptly should they wish to sell the property. East Midlands Property Owners noted that "a property with a sitting tenant will negatively affect its selling price".[199] Shelter said that one of the conditions of its Stable Rental Contract would be that landlords would "still be able to end the tenancy if they sell the property".[200]

97. If landlords are to offer longer tenancies, they will need confidence that they can gain possession quickly if they wish to evict tenants who do not pay the rent or if they wish to sell the property. Because it can take months to evict a problem tenant, some landlords will offer shorter agreements in the confidence that, if necessary, they will be able gain possession at the end of the fixed term. Equally, they might wish to keep open the option of selling the property. We recommend that the Government convene a working party from all parts of the industry, to examine proposals to speed up the process of evicting during a tenancy tenants who do not pay rent promptly or fail to meet other contractual obligations. The ability to secure eviction more quickly for non payment of rent will encourage landlords to make properties available on longer tenancies. The Government should also set out a quicker means for landlords to gain possession if they can provide proof that they intend to sell the property.

LENDERS

98. Another barrier was the insistence of some mortgage lenders on tenancy agreements of one year or less. The NLA stated that

many buy-to-let lenders prohibit the establishment of tenancies longer than 12 months in their lending conditions. This has the obvious effect of restricting the number of landlords who are able to offer longer tenancies.[201]

Where landlords do not have a mortgage, there seems to be more scope for offering longer or more secure tenancies. Sue Thompson, a landlady, told us that she used "Assured Tenancies not Assured Shorthold [...] because I do not have any mortgages".[202]

99. Paul Smee, Director General of the Council of Mortgage Lenders told us that lenders were concerned about "the ability to get vacant possession if a landlord gets into trouble" but were "looking very seriously at how they can remove that condition from mortgage offers, and the circumstances in which they can do so". He added, however, that "the lender has not felt a great surge in demand for these mortgages from landlords".[203] In June 2013, the Nationwide Building Society Group announced that The Mortgage Works, part of the group, was to become the first mainstream buy to let lender to enable its borrowers to offer their tenants the option of contracts with terms up to three years.[204]

100. Some landlords are not able to offer longer tenancies because they are prevented from doing so by conditions in their mortgage. We are pleased that lenders are considering how such conditions can be removed, and that Nationwide Building Society is to begin allowing its borrowers to offer longer term contracts. We urge the Council of Mortgage Lenders to work with other lenders to ensure that they quickly follow suit. Lenders should only include restrictions on tenancy length in mortgage conditions if there is a clear and transparent reason.

LETTING AGENTS

101. In some cases, letting agents might also be a barrier to longer tenancies. The NLA was concerned that "letting agents very rarely discuss the possibility of longer fixed-terms with their landlord clients or applicants".[205] Tessa Shepperson stated that it was "very much in the interests of letting agents to retain the current [tenancy] system, as their income is largely derived from finding new tenants and charging for 'renewals'".[206] Agents' groups denied this. Caroline Kenny, Executive at the UK Association of Letting Agents, said that

when property becomes available there are marketing costs and staff have to go out, physically, to show the property and call at the property. That outweighs the other costs involved.[207]

She also said that "a trained letting agent should know they have to listen to the requirements of the tenants" and that when a tenant requested a longer tenancy, "the agent should be the facilitator and try to achieve the tenant's request, if it is suitable for the landlord to release the property for a longer duration".[208]

102. Letting agents have an important role to play in making sure tenants are fully aware of the tenancy options available and in facilitating longer tenancies where they are desired. We recommend that the Government include in the code of conduct for letting agents a requirement both to make tenants aware of the full range of tenancy options available, and, where appropriate, to broker discussions about tenancy length between landlords and tenants.

Retaliatory eviction

103. A number of witnesses raised concerns about 'retaliatory eviction', whereby landlords would serve notice on a tenant if they complained or asked for repairs to be carried out. Bradford Metropolitan District Council stated that

one of the consequences of the relative lack of security of tenure in the PRS, is the incidence of retaliatory evictions. We have concerns that when some landlords become aware that their tenants have contacted the local authority for assistance with the poor standard of their accommodation, that they then serve notice on their tenants, who are then required to move out. This can occur either due to malice on the part of the landlord, or simply because the landlord lacks the funds to address the disrepair or hazards which the tenant has complained about.[209]

Geoff Fimister from Citizens Advice observed that "for assured shorthold tenancies you do not have to give a reason as to why you are bringing the tenancy to an end". He said that in these cases the tenant was "particularly vulnerable".[210] The Building and Social Housing Foundation said that the risk of retaliatory eviction made it difficult for local authorities to carry out reactive enforcement.[211] It suggested that councils could take a more proactive approach, rather than rely on tenants reporting problems.[212] We discuss proactive enforcement in chapter 3.[213]

104. Some witnesses suggested that legislation was needed to prevent retaliatory eviction. The National Private Tenants Organisation stated:

New legislation should be introduced to deal with the problem of tenants being evicted in response to legitimate complaints about housing conditions [...] Several countries such as New Zealand and states in Australia and the U.S.A. have introduced legislation to deal with this problem.[214]

Friends of the Earth and the Association for Conservation of Energy were concerned that tenants would be unlikely to request energy efficiency measures from landlords for fear of eviction and proposed that legal protection be given to tenants requesting energy efficiency improvements.[215] They said that a "simple solution would be to limit the use of section 21 by landlords when an energy efficiency request had been made by a tenant under the regulations".[216]

105. There is a perception amongst some tenants that if they speak out it could result in their losing their home. Tenants should be able to make requests or complain without fear that doing so will lead the landlord to seek possession. We are not convinced, however, that a legislative approach is the best or even an effective solution. Changing the law to limit the issuing of section 21 notices might be counter-productive and stunt the market. Rather, if we move towards a culture where longer tenancies become the norm, tenants will have greater security and also more confidence to ask for improvements and maintenance and, when necessary, to complain about their landlord. Moreover, if local authorities take a more proactive approach to enforcement, they will be able to address problems as they occur rather than waiting for tenants to report them.

Affordability

106. Some witnesses were particularly concerned about the affordability of rents within the sector. Dr Julie Rugg of York University said that

the combined influence of a strong PRS and limited alternative options for households seeking accommodation means that rental affordability is compromised. According to the most recent English Housing Survey (2010/11) housing costs for private renters absorbed 43 per cent of their gross weekly income; amongst owner occupiers the figure was 19 per cent, and social renters 29 per cent.[217]

Digs, a grassroots organisation of renters in Hackney, London, said that nearly all its members had faced large rent increases, in some cases as high as 40%, over the last three years, and that many of the members facing an increase had been forced to move.[218]

107. While concerns were raised about rising rents, we also heard that rent increases in many parts of the country were below inflation, and that the yields landlords received were stable. The buy-to-let lender, Paragon Group, referred to survey findings which showed

that the average nationwide yield—the property portfolio's annual rental income as a percentage of its total value—has remained approximately 6% since Q1 2011. There are a number of possible causes but the overall picture is clearly not one where landlords are 'profiteering' especially when interest on the mortgage finance is taken into account.[219]

The British Property Federation stressed that not all tenants had a rent rise every year and that it was "very common practice in the market for private landlords only to rebase their rent when a tenant moves out".[220] The Government said that "across England as a whole, increases in private sector rents in recent years have been modest and remained below inflation".[221]

Rent control

108. We heard some calls for rent control or capping below market levels.[222] The University of Sussex Students Union said that

consideration should be given to the idea of rent control as this may provide protection to students and other tenants in the private rented sector against inflated rents for poor quality properties and over inflationary rent increases.[223]

The Housing Law Practitioners' Association (HLPA) said that rent control already existed "for three classes of residential occupier", including benefits recipients who it said were subject to "de facto rent control" because of restrictions on housing benefit.[224] The HLPA said that there was "a pressing case, both for the protection of individuals and in order to make wider savings, for rent control to be extended to bring down the rental levels in the private sector".[225]

109. For the most part, however, our evidence was against measures to control rents. It was suggested that rent control would adversely affect investment in the sector and consequently lead to a reduction in supply.[226] Richard Blakeway, Deputy Mayor of London for Housing, Land and Property, said that

rent controls are not the answer. One of the most striking things about London's rental market is that yields are the lowest in the UK. If you introduce rent controls, you will drive away investment, limit mobility and drive away people improving their properties. You will see a deterioration in the quality of rented accommodation as well as a reduction in quantity.[227]

110. Problems with the affordability of rents are particularly acute in London and the South East. Although in other parts of the country average rents and yields are relatively stable, we are still concerned that some families are struggling to meet the costs of their rent. We do not, however, support rent control which would serve only to reduce investment in the sector at a time when it is most needed. We agree that the most effective way to make rents more affordable would be to increase supply, particularly in those areas where demand is highest. We consider supply in chapter 6.

Setting rents for longer tenancies

111. One of the features of Shelter's Stable Rental Contract was that landlords would only be able to increase rents at the rate of inflation.[228] It referred to modelling by Jones Lang Le Salle which showed that

indexing rents would increase landlords' returns by making increases more steady and predictable. This is because many landlords do not increase rents for a number of years, and then when faced with a significant rent increase, renters may leave and create the risk of a void period for landlords.[229]

Shelter also said that, while the maximum annual rent increase would be in line with the consumer price index, landlords "would not be obliged to charge it if they felt it was above rent increases in their local market".[230]

112. The British Property Federation, however, expressed concern about index-linking:

Recent history [...] shows that index linking is neither stable or predictable, flitting between -1.6% and 5.6% over the past three years, and with what might appear to be quite small annual increments compounding into a far larger increase than people might anticipate.[231]

It offered other suggestions for how rents could be set, but warned that there was "no 'perfect way'"[232] to do it:

A very stable and predictable way of setting rents is simply to set a fixed uplift in an occupiers' tenancy or lease agreement, for example the rent will increase by 2% per annum. This is sometimes used in both sectors but represents a gamble for landlords or tenants about what is going to happen in the wider economy.

Rent inflation tends to correlate very strongly with average earnings (with some lag), and therefore linking rents to average earnings might be a good way of setting rents and would mean that rents would have the same 'affordability' at some date in the future as they do now, but only for the 'average' person.[233]

113. There is no perfect way to set rent, but, where longer tenancies are being established, linking increases to inflation or average earnings, or voluntarily agreeing a fixed uplift each year merit consideration and could provide tenants and landlords with a degree of stability, though over time mechanisms may emerge as, for example, in the commercial property sector. Tenants', landlords' and agents' groups should encourage their members to discuss these options at the outset of a tenancy. Existing arrangements for setting and increasing rent are often arbitrary and uneven, and reflect the immaturity of the market.

Placement of homeless households in the private rented sector

114. The private rented sector is playing an increasing role in the provision of housing for homeless people. Provisions in the Localism Act 2011 allow local authorities to discharge their homelessness duty with an offer of accommodation in the private rented sector without the applicant's consent.[234] We heard several times that it was too early to consider the impact of this legislation.[235] Nevertheless, the NLA considered it to be a "positive step" because it showed "that the Government sees the PRS as part of the housing solution rather than part of the problem and that the PRS is no longer a short-term stop-gap but a source of long-term housing".[236] Others were less supportive of the measure. The homelessness charity, Crisis, said that it had opposed the measure throughout the passage of the 2011 Act because it was concerned that it would lead to repeat homelessness.[237]

115. The Government said that, in response to concerns about the quality of private rented accommodation, it had "decided that additional regulatory safeguards were necessary".[238] It had therefore issued the Homelessness (Suitability of Accommodation) (England) Order 2012[239] which "sets out the circumstances in which accommodation used for the purposes of a private rented sector offer to end the main homelessness duty is not to be regarded as suitable".[240] The criteria covered five broad areas: the physical condition of the property; health and safety; licensing for houses in multiple occupation; landlord behaviour; and elements of good management.[241]

116. The charity, Herts Young Homeless, referred to the earlier consultation on this order and said that it was 'a good start' but that it had to be "enforced by local authorities and any concerns regarding rogue landlords must be followed up and resolved using this and other relevant guidance".[242] The Chartered Institute of Environmental Health was concerned about the wording of the order. It said that it should "be amended to make clear that local authorities MUST arrange an inspection of a property to ensure no Category 1 hazards exist before it is used".[243]

117. We welcome the Government's use of secondary legislation to clarify when accommodation is unsuitable for homeless households. We expect councils to pay full regard to this order and to ensure that homeless households are only placed in suitable accommodation. Given that many of these households will be vulnerable, councils have a particular responsibility to ensure that the properties they are placed in are free from serious health and safety hazards. We recommend that, as a matter of good practice, local authorities should inspect properties before using them for the placement of homeless households.

OUT OF AREA PLACEMENTS

118. The Homelessness (Suitability of Accommodation) (England) Order 2012 also provides that local authorities "must take into account the location of the accommodation", including "where the accommodation is situated outside the district of the local housing authority, the distance of the accommodation from the district of the authority".[244] In its response to a consultation about the Order, the Government explained:

This Order does not prevent or prohibit out of borough placements where they are unavoidable nor where they are the choice of the applicant. Some households will wish to leave their current district as such a move can have a positive effect for those escaping violence or those seeking to move to take advantage of employment opportunities.[245]

119. Crisis, however, was concerned that the order would not

be strong enough to prevent local authorities discharging their homelessness duty using out of borough placements, which can uproot households and force them to move miles away from their support networks.[246]

Cllr Jonathan Glanz, Cabinet Member for Housing and Property at Westminster City Council, considered it "inevitable that central London boroughs will have to look at ways in which the requirements of people presenting as homeless within those boroughs are accommodated slightly outside their boroughs, or even outside London, depending on where we end up with the market".^.[247] He said that people from Westminster had been placed in Bognor Regis and on the north coast of Kent, but that it had been "in discussion and by agreement with people who have either got family connections there, or who have said that they would be quite happy to do so".[248] The London Borough of Newham said that there were "simply not enough properties in our borough that fall within the new [local housing allowance] rates, much less the overall benefit cap or private rented sector landlords who will consider benefit claimants as tenants".[249] It added that it was "hugely unhelpful for Government to put restrictions on what local authorities can do when our work in this area is simply concerned with mitigating against the consequences of Government policy".[250]

120. Hastings Borough Council, as one of the areas in which homeless households were likely to be placed, had concerns about "risks associated with an influx of vulnerable households from outside of the area in terms of increased demand for local services and the negative impact on the overall local economy".[251] It said that there should be

a requirement for Local Authorities to inform a receiving Authority of any household relocated to another area with details of how ongoing support needs will be addressed. The receiving Local Authorities should be able to stipulate which areas should not be used to relocate homeless households e.g. areas with significant levels of deprivation and large concentrations of private rented stock where extensive work is ongoing to regenerate the area through tenure diversification and enforcement.[252]

121. All agree that, wherever possible, councils should be placing homeless households within their local area (unless there are particular circumstances that mean it is not in the households' interests). It nevertheless appears inevitable that councils in areas with high rents, London in particular, will place homeless households outside the area, including in coastal towns. Before any placement, there should be a full discussion with the receiving authority and the prospective tenant and information about the household and its ongoing needs should be shared. The Government should consider making this a statutory duty.

GOOD PRACTICE

122. We heard some examples of positive work to ensure homeless households were placed in suitable private rented accommodation and to provide them with ongoing support. Broadway Homelessness and Support, a charity based in London, described how it had "set up set up Real Lettings—a social enterprise providing stable private rented accommodation for people who have been, or are at risk of becoming, homeless".[253] A number of local authorities were also running or setting up local letting agencies.[254] The charity Centrepoint called for social letting agencies to be expanded.[255] The NLA referred to the Private Rented Sector Access Development Programme being funded by DCLG through Crisis.[256] The NLA was one of the organisations on the panel selecting access schemes to receive funding.[257] It said that these schemes had

been successful in working with some of the more challenging people to house, for example, seeing great results in supporting rough sleepers into private rented accommodation and in housing former offenders. Schemes have also seen some results in housing under-35s in shared accommodation, although there is recognition that this takes considerably more time and resources both to set up and sustain.[258]

We were pleased to hear of positive examples of work to support homeless households in the private rented sector, including the establishment of social letting agencies and the development of private rented sector access schemes. We encourage the Government to work with local government, the charity sector and industry bodies to ensure best practice is shared and lessons learned.

LOCAL HOUSING ALLOWANCE

123. We heard some concerns about the way local housing allowance (LHA) was calculated. Blackpool Borough Council explained that the town faced problems because of "artificially high"[259] levels of LHA:

The dominance of Housing Benefit within the large private rented sector in Blackpool means that it is difficult to establish a market rent when calculating the Local Housing Allowance (LHA), simply because so few properties are let to people paying their own rent without assistance through LHA. Also, the LHA is calculated across a Broad Rental Market Area that covers a wider suburban and rural area of the Fylde Coast that has much lower rates of benefit claimants and higher market values than Blackpool. So the LHA rate applied to Blackpool tends to be higher than might be expected from just looking at the quality of accommodation on offer to benefits claimants in Blackpool itself because it is based on the few best properties that aren't let to benefits claimants, and market rents in better areas.[260]

It was therefore "very profitable for landlords to buy and let out accommodation to benefits claimants in Blackpool, demonstrated by the doubling in HB claimants in the private rented sector seen in the last 10 years".[261] This had a destabilising effect on neighbourhoods and created "a vicious circle where economically in-active residents in poor privately rented accommodation make neighbourhoods less attractive to people looking to buy a home".[262] The council had discussed with the Department for Work and Pensions (DWP) a change to the way LHA was calculated, but its request for a "refined approach to reflect particular local housing markets" had been refused.[263]

124. In other places, the boundaries of broad rental market areas were giving rise to the opposite problem. Ruth Abbott, Housing Standards and Adaptations Manager for the City of York Council, said that the establishment of LHA in Yorkshire had created a big issue because

it took into account the rural area just outside of York. When they set the local housing allowance in York, it was a significant impact in the fact that 57% of the properties outside of York were okay with the local housing allowance, but only 8% of properties in York were able still to attract housing benefit tenants. [...] We would want York to be looked at in isolation, rather than being looked at across such a broad assessment, including the rural areas. It has caused us a major problem.[264]

125. Mark Prisk acknowledged that there were "some local anomalies" with LHA. He added that it was "something that both DWP and ourselves have an interest in, we need to keep an eye on".[265] In our view, it is not enough just to monitor the situation. In Blackpool, landlords are profiting from artificially high levels of local housing allowance while neighbourhoods are being destabilised by increasing numbers of benefit claimants. It is perverse that large sums of public money are being spent in a way that serves only to drive up rents and damage the fabric of the town. We recommend that the Government take immediate steps to allow councils to apply for a variation of broad rental market area boundaries where anomalies occur. This issue raises wider concerns about the interaction between housing benefit and rents, whereby housing benefit can drive rents up across the area, which in turn leads to upward pressures on the local housing allowance, creating a vicious circle and increasing costs for the taxpayer. We recommend that the Government conduct a wide-ranging review of local housing allowance (LHA). This review should assess whether there is greater scope for local flexibility over the setting of LHA rates and the boundaries of broad rental market areas. Local authorities could be incentivised to reduce the housing benefit bill by being allowed to retain any savings for investment in affordable housing.

Data quality

126. A concern throughout the inquiry was the adequacy of data about the private rented sector. Digs stated that

the private, unregulated nature of the PRS makes valid statistical research into the sector difficult. The DCLG's own annual survey of private landlords has only been running since 2009, is based on no more than 650 landlords and fails to take into account that most landlords—particularly those at the least scrupulous end of the spectrum—will not participate in government surveys. While there is not even a register of private landlords (as discussed in the methodology section of the DCLG's Private Landlords Survey), it remains impossible to record accurate levels of tenancy 'churn' or to survey landlord behaviour.[266]

Concerns about the quality of data were brought home to us when we asked the Mayor of Newham, Sir Robin Wales, about the percentage of accredited landlords in Newham. He suggested that it was only following the introduction of the licensing scheme that the council had begun to establish how many landlords there were in total:

We thought it was 10% [accredited], but it is 600 out of a known 15,000 now, and we are fairly confident that will go up to 20,000 to 25,000, although these things are difficult to predict.[267]

127. Given there is so much doubt over the number of landlords, it must, by implication, be difficult to get an accurate picture of rent levels. The Government, however, said that rent data was improving:

[The Office for National Statistics] is improving coverage in the Consumer Price Index of private rents by using Valuation Office Agency data, with the enhanced measure included from March. The Valuation Office Agency data represent the best potential source on private rents and we are working closely with them to improve information on how rent levels vary geographically and over time.[268]

128. It is important that policy on the private rented sector is informed by an accurate evidence base. While the quality of data on rents may be improving, there is more work to be done, especially to get an accurate picture of the number of landlords in the sector. We recommend that the Government establish a small task group of key organisations and academics to consider how data relating to the private rented sector can be improved and made more readily available. In addition, we encourage the National Audit Office to contribute to an effective evidence base about the sector and to draw upon our recommendations when developing studies on housing related topics.

Tax

129. Haringey Council expressed concern about tax evasion in the private rented sector:

The admission in late 2012 by HMRC that the private rented sector is a key area where the government is losing tax revenue demonstrates that many landlords, if they feel that they can, will attempt to dodge their responsibilities. We welcome the creation of an HMRC taskforce to investigate this issue and advocate closer working with local authorities to crack down on rogue landlords cheating the tax system.[269]

In our view, close working of this kind would be particularly beneficial where the local authority has introduced a landlord licensing or accreditation scheme.[270] Such an approach would also be helped if there were a simple means of verifying that a landlord was registered for tax.

130. Written evidence from Robert May, who has developed software for the property industry, suggested that unique tax reference numbers could be included on tenancy agreements:

Each tax paying landlord [...] should have a Unique Tax reference. If through a minor legislation change the Landlord's UTR or UTR linked reference number is required for all Assured Tenancy Agreements new and existing, it would become immediately apparent which landlords do not have a UTR and therefore will not be declaring or paying tax on their Rental income.[271]

131. We do not endorse any particular scheme, but more co-ordinated approaches and closer working between HMRC, local authorities and letting agents could help to address issues of evasion of both income and capital gains tax in the private rented sector. We recommend that the Government, in reviewing the regulation covering the private rented sector, set out proposals for greater co-ordination between the tax authorities and those regulating the private rented sector.

173 Ev 302, para 40 Back

174 "Assured Shorthold Tenancy Agreement", National Landlords Association website, www.landlords.org.uk Back

175 "Gaining possession of a privately rented property let on an assured shorthold tenancy", www.gov.uk Back

176 Department for Communities and Local Government, Assured and Assured Shorthold Tenancies: A Guide for Tenants, p 6 Back

177 Ev 134 Back

178 Ev w321 Back

179 Q 432 Back

180 Q 44 Back

181 As above Back

182 Ev 227, para 38 Back

183 Ev 161-162 Back

184 Q 692 Back