Communities and Local Government CommitteeWritten evidence submitted by Professor Martin Partington

Summary

1. The Private Rented Sector now plays a key role in the provision of housing services in England.

2. But its role could be even greater.

3. As other commentators have noted, investment in build to let must be encouraged. Reliance on buy to let is not sufficient.

4. The PRS still suffers from reputational problems, which should be addressed by a new approach to regulation that relies much less on new law and much more on making the existing law work more effectively.

5. Regulation by the industry itself should be strongly encouraged, through professional regulation and accreditation.

6. Recasting the existing law in the ways recommended by the Law Commission would:

Enable local authorities, housing associations and private landlords to collaborate more effectively;

Encourage new institutional investment in the rented sector;

Help landlords and tenants better understand their mutual rights and obligations;

Increase its regulatory impact.

7. The Select Committee should inquire whether the way policy responsibilities are distributed within DCLG prevents the development of the most effective policy for the rented sector.

1. Introduction

1.1 During the last 20 years, the private rented sector has changed dramatically. It has grown in size. It has become a key player in the delivery of housing services to citizens in England. Forecasters agree that the sector will expand even further over the next few years.

1.2 Despite its importance, the potential for the development of a modern responsible private rented sector has been thwarted by the lack of a modern legal infrastructure.

1.3 This submission draws on the work I did while I was Law Commissioner for England and Wales, in charge of its major programme of work on the reform of housing law. This submission is, however, written in a personal capacity.

2. Background

2.1 Over recent years, there have been numerous reports on the PRS, some generated by Government, many by those working outside government. There have been calls: for new sources of investment; for changes to the planning regime to facilitate new development; for changes in taxation; for the greater regulation of letting agents.

2.2 Many local authorities have worked hard with the PRS through accreditation schemes to drive up standards, and in some areas to promote good tenant behaviour as well.

2.3 There have been some legislative initiatives such as the licensing of HMOs and the creation of tenancy deposit protection. There have been important changes to the rules relating to local authorities and housing associations. But many of the reports published on the rented sector have led to no government action.

2.4 While many reports have made recommendations for specific changes to the law, no organisation, apart from the Law Commission, has examined the overall legal infrastructure within which the rented sector of the housing market operates. This has had a number of serious consequences, two of which are mentioned here.

2.5 First, the law is far more complex than it needs to be. Those most affected by it—landlords and tenants—find it hard to understand their legal rights and obligations. Because of this, the existing law is not effective. It is not delivering the outcomes that successive Governments intended.

2.6 Second, the current law makes it much harder for the different sectors of the rented sector—local authority, housing association and private rented—to work together than should be the case.

2.7 The reasons why a modern legal infrastructure for the rented sector has not yet been created cannot be considered in detail here. However, three important constraints on such an initiative being taken may be noted: political, departmental, and the role of law in government.

Political: Housing Ministers come and go with great rapidity. Despite the social importance of housing, Housing Ministers do not in general remain in post for long: on average, for less than 12 months. Housing Ministers are either junior ministers on their way to higher office, or in some cases, senior ministers who are on their way out of government. Whatever the realities of the housing market and indeed the wider economy, when in office their political focus has tended to be on the promotion of owner occupation rather than renting. This may be understandable. But the result is that renting in general and private renting in particular receives far less political attention than its social importance merits.

Departmental: The way DCLG is organised works against the development of holistic policies for the rental sector, and in particular a reformed legal infrastructure as recommended by the Law Commission. The fact that within DCLG there is a separation between the work done on the local authority/social rented sectors, and that done on the private rented sectors has prevented policy makers from undertaking the across the board thinking which I regard as essential for the rented sector.

Thus, to give two examples: the role of the private sector in helping local authorities to meet housing need is less effective than it could be; local authorities cannot easily enter partnerships with private developers to provide new purpose built housing for rent.

The role of law in government: Policy makers use law as the technical tool to deliver the policies they have devised and agreed with Ministers. Housing law is but one example of many of policies being developed over decades, being implemented through myriad legislative enactments, leaving a mass of often unnecessary, certainly over complex legislation that does not work efficiently. While publicity about the recently announced Task Force on the PRS states that the Task Force should encourage lateral thinking and new ideas, there is no hint that part of their remit should be the legislative underpinning which, as argued here, is a barrier to potential innovation in the rented sector.

2.8 While it may be beyond the remit of the Select Committee to investigate why housing ministers come and go so frequently, I think that the Committee should ask whether the internal organisation of DCLG operates to prevent the development of the most effective policies for renting in general, and the PRS in particular. It should also argue that a coherent legislative infrastructure lies at the heart of modern policy development.

3. The Committee’s Inquiry

3.1 The Terms of Reference for the Select Committee Inquiry are focussed on the PRS. The Committee has identified a number of specific issues on which it is seeking evidence. These may be summarised as follows:

Quality of accommodation.

Rent levels.

Regulating landlords.

Regulating letting agents.

Regulating HMOs.

Tenancy agreements and security of tenure.

Use of PRS to discharge local authority homelessness duties.

3.2 This list of issues raises three fundamental questions: is the market competitive enough? Are current regulatory approaches effective? Is the current law right?

Is the market competitive enough?

3.3 The issues about quality of accommodation and rent levels might be seen by some as matters of legal regulation. However, in my opinion, the improvement of standards of accommodation and making rent levels more affordable are more likely to be dealt with by new investment in the sector rather than more statutory regulation. For example, in those towns and cities where new private investment in student accommodation has been undertaken, this has had a wider impact on issues of quality and rent.

3.4 The Law Commission’s reports did not directly deal with these specific issues. It was however strongly represented to the Commission by some major investors in the property sector that a new legal infrastructure for the rental sector, such as that proposed by the Law Commission, would give comfort to key decision makers such as Pension Fund Trustees that the government was taking renting seriously and was putting in place a widely supported legislative framework against which long-term investment decisions could be confidently taken.

Are current regulatory approaches effective?

3.5 The issues relating to the regulation of landlords, agents and HMOs identified by the Select Committee raise the question whether current regulatory approaches are effective.

3.6 In its report Encouraging responsible renting the Law Commission analysed current approaches to the regulation of the PRS. It concluded that if governments thought that by enacting new legislation they would get landlord, tenant or agent behaviour to change, this was to a large extent wishful thinking. Responsible landlords, agents and tenants would of course be informed about their rights and obligations and would act accordingly. The challenge was to find effective ways to get at those who either through ignorance or a wilful desire to flout the law took no notice of the current rules.

3.7 The fact is that making rules of law to regulate behaviour and expecting those rules to be enforced by taking cases to court simply does not work (save perhaps where an order for possession is sought). Ignorance of the law, fear of going to court and expense, fear of retaliation and lack of legal expertise were all identified as factors which render so much protective legislation ineffective.

3.8 In addition, although local authorities had extensive powers to regulate sub-standard rented accommodation, they lacked the resources to use those powers effectively. It is unlikely that in the context of current pressure of local authority funding, these resources will be significantly increased.

3.9 The Law Commission therefore asked what alternative approaches might be adopted to make regulation more effective. One option considered was a compulsory licensing scheme to which all private landlords would be required to join. The Commission came to the conclusion that this was unlikely to be cost-effective.

3.10 Instead, it proposed that there should be “enhanced self-regulation” developed by all key stakeholders: landlords, agents, local authorities and tenants. There should be much greater use of initiatives that had already been taken by the key players in the PRS: greater use of accreditation schemes; a single code of good practice for the letting and management of rented residential accommodation; regulation of letting agents.

3.11 The Law Commission recognised that there would need to be incentives put in place if landlords and agents currently not signed up to an accreditation scheme or a professional body were to be brought into the new arrangements. It identified some of the incentives that might be considered: easier to access to court for accredited landlords; preferential tax treatment for accredited landlords; preferred treatment for receipt of occupiers’ housing benefit. But it concluded that workable and proportionate incentives would be better developed by the key stakeholders in the market.

Is the current law right?

3.12 The questions identified by the Select Committee relating to tenancy agreements, security of tenure and the placing of the homeless in PRS accommodation do raise questions about the current state of the law.

3.13 In its report Renting Homes the Law Commission argued that the existing law should be restructured. It did not make recommendations for major changes to the rules of law themselves. Substantive changes to the law (for example on housing standards, or the rights of succession to tenancies) would have involved political decisions, not appropriate for the Commission. The Law Commission argued that the existing law should be recast. Adoption of the Law Commission’s recommendations would have created a legal framework that was simpler for both landlords and tenants to understand and more flexible for ministers and officials to operate.

3.14 To give some examples: First, had the Law Commission’s recommendations been taken forward, it would have created a system of written tenancy agreements, drafted in plain language, which would have provided an authoritative statement—backed by law—of landlords’ and tenants’ rights and obligations. The documents could be adapted to accommodate specific individual circumstances; but the basic core of the document would reflect the rules that Parliament has laid down. This would replace the current position where tenancy agreements are often drafted in extremely opaque legal language and do not reflect accurately the rights and obligations contained in legislation.

3.15 Second, the Law Commission did not recommend a return to the type of statutory security of tenancy that existed up till 1988. While security of tenure would be retained for tenants in the local authority and social rented sectors, for the private rented sector the Law Commission accepted the then Government’s position that rigid rules of security would reintroduce undesirable inflexibility into the legal framework. Instead, the Law Commission argued that more imaginative use of contract would allow governments to create situations in which social landlords could be permitted to let on terms that did not always guarantee long-term security of tenure. And as regards the PRS, it argued that where a landlord wanted to, there should be encouragement to use longer-term fixed term tenancies, instead of assuming that all private sector tenancies would be only for short-term periods.

3.16 In short the Commission’s recommendations would have gone a long way to addressing the issues relating to tenancy agreements and security of tenure that are referred to in the Select Committee’s Terms of Reference. They would also have facilitated the ability of local authorities to use landlords in the private rented sector for re-housing the homeless in ways that would have been more beneficial for both local authorities and those being re-housed. They would have enabled local authorities to move away from seeing use of the PRS as only a short term solution to dealing with the problems of the homeless in housing need.

Government responses: England

4.1 The response of the former Labour Government, to whom the Commission’s reports were presented were, in summary:

They were not persuaded by the arguments in favour of enhanced self regulation; instead they commissioned Julie Rugg at York University to develop proposals for a scheme of landlord registration. (This is an idea that has been resurrected in a recent speech by the Leader of the Opposition, Ed Miliband, MP);

They issued a consultation paper on the possibility of adopting a new form of compulsory tenancy agreement which would have adopted many of the principles set out in the Law Commission’s reports;

They thought that recasting the legal infrastructure would have caused too much disturbance to the renting market, so—while not rejecting the idea—set it on the back burner.

4.2 The present Government decided to end work on the first two of these initiatives.

Government Responses: Wales

4.3 By contrast, with the devolution of legislative power to the Welsh Assembly Government to make law on, among other matters, housing, the present Welsh Government has not only decided to introduce a landlord registration scheme, but has also announced that within the life of the current Parliament it will bring forward measures to implement the Law Commission’s proposals on the restructuring of housing law.

Scotland and Northern Ireland

4.4 There have also been developments in Scotland and Northern Ireland. In Scotland a landlord registration scheme was introduced some time ago; a tenancy deposit scheme was introduced last autumn. In Northern Ireland the Government has announced that a landlord registration scheme and a tenancy deposit scheme will be introduced in the spring of 2013.

January 2013