Communities and Local Government CommitteeWritten evidence submitted by Shelter

Affordability. As demand for rented properties grows, the sector is becoming increasingly unaffordable, pricing out those who need it most. While those in receipt of benefits are confined to the bottom of the sector, or locked out completely. As well as building more homes to bring the cost of housing down, we need to make rents more predictable by pegging rises to inflation within the term of a tenancy.

Conditions. Government figures confirm that nearly 40% of private rented homes are “non-decent”, compared to 30% of homes in owner -occupation and 27% of social rented homes.5 Shelter is calling on national government and local authorities to clamp down on rogue landlords and improve the quality of the private rented homes.

The private rented sector has been neglected by successive governments who have failed to keep up with the changes and growing challenges in the sector. Making renting work must now be a priority for Government, the industry, and everyone who cares about the well-being of families in this country.

Making Renting More Stable for Families

1. The current set-up of private renting is not meeting many people’s needs. Renters in England typically have short contracts of only six or 12 months, resulting in uncertainty for renters and high levels of churn in the sector. Millions worry about unpredictable rent increases, their contract ending before they are ready to move, and never having the certainty of knowing they will be able to make their rented house a home.

2. 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.6 Moving house this frequently is not only extremely expensive,7 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 five A* to C GCSEs, or to be registered with a GP.8

3. Renters in England want a better offer:

Two-thirds of renters would like to have the option of staying in their tenancy longer term.

Four-fifths would like to know their rent cannot be increased above a certain level.

Two-thirds would like to decorate their home without fear of what their landlord will say.

44% of families feel unable to make their rented house home.9

The Stable Rental Contract

4. A mutually beneficial rental product, the Stable Rental Contract, would:

Give renters five years in their home, during which landlords could not end their tenancy without a good reason.

Only allow landlords to increase rents annually in line with inflation during the five years.

Give renters the chance to decorate their home as long as they return it to neutral afterwards.

Allow renters to give two months’ notice to end the tenancy.

Give landlords the right to end the tenancy if they sell the property.

5. The Stable Rental Contract would meet landlords’ needs as well because:

It will give them a steadier, more predictable income. A detailed analysis of landlords’ business models conducted by Jones Lang LaSalle showed that longer tenancies with inflation-linked rent increases actually enhance landlords returns.10

Renters on longer tenancies will be more invested in their home and more likely to take good care of the property.

Landlords will still be able to end the tenancy if they sell the property.

There is potential to improve court processes so that landlords can be more confident that they are able to evict genuinely bad tenants.

6. A more stable and balanced private renting offer can be developed from the existing legal framework. There is nothing in law to prevent the use of longer term tenancies. Contracts can also be written to ensure renters have the flexibility to take up job opportunities or respond to changed circumstances, and to make rent increases more predictable. Shelter is pleased that the Mayor of London has endorsed the piloting of longer tenancies in London11 and we are strongly in favour of landlords and letting agencies voluntarily trialling stable tenancies.

7. However, we are unlikely to see significant transformation in the market without strong political leadership and government policy intervention. National Government should consider:

Working with institutional investors, housing associations, and corporate landlords in the sector to encourage the offer of Stable Rental Contracts among larger, more professional operators, and highlighting the economic and social benefits of greater stability.

Requiring institutional investors to offer some form of the Stable Rental Contract as a condition for Government help in building private rented homes as part of the “Build to Rent” institutional investment fund.

Investigating ways of increasing confidence in court processes and landlords’ ability to use possession grounds to end the tenancies of tenants who breach their contract.

8. If these voluntary measures do not work politicians will need to discourage short tenancies and encourage longer tenancies through the tax system, or legislate to make longer tenancies the legal default. Shelter has outlined a package of fiscally neutral tax measures that would encourage landlords to offer longer tenancies with higher taxes for landlords offering short tenancies and positive long-term tax incentives to those offering Stable Rental Contracts.12A nudge this strong will be the only way to ensure that everyone who wants a longer tenancy can access one.

Stability for homeless families

9. Changes in the Localism Act 2011 gave local authorities more powers to place homeless families in private rented homes. Measures will need to be taken to ensure that this does not result in patterns of repeat homelessness and short-term lettings, with all the attendant financial and social costs this brings. Recent Government data shows an increase in the number of homelessness acceptances arising as a result of the loss of a private rented sector tenancy, reflecting how unstable this sector can be.13

10. Local authorities should ensure that private rented accommodation is let to homeless families on a Stable Rental Contract where possible. As the duty to re-house recurs if the household becomes homeless again, longer tenancies would be in the local authority’s interests. Furthermore, councils should:

Continue to prioritise homeless households accommodated in the PRS for an offer of social housing for five years following their homelessness acceptance. This reduces the need to procure expensive temporary accommodation but still gives unsettled households the realistic prospect of a permanent home.

Offer both start-up and ongoing tenancy support to help people to stay in their rented homes longer term.

Consider location when assessing whether the accommodation is suitable, taking into account potential disruption to the household. The legislation requires offers to be within the household’s local area where reasonably practicable. It is not clear the extent to which councils are adhering to this and it should be monitored closely.

Ensure that accommodation provided to homeless families is affordable, in line with government regulations. Councils should regard accommodation as unaffordable if, after meeting the costs of the accommodation, the applicant would be left with an income lower that they would be entitled to as per the Homelessness Code of Guidance.14

Affordability

11. The affordability of private rents is a major issue across England, and rising rents are increasingly eating into household finances. Renting is no longer the cheaper alternative to home ownership and this is preventing young families from saving for a deposit. The problem of affordability affects those at all levels of the market. Shelter’s analysis of official rent data has found that:

Median rents are unaffordable in more than half of English local authority areas. In most parts of the country the average household would need to spend more than 35% of their take-home pay to rent a two-bedroom home.15

Rents have risen twice as fast as wages over the last decade.16

In 2011 rents in inner London rose 3 times faster than wages. And in 2012 rents swallowed more than 50% of a typical family income in two thirds of London boroughs.17

12. The breaking of the link between Local Housing Allowance rates and rents, including the cap on up-rating,18 and the overall benefit cap, will compound the problem of affordability for low income families. Families housed in private accommodation, which increasingly includes vulnerable families,19 will struggle to access accommodation locally and may be forced to move away from stable employment; a child’s school; and supportive family networks.

13. These households already struggle to secure private rented accommodation because of reluctance among many landlords to take on benefit claimants. The introduction of further caps will reduce the incentive to let to HB claimants, as landlords will be asked to raise rents by less than market forces will allow. The most vulnerable tenants will be forced to the bottom of the sector, and will become increasingly exposed to the practices of rogue landlords. Many renters will be put at risk of losing their home and will be forced to reduce expenditure on other household essentials, take out unsustainable debt, or move to and concentrate further in the poorest areas.20

14. As these cuts loom, Shelter are already seeing a dramatic rise in the number of families accepted as unintentionally homeless. Government figures show that local authorities accepted a duty to re-house 13,890 families in the last quarter, up from 12,860 in the previous quarter.21 Twenty% of these became homeless following the loss of a private rented tenancy, making this a leading cause of homelessness.22

15. Furthermore, local authorities are struggling to find affordable accommodation for homeless families in the local rented sector. This is having an impact on supply of temporary accommodation, which has traditionally relied heavily on accommodation leased from private landlords. Local authorities are increasingly resorting to the use of bed and breakfasts. Recent figures show a 184% increase from September 2011 to September 2012 of families living in bed and breakfast accommodation for longer than the Government’s six-week limit.23

16. High rent levels are reflective of the high cost of housing overall. The evidence suggests that landlords are increasing rents in response to market pressure—72% of landlords who increased the rent last year cited “local market conditions”.24 The only long term sustainable way of bringing the cost of renting down is to build more affordable homes. In the meantime, Shelter’s Stable Rental Contract would help to make rent rises more predictable by introducing index-linked rent increases.

Rent caps as a way of bringing costs down

17. Shelter does not support a cap on rents. Advocates of a rent cap have not been able to offer evidence that this would work as an effective way of improving renting for the people struggling the most. There are also a number of potential risks in capping rents, which include:

A deterioration in conditions, as landlords would have fewer incentives (and less cash) to improve properties.

Lower income tenants would continue to be most exposed to the bottom end of the market, as landlords are likely to continue to show preference to higher income tenants whom they perceive to be “lower risk”. This is evidenced in New York City where rent caps operate in a high pressure market.

The possibility of landlords leaving the market. If they did so, it is not certain that aspiring first-time buyers would be able to buy the vacated homes. A further shortage of rented homes would increase pressure on the market and could make it harder for lower income renters to get a decent home.

The creation of a black market in rental properties, as landlords find ways to circumvent the regulations.

18. The lack of evidence for the efficacy of rent caps stands in contrast to the strong evidence for broader stable market solutions that have worked effectively in Europe and beyond.25 The Stable Rental Contract is based on international evidence showing that restrictions on rent increases need to be tied to stable tenancies if they are to offer meaningful benefit to tenants.26

Conditions

19. As the private rented sector expands, complaints relating to the condition of properties and the behaviour of landlords are also increasing at an alarming rate. In many areas, demand for private accommodation is so high that the usual market pressures provide little incentive to improve standards. Subsequently, many tenants feel powerless to speak out as they fear being left without a home.

20. Shelter has been campaigning for action to tackle the small but dangerous minority of rogue landlords who make people’s lives a misery. These landlords condemn their tenants to living in rundown, unsafe, or overcrowded properties. They will often neglect their properties, avoiding making the necessary, legal improvements. Or they will intimidate those who speak out, threatening them with eviction. Despite an increase in the number of prosecutions against these landlords,27 the problem is getting worse.

21. In July 2012 Shelter contacted every local authority in England to build a picture of the scale of the problem and what is being done to tackle it. The total number of complaints made to local authorities increased by 27% in the last three years, with over 85,000 complaints made in total over the past year alone.28 The number of complaints concerning illegal evictions increased by 13% and local authorities reported a total of 1449 private landlords who gave them repeated cause for concern in 201112. Even more worryingly, 62% of complaints were related to serious and life-threatening hazards such dangerous gas and electrics and severe damp.

22. The scale of these problems is a serious concern, especially at a time when the private rented sector is housing more vulnerable households and families with children. Many landlords are not receiving a clear message that poor practice will not be tolerated. Tough, well-publicised action, such as prosecutions or legally enforceable notices, is the most effective way of changing practice among rogue landlords.

23. Last year Shelter worked with the Government in developing a range of initiatives to support local authorities in tackling this problem.29 This was a good start but there is more that can be done:

We would like to see greater legal protection for tenants against retaliatory eviction, so that tenants feel empowered to highlight poor practice without risk of losing their home.

Government should also place greater emphasis on removing the judicial barriers that often deter councils and tenants from taking legal action. We suggest that the Housing Minister writes to the Sentencing Council to make the case for sentencing guidance on dealing with landlords.

24. Local authorities already have a wide range of powers that they can use to bring tough, effective enforcement action against landlords. Some pioneering authorities have shown what can be done when they choose to prioritise this issue and effectively use the powers at their disposal. However, Shelter is concerned that local authority cutbacks may derail some of this progress. Government should encourage local authorities to do the following:

Make tackling rogue landlords a priority. Political and financial support should be given to enforcement teams. Proactive property inspections should regularly be carried out. And resource should be allocated to secure effective and clear procedures for tenant complaint reporting.

Provide education programmes for tenants and landlords. This should reduce negligence and ensure that tenants are fully aware of their rights, driving up quality in the sector as landlords realise it is in their best interests to make repairs and tenants are aware of the improvements they can ask for.

Encourage local councillors and senior managers to work positively with the local private rented sector, such as through rigorous landlord accreditation schemes. Some of the most successful authorities have been those who work positively with their law-abiding landlords, building up relationships that discourage offending.

When discharging homeless families into the private rented sector, any property under consideration should be inspected by an officer trained under the Housing Health & Safety Rating System before the accommodation is offered. This would avoid accommodation being offered that has serious hidden health risks, such as fire hazards or leaking CO2.

Letting Agents

25. Shelter regularly hears shocking stories about letting agents who charge rip-off fees, carry hidden charges, and provide poor services. These practices can have devastating impact on tenants. Letting agents are used by nearly 50% of landlords, so any moves to improve the private rented sector must examine and address this problem.

26. Research last year found that almost one in four British people have been charged fees by a letting agent that they felt were unfair. In a YouGov poll of 5,000 adults, 23%—equivalent to 11 million people—said they had been charged unfair fees by letting agents in England. The fee that most people said they’d been unfairly charged for was for “administration” (14% of British people affected) followed by fees charged for credit checks (10%) and fees for renewing a contract (8%).30

27. Some of the shocking cases that Shelter case studies and other research have uncovered include:

Renters charged over £150 for repeat credit checks every year and charged up to £540 for non-refundable “administration” fees.31

People charged £100 each time they view a property.

Ex-letting agent staff who admit to fabricating fees to increase their profits.

Letting agents’ double-charging fees for the same service to landlords and tenants.

28. We will be issuing detailed policy proposals in due course and are looking at whether tenants and landlords currently shoulder the appropriate burden of fees, based on the benefits to each group. In the meantime we support:

Increased transparency of costs for tenants committing to a tenancy. Currently tenants are not able to easily see the cost of setting up a tenancy, taking into account admin fees, reference checks, check-in fees, and all other potential costs. To enable renters to budget for the full costs of a new tenancy, landlords and letting agents should also clearly state the required deposit.

Improvement to the complaints and redress process for tenants. Letting agents could be brought under the Consumers, Estate Agents and Redress Act 2007, which would compel them to have client money protection and be members of an independent complaints and redress scheme. Bringing letting agents under the Estate Agents Act 1979 would also give the Office of Fair Trading powers to ban those who act improperly.

Conclusion

From homeless people seeking help from their council, to low income strivers struggling to meet their rent, and high earners locked out of home ownership, the private rented sector is the permanent tenure for millions of families.

Yet the sector is woefully ill-equipped to meet their needs. The political will to bring private renting up to scratch is urgently required.

As long-term renting continues to let down these families, voters will increasingly demand more from their politicians. The growing momentum behind improving the sector must be turned into action.

This submission could only reflect a fraction of Shelter’s extensive experience of, and analysis on this issue. We are happy to answer further questions in more depth to assist the committee’s inquiries.

January 2013