Communities and Local Government CommitteeWritten evidence submitted by the London Borough of Newham

Executive Summary

The London Borough of Newham welcomes the opportunity to share our experiences and concerns over the Private Rented Sector (PRS) with the Committee.

The PRS is on an upward trajectory across the whole of London. Nowhere is this more apparent than in the London Borough of Newham where more than one in three properties are privately rented.

The 2011 Census revealed that 34% of households in Newham are in the PRS compared to 19.9% a decade earlier. While the majority of landlords in Newham operate professionally and rented accommodation can support labour market flexibility and be a positive choice for many households, there are clearly many emerging challenges and we believe these require a robust response from both local authorities and Government.

Quality

The huge expansion of the private rented sector in Newham has led to a situation where poor management practices are growing increasingly more common. Newham has found that voluntary accreditation for landlords, which has been running for more than 10 years, has yet to deliver tangible improvement; despite financial and other incentives fewer than one in 10 landlords are involved. Tenants as consumers do not look for accreditation and too few landlords sign up to make a difference to overall standards. Yet there is a clear need to improve private rented housing conditions and tenancy management, and specifically to address and reduce planning contraventions, environmental crime and increasing levels of anti-social behaviour associated with those rented properties that fail to meet satisfactory levels of tenancy and property management.

That is why this month we were the first local authority in England to introduce compulsory licensing for all landlords in the PRS following a successful two-year pilot. Once a property has been licensed the licence holder is bound by a number of conditions around levels of permitted occupation, standards of tenancy management (in particular managing anti-social behaviour, rubbish in front gardens and noise nuisance) and standards of property management. There are numerous other advantages not least access to one or more named persons responsible for the property.

Councils already have the ability to designate areas for licensing if they so wish, but the legal framework is relatively complicated and together with required conditions can act as a barrier.

Affordability

The introduction of caps to the Local Housing Allowance (LHA) rates will make the PRS across London even less accessible for low income families. In Newham 1,500 households have already lost some of their housing benefit because of the change from LHA at 50th to the 30th percentile of the market. We estimate that around a further 1,000 households in the PRS will be affected by the overall benefits cap for workless households.

The cap will impact most severely on those in temporary accommodation for whom the cost of their rent alone will exceed the benefit cap. In the context of the shortage of supply it is likely that many families will remain in temporary accommodation that is simply unaffordable, representing a significant financial risk to the council.

We are further concerned that, following high profile coverage of Newham’s and other London boroughs’ decision to place homeless households out of borough, the Government has sought to restrict local authorities’ ability to place families in stable accommodation outside of their area through statutory guidance. We are committed to creating a stable community and housing people outside of the borough is always a last resort. But the shortage of affordable properties means sadly we have no alternative. It is unhelpful for the Government to criticise this approach when it is the direct result of Government policy.

Recommendations

Private renting should be based on a set of clear and transparent rights and responsibilities between all parties mostly enforceable by the local authority.

Current legislation should be simplified and strengthened to enable easier and more effective enforcement.

Landlords should be incentivised to provide stability through longer term tenancies.

Local authorities should be more involved in the PRS offer, including management of properties.

Lettings agents should be bound by the same kind of regulation as estate agents.

There should be a higher overall benefit cap and housing benefit cap for London to take into account the higher costs of living in the capital.

Where out-of-work benefit claimants are doing all that they can to find work, and are recognised as such by benefit requirements, they should be exempt from the cap.

All households placed in temporary accommodation should continue to be exempted from the cap.

Allow people employed on zero hour, short term or temporary contracts to avail of the grace period before the benefit cap is implemented.

1. Introduction

1.1 The London Borough of Newham has a strong vision for housing based on building the resilience of residents, the community and the economy. Stable and secure housing is key to ensuring residents are able to live fulfilled lives, to work and be a part of their community.

1.2 The Private Rented Sector (PRS) is on an upward trajectory across the whole of London. Nowhere is this more apparent than in Newham where more than one in three properties are privately rented. There is no doubt over the importance of the sector—not only because of its size, but because it has the potential to provide people with flexible, affordable and good quality homes at a time when home ownership is increasingly out of reach for many.

1.3 Newham now has an estimated 10,000 landlords. Many of them run good businesses and take their responsibilities to tenants and the community seriously. As a local authority we want to do everything we can to help and support decent landlords as they play a vital role in providing good quality accommodation for our residents. However, we have serious concerns about the management standards and quality of accommodation being offered by a large number of landlords in the borough.

1.4 In Newham, we estimate that around £100 million public subsidy is spent annually via housing benefit for residents living in the PRS. We are determined to drive up the offer on quality and standards to ensure public money is well spent. However, we also recognise that rents are much higher in London than the rest of the country. Two thirds of residents claiming housing benefit in Newham are working, but are simply unable to earn enough to cover their rent. The average rent for a one-bed property in Newham is £875 a month,1 compared to the average gross monthly salary of around £1,599.2

2. Quality and Standards

2.1 The London Borough of Newham wants to ensure that all private rented properties in the borough offer residents a choice of safe, quality and well managed accommodation. We realise the majority of landlords operate professionally and that rented accommodation is a positive choice for many households, but the Council is concerned about increasing levels of anti-social behaviour associated with those rented properties that fail to meet satisfactory levels of tenancy and property management. The benefit of having a mandatory scheme is it will ensure poor landlords have nowhere to hide so we can target our enforcement action on them. We will also be creating a level playing field for good landlords, where they will no longer be undercut by landlords who do not manage their properties correctly.

2.2 Some of the practices we are seeing in the private rented sector are completely unacceptable—people living in illegally constructed sheds and garages; overcrowding; rubbish overflowing in front gardens and properties overrun with vermin. This behaviour has a real human cost with vulnerable people who have little buying power forced to live in squalid conditions that do not befit one of the wealthiest cities in the world.

2.3 In Newham we have seen an explosion of construction and conversion of sheds and garages into residential lettings with no planning approval and with little thought for the safety of the tenants. Our environmental health officers have found a house where two men were living in a commercial freezer in the basement, tenants sleeping in an operational kitchen with mattresses pushed up against a decaying cooker, and shanty-town constructions of bedsits nestled in warrens at the back of high street shops.

2.4 Newham has found that a voluntary accreditation scheme for landlords has had little tangible impact on the sector. Tenants as consumers do not look for accreditation, too few landlords sign up and there are too few obligations which are not policed or enforceable. In Newham less than 10% of landlords were accredited under the voluntary scheme. This is despite the fact that the Council has run a Landlords Forum for 10 years to help their business, and have provided free training and other financial incentives for landlords who sign up to the scheme.

2.5 That is why we have introduced compulsory licensing for all landlords in the PRS from January 2013. Private landlords pay £150 for a five-year licence if they register before 31 January, 2013. Otherwise the full fee is £500. By the end of 2012 more than 14,000 licensing applications had been received by Newham. Landlords who fail to licence will face fines of up to £20,000. The Council and tenants are able to seek repayment of up to 12 months benefits/rents paid during the period a property has not been licensed; landlords who are found not to be fit and proper or continuously fail to licence a property can have control of their property taken away through a “Management Order”.

2.6 Once a property has been licensed the licence holder is bound by a number of conditions around levels of permitted occupation, standards of tenancy management (in particular managing anti-social behaviour, rubbish in front gardens and noise nuisance) and standards of property management (in particular health and safety). Any breaches of these can lead to a reduction in the licence duration, the licence being revoked and/or legal action and fines of up to £5,000 per breach.

2.7 A two-year pilot of the scheme began in March 2010. By March 2012, all 257 private properties in the Neighbourhood Improvement Zone in Little Ilford were licensed. As a result of our activity there was a significant reduction in the volume of anti-social behaviour reported to the council. Thirty prosecutions were made and there was a 99% compliance rate with clearing up waste from front gardens. This is alongside a number of pending crime act applications and rent repayment orders.

2.8 Councils already have the ability to designate areas for licensing if they so wish, but the framework for licensing is relatively complicated and may put councils off. We would like to see a simplified framework that gives local authorities the freedom to tailor a licensing approach to their area and sets out rights and responsibilities for both tenants and landlords.

2.9 Newham also believes a significant number of new local authority entrants into the PRS market will have the effect of driving up quality and improving choice. Newham’s Private Rented Vehicle for example, is a local authority company which will both purchase existing PRS properties and build new properties for rent outside the Housing Revenue Account and allocation process.

3. Affordability and Tenure

3.1 The introduction of caps to the Local Housing Allowance (LHA) rates will make the PRS across London even less accessible for low income families. In Newham 1,500 households have already lost some of their housing benefit because of the change from LHA at 50th to the 30th percentile of the market.

3.2 We expect more households to feel the impact of the overall benefits cap for workless households. We estimate around 1,000 households in the Private Rented Sector will be affected. Many of those will struggle to pay their rent. This will result in an increase in people turning to the Council for help with their housing. This is in the context of a London-wide shortage of social homes. Not only do we have a severe lack of temporary accommodation in the borough, it is an expensive option that is unsatisfactory for the family and community stability.

Newham has significantly decreased the number and length of stay of households in temporary accommodation. We will continue to find alternative housing offers for as many of these households as possible. However in the context of the shortage of supply it is likely that many families will remain in temporary accommodation that is simply unaffordable for them, representing a significant financial risk to the council.

3.3 In addition, it is thought there will be large population shifts across London, particularly in relatively cheap areas like Newham. The PRS is already Newham’s largest tenure and continuing to grow. The PRS is likely to grow further to keep up with these unsettled populations, which we believe could lead to high rates of churn with a negative impact on community cohesion.

3.4 The impact of benefit caps and increased competition is likely to include further over-crowding, sub-letting and division of family homes into Housing of Multiple Occupation. Landlords can receive high rates of returns from illegal conversions or letting out poorly managed properties.

3.5 We agree that stability and longer-term tenancies would better serve families living in the PRS. Our borough-wide licensing serves to professionalise the sector and encourage landlords and tenants alike to take their responsibilities seriously. We hope this will lead to an increase in stability, however problems with the welfare reforms as detailed above remain.

3.6 We are further concerned that, following high profile coverage of Newham’s and other London boroughs’ decision to place homeless households outside of the borough, the Government has sought to restrict local authorities’ ability to place families in stable accommodation outside of their area through statutory guidance. While we recognise that location of the property must be taken into account, there are simply not enough properties in our borough that fall within the new LHA rates, much less the overall benefit cap or private rented sector landlords who will consider benefit claimants as tenants. Newham carefully considers each housing decision and has clear policies to ensure that vulnerable households are prioritised for the small amount of affordable housing wherever possible. It is 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.

4. Recommendations

Quality and standards

4.1 A review of the current system of regulation and control of the PRS should be launched to simplify the current framework and enable easier and more effective enforcement. Existing regulations are difficult to use, court action is cumbersome and fines are not big enough. Newham would like to see a new “fit for purpose” legal strategic framework for the PRS with clear rights and responsibilities for all parties. Minimum standards for letting and management will improve quality and safety and drive out rogue landlords.

4.2 Lettings agents are currently not regulated at all unlike estate agents. Introducing the same kind of regulation for lettings agents would make a big difference as they are often the ones managing properties badly. Currently, anyone can set up a lettings agency without any qualification.

4.3 Local authorities could be more involved in the PRS directly, including management of properties in the PRS. By removing fiscal and legal constraints local authorities should be enabled to solely or in partnership with others finance, build, issue a range of tenancies and manage new housing supply to meet the needs of local populations.

4.4 Landlords should be incentivised to offer longer term tenancies in order to create more stability through new financial and regulatory regimes.

Affordability and Tenure

4.5 The London Borough of Newham has written to Government on repeated occasions highlighting the problems with welfare reforms. We have made a number of suggestions for how the impact of the reforms on London could be mitigated:

4.6 A different London cap

London living costs greatly exceed those in other parts of the country and this is particularly true of housing. As such the London Borough of Newham suggests there should be a higher overall cap and housing benefit cap for London.

4.7 Exempting those seeking work

There are already robust requirements on out-of-work benefit claimants at a time of significant levels of unemployment. Under the current proposals households where adults are doing all they can to find work, and are recognised as such by benefit requirements, will have their benefits capped. We suggest where these conditions are met by claimants they are exempted from the cap. Alternatively, we would support London Councils’ proposal for a job support fund administered by local councils to support those affected.

4.8 Exempting those in temporary accommodation

One of the biggest concerns for local authorities will be the inability of families living in temporary accommodation to afford their very high housing costs. If local authorities are expected to continue to discharge their homelessness duty (in or out of their own borough) it is arguable that all households placed in temporary accommodation should continue to be exempted (perhaps for a fixed period). However the most immediate pressure is on those in such accommodation at the time the cap is introduced.

4.9 Grace period for those in insecure employment

One of the key problems for Newham residents who are working is that their employment is insecure. They might be employed on zero hour contracts and be unable to predict how much work they will have in the coming weeks. While in theory Universal Credit should work well for these residents, the overall benefits cap will disadvantage them because they will not be eligible for the nine month grace period. Instead they will immediately be subject to the cap because they cannot meet the requirement to have worked 52 weeks out of the previous 52. In addition many local people work a series of short term and temporary jobs with frequent gaps in their employment. They will also find themselves immediately subject to the cap when a contract ends.

5.1 It would be helpful if the Committee were able to raise these issues with the Government, as the impact of increasing unaffordability on Londoners’ living standards and housing will be significant.

January 2013

1 Valuation Office Agency (2012) Private Rental Market Statistics

2 ONS (2012) Annual Survey of Hours and Earnings (provisional)

Prepared 16th July 2013