Communities and Local Government CommitteeWritten evidence submitted by the Country Land and Business Association

0.0 Introduction

0.1 The Country Land & Business Association (CLA) represents over 34,000 members in England and Wales. Our members both live and work within rural areas; they operate a wide range of businesses including residential, agricultural, tourism and commercial ventures—at the last count the CLA represents some 250 different types of rural businesses.

0.2 We have been looking after the interests of our members, as well as promoting the positive aspects of land ownership, land management and rural business activities for the past 100 years. CLA members own or manage approximately half the rural land in England and Wales including edge of settlement locations and some urban portfolios. According to the Joseph Rowntree Foundation in 2004 38% of all rural let housing is owned by CLA members.

0.3 A new Housing Policy has been initiated to “frame” CLA membership capabilities to provide private rented sector housing. In response to the consultation undertaken with members to date, the primary barrier limiting delivery of greater housing supply on CLA land, particularly sub-market rented units, is the taxation regime.

0.4 The role of rural landowners in providing private rented housing both in existing stock and new stock should not be overlooked. Providing units at sub-market rents or letting on long-term tenancies is common practice amongst the membership, meaning that a fundamental role is played by CLA members in terms of community sustainability.

1.0 Quality of private rented housing and steps that can be taken to ensure that all housing in the sector is of an acceptable standard

1.1 Local Authority Environmental Health Officers already have the Housing Health and Safety Rating System (HHSRS) with which to assess and control housing condition within their Local Authority boundaries.

1.2 In the case of ward or neighbourhood level housing that falls below an acceptable standard, Local Authorities are already able to declare Neighbourhood Renewal Areas or establish Selective Licensing Schemes.

1.3 In terms of established neighbourhood renewal areas or locations where selective licensing has already been used, the profile of those areas tend to share common features namely:

Urban inner city locations of low value housing.

Often pre1919 terraces without cavity walls and low thermal efficiency.

Areas affected by post-industrial decline with higher than national average proportions of vulnerable households.

Very high proportions of private rented stock compared to national averages.

1.4 Where Local Authorities containing such stock (eg: Newham) seek to introduce Mandatory Landlord Registration at a borough-wide level or the Welsh Assembly at a national level, they run the risk of imposing unreasonable burdens on private sector landlords.

In the case of Newham Council, it would have been more proportionate to expect the Local Authority to have imposed Mandatory Licensing in the ward/wards where the quality of housing stock and management had already been established as problematic through the number of enforcement notices issued. Creating a blanket policy for the entire borough is excessive, expensive, unnecessary and penalises good landlords.

In the case of the proposed by the Wales Agent and Landlord Scheme (WALLS); the Welsh Assembly run the risk of unintended consequences in rural areas—particularly in national parks—where wages and rents are low but capital values are high and a market for second homes exists. It is likely that there will be a reduction in rural properties available to rent in these areas—a situation that would be mirrored in England if Mandatory Landlord Registration was introduced.

Recommendation

DCLG should look at the national English House Condition Survey and LA Private House Condition surveys to establish what proportion of private sector housing stock is non-decent. The data should then be cross referenced with spend per LA on private sector enforcement and an appropriate budget set from within formula grant allocations to enable implementation of existing powers. Beyond the HHSRS, these powers include:

The Housing Act 1988 (as amended).

Housing Standards under the Housing Act 2004.

Landlord and Tenant Act 1985 requirements (basic repairing obligations where the tenancy agreement is silent).

Gas Safety Regulations.

Fire Regulations.

Tenancy Deposit Scheme rules.

There is no need for compulsory Landlord Registration or new enforcement powers.

2.0 Levels of rent within the private rented sector—including the possibility of rent control and the interaction between housing benefit and rents

2.1 CLA members experienced rent control during the 1950s and 1960s. It led to units being withdrawn from the rental market and compromised the maintenance of housing types that owing to their traditional construction are expensive to maintain.

2.2 The graph below (DCLG data) confirms that only in 2011, did the private rented sector in England begin to “catch up” with other tenures in terms of numbers of housing units provided. Government policy, encouraged by the February 4th “Build to Rent” funding competition, is seeking to enhance new private rented housing delivery. The required institutional and private investment will not be forthcoming if rent control becomes a reality.

2.3 CLA members letting housing stock under Rent Act 1977 or Rent (Agriculture) Act 1976 tenancies already suffer substantial reductions in rental income, in some cases by half, owing to the protected nature of these tenancies. Such reductions make succession rights extremely valuable.

2.4 There is significant feedback from CLA members citing inconsistent decisions and a lack of transparency from Rent Officers in the context of rent act tenancy rent setting. The CLA suggests the Government legislates so that the limit of 80% of market rents that is chargeable in the social housing sector should also apply as the appropriate level of rents for regulated Rent Act tenancy stock.

2.5 Where this change results in an increase in the level of regulated “fair rents”, landlords in that sector will be better able to maintain the quality of the existing housing stock and to comply with their statutory repairing and safety obligations. The increased enforcement of the Housing Health and Safety Rating System imposes disproportionate burdens on Rent Act “regulated” landlords whose rental income falls far short of the costs of meeting their repairing and other obligations in many cases. The injustice of this burden is felt more keenly where the tenants’ situations have changed so that they are, in fact, well able to pay rents at a much higher level than is set by the rent officer.

2.6 The ability for the social housing sector to increase rents was brought forward by the 2011 Localism Act and followed austerity programme reductions in National Affordable Housing Programme (NAHP) grant availability. The rationale for allowing rents to rise was to give Housing Associations enhanced revenue streams against which to borrow and deliver new stock. The same rationale applies to CLA members some of whom, with the benefit of reasonable revenue streams and recognition of sub-market rent through the taxation regime, wish to deliver new build market rented and affordable units.

2.7 In summer 2012, the government received the findings of the Montague Review. This review identified the need for a large increase in the stock of open market private rented sector housing owing to the shortfall in mortgage supply. The final report contains the following assessment:

The Review Group reflects on the issue of “yield” and the fact that evidence heard had confirmed an average return of 5.9% delivered as capital growth on residential rented portfolios over the last ten years as opposed to 3.5% in income return (net rent after management costs). They state that a change to a long-term residential investment market dependant only on income returns will require higher rents, lower construction and management costs.

Recommendations

Rent controls risk the future supply of rented housing and are in direct conflict with the findings of the Montague Review reference “yield” and new Localism Act freedoms re: rent setting. The Autumn statement approach of capping Local Housing Allowance payments, with flexibility where hotspots exist, is a more credible approach.

Basic supply and demand issues are at the centre of rent rises (lack of over 100,000 new units per annum as building completions continue to slump—CLG data). Therefore securing a continuous supply of private rented housing is vital to keeping rents low.

It is equally important to recognize that in some housing locations eg: parts of Sheffield, private sector rents are actually falling as repossessions and “accidental landlordism” arising from a lack of mortgage finance, mean that the increase in the private rented sector is outpacing latent housing demand where household formation rates are starting to decline.

There is therefore a strategic issue at the heart of housing undersupply and the rate of rent rises (falls) in different parts of the country. Rather than entering the territory of rent controls that would only add to the difficulties afflicting national housing supply:

Mortgage undersupply.

Lack of newbuild activity/National Housing stock undersupply.

Affordable Housing grant cuts.

Regeneration budget cuts meaning that brown field clean-up funding is no longer available.

Low yields.

The government should seek to “balance” the findings of the Montague Review alongside institutional investment in market rented housing, allow non-institutional landlords to invest in new build supply whilst gaining appropriate taxation advantages.

The CLA has already submitted possible changes to the current taxation regime, which we believe would encourage and increase the supply of affordable housing by the private sector, to the Chief Secretary to the Treasury and he has indicated that these proposals are already being considered. 1

We think it unreasonable that private sector landlords should be put in a worse position than their social housing equivalents. We therefore suggest that the Government should allow Protected Tenancy rents to rise to the 80% of open market rents that can be charged on Housing Association and Council House stock.

3.0 Regulation of landlords and steps that can be taken to deal with rogue landlords

See 1 above.

4.0 Regulation of letting agents, including agents fees and charges

4.1 It is recognised that some letting agents advertising their services to third parties, may be taking advantage of the “accidental landlord” status of some property owners who have become landlords unintentionally.

4.2 The CLA is confident of the self-regulatory capabilities of RICS, CAAV and ARLA membership.

4.3 The CLA is opposed to mandatory regulation of letting agents, fees and charges.

Recommendation

Where letting agents publicly advertise their services to third parties, there should be a requirement for RICS, ARLA or CAAV membership.

5.0 The regulation of houses in multiple occupation (HMOs), including the operation of discretionary licensing schemes imposed by a local authority for a category of HMO in its area

5.1 HMO licensing already exists for certain categories of HMO under the Housing Act 2004 and all HMO’s are regulated by HMO Management Regulations.

5.2 The CLA recognizes that Houses in Multiple Occupation can pose particular management problems in that transient and vulnerable individuals are often housed in close proximity to one another in this housing type.

Recommendation.

The CLA accepts the need for discretionary licensing schemes for HMO’s in some Local Authority areas. Please see 1.3 above.

6.0 Tenancy agreements and the length and security of tenure

6.1 We would emphasis the beneficial effect that the introduction of shorthold tenancies under the Housing Act 1980, reformed by the Housing Act 1988 and then the Housing Act 1996, had on the private rented sector. It gave greater freedom of contract between the parties, moreover the de-regulation of rents linked to the introduction of the assured tenancy in The Housing Act 1988 enabled landlords to better invest in maintaining their property. The introduction of the Asured Shorthold Tenancy and the ability to regain possession under the s.21 notice only ground increased the willingness of landlords to let property confident that they would be able to regain vacant possession in the event that they needed to do so. The result of this all these reforms was that property owners were far more willing to make their properties available to rent than had previously been the case.

6.2 CLA members are satisfied with the Assured Shorthold tenancy model but regret the loss of void rates periods. Charging Council Tax when a landlord is trying to make a property “decent” is unreasonable—particularly when public services are not being used.

Recommendations

Reinstate Council Tax void rate periods of 6 months on letting accommodation. Where major refurbishment is required following long term tenancies, 12 months void rate periods should be awarded.

Many CLA members choose to let property at either sub-market rents or on longer term tenancies, or a combination of both, in order to secure long term rental revenues and ensure community sustainability. Carefully crafted tax reliefs could significantly encourage and expand the provision of affordable housing conditional upon set objectives. We have already submitted proposals as mentioned under Item 2 above.

7.0 How local authorities are discharging their homelessness duty by being able to place homeless households in private sector housing

The CLA responded to the Homelessness (Suitability of Accommodation) (England) Order 2012 consultation as follows:

“The CLA agrees that the four bullet points listed are the criteria that local authorities should take into account when considering location but would add a fifth bullet point regarding “lack of employment opportunities.” The NPPF recognises and assists in the ability for rural communities to contribute towards the national growth agenda however, at the time of writing (23.7.12) there is little knowledge as to how this will be implemented or how the interface between Localism and the NPPF will work.”

Recommendation

Until the NPPF is demonstrated to have delivered heightened employment in the countryside, it is inappropriate to discharge the homelessness duty into rural accommodation.”

8.0 Conclusion

The government has recognised the importance of the private rented sector in a range of strategies, Ministerial Statements and reviews 2011–12. The Government wishes to increase the supply of private rented housing stock, and this would be compromised by rent controls. The capping of Local Housing Allowance is a more credible approach, with the caveat that flexibility for hot spot areas should be incorporated.

This submission also demonstrates the wealth of powers already available to Local Authorities in terms of housing enforcement and proposes use of English House Condition and Private House Condition survey data to indicate the size of enforcement team budget required at the Local Authority level.

Finally, CLA members have a large part to play in the private rented sector both in terms of existing stock and with regard to the ability to deliver new stock. Providing units at sub-market rents or letting on long-term tenancies is common practice amongst the membership, meaning that a fundamental role is played by CLA members in terms of community sustainability. The point is that this should be a decision for the landlord, not the state. In addition, carefully crafted tax reliefs could significantly encourage and expand the provision of affordable housing conditional upon set objectives.

The CLA believes that new capital gains tax roll-over relief (based upon that already provided by TCGA 1992 s 247—roll-over relief for acquisition by authorities with compulsory purchase powers) for reinvestment into let housing would encourage the provision of new rented housing. The intention behind the new relief would be to encourage not just the supply of housing but the supply, in particular, of rented housing.

The framework of the relief under s. 247 can easily be adapted to ensure that the housing, which has attracted the relief, will indeed be rented and not, eg, sold or used for owner-occupation.

The relief, being a form of roll-over relief, would automatically result in the relieved gain becoming taxable if the property is sold because the then CGT is calculated by reference to cost reduced by the previously rolledover gain.

The legislation also contains a mechanism for recovering the relieved gain even when reinvestment property is not disposed of. TCGA 1992 s 248(2) claws back the relief where a usage condition is broken: when the reinvested land becomes eligible for the private residence exemption within the following 6 years. There could be similar clawback if the house acquired with the aid of the relief failed to satisfy conditions as to being let.

Conditions as to the lettings would need to be defined. There would be limitations on the term (though not renewals of periodic tenancies), and perhaps letting to connected persons such as the owner’s family and employees.

January 2013