Communities and Local Government CommitteeWritten evidence submitted by the Building and Social Housing Foundation

Executive Summary

BSHF welcomes the opportunity to respond to this inquiry, as it focuses on a number of important issues facing the private rented sector (PRS):

Research by BSHF highlights the diversity of households living in the PRS, particularly the growth in the number of families with children living in the sector.

Households in the PRS have varying needs, including for differing properties and locations, and levels of tenancy security/flexibility. It is vital that the PRS is able to effectively meet this range of needs, as the sector houses an increasing number of households.

To meet the needs of a range of household types, it is vital that any proposals to amend security of tenure consider the importance of flexibility as well as stability.

A range of powers are currently available to enforce standards in the PRS, but local authorities often lack the required resources to make full use of these in tackling problems.

The current system of enforcement works on a broadly reactive basis, which is ineffective due to the risk of the retaliatory eviction of tenants who complain about their landlord. A more proactive approach is therefore needed, but local authorities need to be sufficiently resourced if this is to be effective.

The cost of welfare should be expected and allowed to vary with the economic cycle. Although it is not unreasonable to seek savings and efficiency in welfare expenditure, it is vital that the safety net is not undermined at a time when people need it the most.

In the last two years, over 90% of the growth in Housing Benefit claimant numbers has come from in-work claimants. The distinction often drawn by government between “benefit claimants” and “taxpayers” is misleading, as these groups overlap significantly.

Local authorities should take a proactive approach to identifying private residential landlords who own properties in their areas. This creates an opportunity to establish good communication links.

BSHF believes that there are advantages to the approach adopted in Scotland where letting agents are prohibited from charging fees to tenants, as this reduces barriers to entry to the sector for tenants and enables them to better predict their outgoings. Further investigation into this approach is warranted.

A number of changes could be made to the 2004 Housing Act to support local authorities in the licensing and enforcement of HMO properties.

About BSHF

The Building and Social Housing Foundation (BSHF) is an independent housing research charity, committed to ensuring that everyone has access to decent and affordable housing, and holds Special Consultative Status with the United Nations Economic and Social Council. Since 1994 BSHF has organised an annual series of Consultations at St George’s House, Windsor Castle, on a range of housing issues, bringing together diverse groups of experts for in-depth discussion and consideration of an important housing issue. Notably, the consultation in June 2010 focused on Support with Housing Costs: Developing a simplified and sustainable system. This submission is based on these consultations and on original research by BSHF.

1. Characteristics of households in the private rented sector

1.1 In undertaking its review of the PRS, the Committee should note the diversity of the sector in terms of both the markets in which it operates and the households it houses.

1.2 Research soon to be published by BSHF analyses the household types living in the PRS.1 The findings emphasise the diversity of households in the sector and the range of needs and expectations that these households are likely to have from a privately rented home. A summary of the sub-sectors identified can be seen in Figure 1.

Figure 1

SUB-SECTORS OF THE PRIVATE RENTED SECTOR2

1.3 Key research findings include:

An increasing number of families live in the PRS: more than 30% of privately renting households contain children, a larger proportion than in the population as a whole.

A growing number of Housing Benefit claimants in the sector are economically active; these households are typically younger than inactive households and the majority have children.

The most rapidly growing household type is working age households with above average incomes. This is likely to reflect continued constrained access to owner occupation for an increasing proportion of households.

The diversity of households means that there is no one-size-fits-all approach to meeting the households’ needs. For example, although many families are likely to value the stability of increased security of tenure, students and young working households may favour the flexibility offered by current standard tenancy arrangements.

1.4 The report makes the following recommendations regarding the government’s response to the PRS:

The sub-sectors identified in the report should be used as a framework for the analysis of policy interventions. Interventions may be suitable for one sub-sector, but detrimental to others. A holistic approach is needed, to ensure the sector is suitable for the full range of tenants.

Targeting of interventions is necessary, with priority given to growth groups for whom the sector is not currently well-suited, such as families with children.

1.5 Further research is required to more fully understand the needs of the different sub-sectors and how these can be met. Some particular areas of investigation include:

Providing security of tenure for those who need it, without compromising flexibility.

Understanding the types and locations of property that are most suited to each sub-sector.

Providing opportunities to “make a home” in the PRS for those living in the sector long term.

1.6 The PRS is also shaped by the local housing market; in different contexts the pressures and challenges facing the sector will vary. Although BSHF has not conducted specific research on this, it is an important area for the Committee to consider.

2. The quality of private rented housing

2.1 A range of powers is currently available to local authorities to enforce standards in the PRS, including issuing improvement notices to landlords if the property is not in suitable condition. However, local authorities, particularly since the advent of substantial reductions in funding,3 often lack the required resources to make full use of these powers in tackling problems.

2.2 The current system therefore works on a broadly reactive basis, with local authorities responding to reports of problems. The difficulty is that tenants face the risk that if they report their landlord to the local authority, the landlord may evict them (retaliatory eviction).4 Although the extent of this practice is difficult to quantify, the perceived risk of is sufficient to make reactive enforcement ineffective.

2.3 The tackling of poor quality properties may be more effective if local authorities are able to take a more proactive approach to enforcement of standards, as it would not be reliant on tenants being willing to take the risk of reporting a problem. Local authorities need to be able to allocate sufficient resources for this work, if enforcement is to be effective.

2.4 Local authorities could also undertake profile-raising activity for actions they take in relation to poor quality housing, in order to increase public awareness of the issues.5

3. Rent levels, rent control and Housing Benefit

3.1 Private rents have risen above the rate of inflation over the last decade (Figure 2). The median private rent for a two bedroom property is unaffordable for a household on the median income in over half of local authority areas.6 The situation is most acute in London, with the majority of boroughs having median rents that are more than half of median local full-time earnings.

Figure 2

MEDIAN WEEKLY PRIVATE RENTS, ENGLAND7

3.2 The long-term solutions to the problem of affordability are complex and intrinsically related to the wider housing market and particularly to housing supply. These issues are beyond the remit of this Inquiry. However, the Committee’s focus on other means of addressing affordability, such as through Housing Benefit, is also important.

Interaction between Housing Benefit and rent

3.3 BSHF has published extensively on Housing Benefit and the government’s welfare reform programme.8 Although this is now well advanced, and any significant change of direction is unlikely, BSHF would like to make a number of points with regard to the approach currently being adopted and potential future directions.

3.4 Between 2008 and 2012, the number of private tenants in receipt of Housing Benefit increased by 600,000, an increase of over 56%.9 This reflects the current economic climate, with unemployment and underemployment affecting many households. The government has presented Housing Benefit expenditure as “out of control”. However, the cost of welfare should be expected and allowed to vary with the economic cycle.10 Although it is not unreasonable to seek savings in welfare expenditure, it is vital that the safety net is not undermined at a time when it is most needed.

3.5 The growth of Housing Benefit expenditure is in part a result of government policy. Over several decades there has been a shift away from supply subsidies (social housing grant provision) towards demand subsidies (Housing Benefit). This shift has increased Housing Benefit expenditure, but through reduced expenditure in other areas.

3.6 Since 2010, more than 90% of the growth in Housing Benefit claimant numbers has come from in-work claimants.11 The government has frequently drawn contrasts between “benefit claimants” and “taxpayers” or “hard-working families” as if these were two distinct groups.12 However, they actually overlap significantly. The government’s rhetoric has been divisive, and has associated claiming benefits (particularly Housing Benefit) with being a “scrounger”.13 This is not only misleading, but prevents reasoned debate around welfare reform and levels of benefit.

3.7 BSHF has set out principles to guide Housing Benefit reform to ensure that it is effective in supporting households with their housing costs:14

Flexibility to respond to changing household structures and circumstances. Household structures are increasingly fluid and people’s employment circumstances can change frequently. If Housing Benefit is to be effective, particularly as an in-work benefit, it needs to be responsive to these changes. The intention behind Universal Credit of real time updating is welcome, provided it is delivered effectively.

Greater use of fixed period awards. This would create greater stability for low income households, particularly those in marginal employment. Fixed period awards have been discussed by the Department for Work and Pensions as a way of supporting people into work and responding to people whose income varies significantly over time.15 It could be adopted with the option for a break clause where there is a major change in claimants’ circumstances that has to be taken into account.

Remove the differential treatment of younger people. The Shared Room Rate (which provides sufficient Housing Benefit for a room in a shared house only) has recently been extended to those under 35 (the previous upper limit was 25). However, the SRR is known to cause problems, which will only be exacerbated by these changes. Previous research found that 87% of all SRR claimants face a shortfall between their Housing Benefit and rent, averaging £35.14 per week,16 and there is a shortage of accommodation that meets the SRR definition.17 Equally, particularly for vulnerable people, sharing accommodation may be inappropriate.

3.8 BSHF has previously expressed support of the broad Universal Credit approach, particularly its aims of reducing complexity and the creation of a single taper to ensure that marginal withdrawal rates are not excessive.18 However, there are also significant concerns with regard to the specifics of the proposals and in particular its coincidence with a significant number of cuts to Housing Benefit.

4. Regulation of landlords

4.1 BSHF does not have any specific comment to make on the licensing of landlords except to say that in undertaking any licensing, it is important to ensure that good landlords are not penalised because of the behaviour of unscrupulous ones. For example, a situation could occur where good landlords bear the cost (by paying the license fee), but bad landlords flout the regulation and are not effectively penalised.

4.2 However, if the cost of getting a license were moderate and the resultant system rigorous enough to drive out bad landlords, there might be enough benefit to good landlords in terms of their industry not being hindered by poor competitors. The Committee may wish to investigate the impact of the mandatory registration of landlords in Scotland, including the impact on supply, rent levels, tenant satisfaction and the successful prosecution of unscrupulous landlords.

4.3 Aside from mandatory regulation local authorities can take a proactive approach to identifying private sector landlords who own residential properties in their areas. This creates an opportunity to establish good communication links with them through a variety of mechanisms, including local accreditation schemes, landlords’ forums and tenancy relations officers.

5. Regulation of letting agents

5.1 Around two-thirds of private tenancies involve a letting agent, representing a sizeable market.19 Letting agents have the potential to provide a helpful service to both tenants and landlords, but there is significant dissatisfaction with the sector. There are particular concerns with the quality of the management service provided by letting agents and the fees charged to tenants.20

5.2 In Scotland it is illegal for letting agents to charge tenants any form of fee other than rent and a deposit.21 This is in contrast to England and Wales, where letting agents charge a wide range of different fees for services such as credit checks and tenancy arrangements. These fees are often not transparent and can create particular difficulties in tenants being able to afford to commence a tenancy.22

5.3 Although the Scottish approach is likely to result in higher charges to landlords by agents, which may be reflected in rent levels, it ensures that tenants are not excessively burdened at the start of a tenancy, or hit by additional charges at later stages. This reduces the barrier to entry for tenants to the sector and makes it easier for tenants to predict their outgoings. However, the wider consequences for the market as a whole warrant further investigation.

6. Regulation of houses in multiple occupation (HMOs) and the operation of discretionary licensing schemes

6.1 In 2008, BSHF published a report on the housing needs of migrant workers, who reside overwhelmingly in the PRS.23 Some of the recommendations made in the report are of particular relevance to the regulation of HMOs and discretionary licensing schemes, not only for the benefit of migrant workers, but for private tenants in general. (Please note: we have not undertaken an extensive legal search to definitively establish whether all the relevant provisions of the Housing Act 2004 are unchanged, but from a limited search we believe that these recommendations are still valid):

Government should amend the Housing Act 2004 to extend local authorities’ power to issue and enforce improvement notices to include breaches of the HMO management regulations provided for in Section 234 of the Act.

Government should amend the Housing Act 2004 to extend the circumstances under which local authorities can use their powers of entry without prior notice, as defined in section 239(6) and (7), to include cases where the purpose of entry is to ascertain whether or not the property is overcrowded.

Government should amend the Housing Act 2004 to replace local authorities’ duty under section 102 of the Act to take on the management of unlicensed licensable HMOs with a discretionary power to do so.

Government should amend the Housing Act 2004, adding a third set of general conditions to section 80 to provide a power to introduce selective licensing on the grounds of issues of cohesion within an area.

6.2 As the Committee will be aware, the London Borough of Newham has used its powers to impose compulsory licensing of private landlords within its locality.24 Although BSHF does not have particular insight to offer into this scheme, it represents an important development that merits further study.

7. Tenancy agreements, and length and security of tenure

7.1 As discussed above, the PRS is very diverse and so it is vital to clarify how current tenancy arrangements or proposed changes would affect different groups. While some household types, such as pensioners and families with children, are likely to benefit from increased security of tenure, for others it may be undesirable, as it would reduce the flexibility to move at short notice. It is therefore vital that any proposals to amend security of tenure consider the importance of flexibility as well as stability.

7.2 One approach that may merit further investigation was recently published by Shelter.25 The proposal is for a new Stable Rental Contract that seeks to offer greater certainty for households, without sacrificing flexibility, as well as enabling landlords to evict problem tenants and providing greater certainty over rents. It follows on from research suggesting that longer-term tenancies can be financially advantageous for landlords as well as offering greater certainty for tenants.26

7.3 Although this approach is not necessarily the model way forward, it demonstrates the possible solutions in developing tenancies that meet the needs of both tenants and landlords.

8. Discharging of homelessness duty in private sector housing

8.1 BSHF has no particular research to offer on this topic. In principle, the PRS has the potential to provide suitable accommodation for formerly homeless households. However, it is important for local authorities to consider individual circumstances and the local availability of suitable private rented accommodation, rented on suitable terms, in discharging any homeless duties in the PRS.

January 2013

1 Pearce, J (2013) Who Lives in the Private Rented Sector? An analysis of households’ characteristics, BSHF, forthcoming.

2 Pearce, J (2013) Who Lives in the Private Rented Sector? An analysis of households’ characteristics, p 5 Figure 1, BSHF, forthcoming.

3 Central government grant to local authorities is being cut by more than 27% in real terms over the period 201112 to 201415: Crawford, R and Phillips, D (2012) Local government spending: where is the axe falling?, IFS, www.ifs.org.uk/budgets/gb2012/12chap6.pdf

4 Crew, D (2007) The Tenant’s Dilemma: Warning – you home is at risk if you dare complain, Citizens Advice, www.citizensadvice.org.uk/tenants_dilema_-_document.pdf

5 Diacon, D, Pattison, B, Vine, J and Yafai, S (2008) Home from Home: Addressing the issues of migrant workers’ housing, BSHF, www.bshf.org/published-information/publication.cfm?lang=00&thePubID=2EED9E14-15C5-F4C0-998CFFEC3D54FF93

6 Shelter (2011) Shelter Private Rent Watch: Report 1 - analysis of local rent levels and affordability, p 3, england.shelter.org.uk/__data/assets/pdf_file/0008/386828/Private_Rent_Watch_Report_1.pdf

7 Department for Communities and Local Government (1999-2011) English Housing Survey and Survey of English Housing, www.gov.uk/government/organisations/department-for-communities-and-local-government/series/english-housing-survey

8 See, for example, Diacon, D, Pattison, B, Strutt, J and Vine, J (2010) Support with Housing Costs: Developing a simplified and sustainable system, BSHF, www.bshf.org/published-information/publication.cfm?thePubID=AB588DD9-15C5-F4C0-993D5892C8E1DCC1, and Pattison, B. (2012) The Growth of In-Work Housing Benefit Claimants: Evidence and policy implications, BSHF, www.bshf.org/published-information/publication.cfm?lang=00&thePubID=5E017604-15C5-F4C0-99F1DFE5F12DBC2A

9 Department for Work and Pensions (2012) Housing Benefit and Council Tax Benefit Caseload, statistics.dwp.gov.uk/asd/asd1/hb_ctb/hbctb_release_nov12.xls

10 Diacon, D., Pattison, B., Strutt. J. and Vine, J. (2010) Support with Housing Costs: Developing a simplified and sustainable system, BSHF, www.bshf.org/published-information/publication.cfm?thePubID=AB588DD9-15C5-F4C0-993D5892C8E1DCC1

11 Pattison, B. (2012) The Growth of In-Work Housing Benefit Claimants: Evidence and policy implications, BSHF, www.bshf.org/published-information/publication.cfm?lang=00&thePubID=5E017604-15C5-F4C0-99F1DFE5F12DBC2A It should be noted that these data refer to both social and private tenants

12 For example:
Department for Work and Pensions (2011) 01 April 2011 – Fairness finally restored to the Housing Benefit system as new rules come into force, www.dwp.gov.uk/newsroom/press-releases/2011/apr-2011/dwp036-11.shtml
Cameron, D. (2012) Welfare Speech, www.number10.gov.uk/news/welfare-speech

13 Scope (2012) Disabled People Point to Issue of “Benefit Scroungers” as Discrimination Increases, www.scope.org.uk/news/disability-2012/discrimination

14 Diacon, D, Pattison, B, Strutt. J and Vine, J (2010) Support with Housing Costs: Developing a simplified and sustainable system, BSHF, pp 34-41 www.bshf.org/published-information/publication.cfm?thePubID=AB588DD9-15C5-F4C0-993D5892C8E1DCC1

15 Department for Work and Pensions (2009) Supporting People into Work: The next stage of Housing Benefit reform, www.dwp.gov.uk/docs/hb-consultation.pdf

16 Department for Work and Pensions (2005) Research into Single Room Rate Regulations, research.dwp.gov.uk/asd/asd5/rports2005-2006/rrep243.pdf, although these data are now out of date, no more recent data are available.

17 Phelps, L (2006) Single Room Rent: The case for abolition, Citizens Advice, www.citizensadvice.org.uk/singleroomrent4_final.pdf

18 Pattison, B, Strutt, J and Vine, J (2010) BSHF Submission to the Department for Work and Pensions’ 21st Century Welfare Consultation, BSHF, www.bshf.org/published-information/publication.cfm?thePubID=8D4D1119-15C5-F4C0-9961E2019E12ABC3

19 Darian, L (2011) Renting in the Dark: Creating a lettings market that works for tenants, Resolution Foundation, www.resolutionfoundation.org/media/media/downloads/Renting_in_the_Dark.pdf

20 Darian, L (2011) Renting in the Dark: Creating a lettings market that works for tenants, Resolution Foundation, www.resolutionfoundation.org/media/media/downloads/Renting_in_the_Dark.pdf

21 Scottish Government (2012) An End to Illegal Charges on Tenants, www.scotland.gov.uk/News/Releases/2012/08/Tenants-Charges26082012

22 Darian, L (2011) Renting in the Dark: Creating a lettings market that works for tenants, Resolution Foundation, www.resolutionfoundation.org/media/media/downloads/Renting_in_the_Dark.pdf

23 Diacon, D, Pattison, B, Vine, J and Yafai, S (2008) Home from Home: Addressing the issues of migrant workers’ housing, BSHF, www.bshf.org/published-information/publication.cfm?lang=00&thePubID=2EED9E14-15C5-F4C0-998CFFEC3D54FF93

24 London Borough of Newham Council (2013) What is Private Rented Property Licensing? www.newham.gov.uk/Housing/PrivateSectorHousing/HousesInMultipleOccupation/PropertyLicensing.htm

25 de Santos, R (2012) A Better Deal: Towards more stable private renting, Shelter, england.shelter.org.uk/__data/assets/pdf_file/0009/587178/A_better_deal_report.pdf

26 Jones Lang LaSalle (2012) Can Landlords' Business Plans Sustain Stable, Predictable Tenancies? A report for Shelter, england.shelter.org.uk/__data/assets/pdf_file/0004/569641/Jones_Lang_LaSalle_PRS_Shelter_report.pdf

Prepared 16th July 2013