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

Executive Summary

1.1 Whilst acknowledging the Committee’s reasons for not focusing on supply, we are of the firm opinion that increased supply forms an integral part of a sensible, long-term national solution for ensuring the quality of private rented housing is maintained, or where necessary, improved. This reflects the fact that shortages push up rents and draw into the market those looking for short-term financial gains. This situation is exacerbated by the impact in high demand areas of the Government’s Local Housing Allowance (LHA) restrictions and caps.

1.2 High demand in our borough has in the last ten years seen a more than doubling of the sector. However, despite record housing growth locally that has fuelled this demand, rents continue to rise. With LHA transitional protection also ending, we are starting to see a rapid transformation in the composition of the sector, as those able to meet market rents unaided squeeze supply. Growing numbers of LHA claimants are experiencing, amongst other things, non-renewal of tenancies, higher levels of threatened or actual illegal eviction, large rent shortfalls, overcrowding and enforced moves from the Borough.

1.3 Given that high demand, backed previously by less restrictive LHA support, has to date been a key driver of acceptable physical standards in properties locally, the greater danger currently, especially for those on low incomes, appears to be much less visible forms of unacceptable standards, not just overcrowding, but also the emotional and mental stress caused, for example, by a landlord refusing or delaying a pivotal repair or furniture replacement, and in the worst instances more overt forms of harassment. In addition, those on low incomes ineligible for LHA will be at an even greater disadvantage.

1.4 Lack of resolution to more hidden problems of the above kind is compounded by households being fearful of eviction if they complain.

1.5 For this reason, it is vital that methods are found to police more carefully the provision and management of PRS homes in areas of high demand, but, critically, without jeopardising overall supply, including that available for LHA claimants. It is also important that, wherever feasible, incentives are used rather than enforcement

1.6 We are not yet sure whether borough-wide licensing schemes, if deemed necessary, can fully pay their way in practice, on the basis of past experiences, so would need to investigate this further. We naturally accept it is incumbent on LA’s to keep under review their PRS-facing services to ensure they deliver VFM and remain fit for purpose in areas of high demand.

1.7 Examples of measures that require investigation and consideration, and subject to them being capable of paying their own way locally, include:

Introduction of minimum national property standards for single family dwellings and houses in multiple occupation that are easily understood by tenants and landlords.

Creation of powers for LA’s to prevent eviction, legal or otherwise, when the local authority is considering or is taking action under Part 1 of the Housing Act 2004.

Compulsory accreditation of landlords, including a range of minimum standards including fit and proper, financial management, property standard awareness.

Where landlord refuses compulsory accreditation:

(i)Make it an offence in law, with a minimum fine likely to deter all but the most determined evaders.

(ii)For any remaining evaders, name and shame and punitive tax measures.

(iii)Ultimate sanction: make persistent evasion a criminal offence.

Public authorities at all levels need to promote landlord accreditation as positive badge. Government needs to consider scope for disincentives for landlords not agreeing to accreditation speedily.

Compulsory accreditation of lettings and management agents, backed up by effective sanctions for non-compliance.

Promoting and incentivising use of longer assured shorthold tenancies than currently wherever feasible—for example, payment of HB direct.

Consideration be given to what can be done nationally to help underpin standards in PRS accommodation where HB helps support the rent.

Introduction and Key Context

2.1 London’s private rented sector has rocketed in the last ten years fuelled by wider affordability issues and, more recently, mortgage rationing. In inner London, the 2011 census found that 31% of all households were privately renting, putting the sector on course to become the biggest tenure in a few years or so (a position that will be reached for the capital as a whole at some point in the 2020’s according to the GLA).

2.2 Private renters in Hackney have more than doubled since 2001 and account for 29% of all households. This growth largely reflects the relative popularity of the Borough with younger, childless professionals, fuelled by a new build/conversion boom exceeding our London Plan targets. Many of the Borough’s former owner-occupiers have also decided to rent out their properties.

2.3 However, despite this unprecedented supply boost (which included London’s second largest programme of newly built affordable homes under the 2008–11 NAHP), private rents locally continue to increase. Median two bed rents, for example, rose at nearly double the London rate between May and September 2012 (increases of 7.7% and 4% respectively).1

2.4 The strength of demand is such that median and lower quartile rents in Hackney are significantly higher than for London as a whole across all bedroom sizes. This contrasts with house prices that are below the London average2 (although closing quickly).

2.5 Another important, more recent trend has been the halting of the previous rapid growth locally in private tenants claiming Local Housing Allowance (LHA) as a consequence of the LHA/restrictions/caps introduced from April 11. This is illustrated in the graph below, with the previous spurt largely reflecting the inter-action of higher rents with the decline in the economy and, to a lesser degree, our activity to provide more housing options for those at risk of homelessness (notably families with children) in line with government expectations and targets.

Conditions and living circumstances of those living in Hackney’s PRS

2.6 The strength of the market has resulted in sustained and general improvement in physical property standards, reflected in our stock condition surveys. In addition, complaints received about sub-standard conditions—averaging 5–600 a year—, given the sector’s growth, have fallen as a proportion of the total PRS stock.

2.7 However, the sector is undergoing rapid change currently and anecdotally it seems there is under-reporting of current problems as tenants out of desperation tolerate poor physical standards (resulting for example from Landlord/agent slowness in responding to repairs requests) for fear of eviction.

2.8 There are other examples of more hidden housing needs in the sector. Most notably, our 2008 Housing Needs Survey found that overcrowding amongst private tenants had nearly tripled since 2003. This is being compounded currently as set out below.

2.9 Living circumstances for LHA claimants—accounting currently for about one third of the PRS sector—appear to have deteriorated quickly since the introduction of the LHA restrictions/caps from April 2011. Suitable, accessible supply has contracted so much that notable developments include:

large average weekly shortfalls on new LHA claims since April 12, notably on shared accommodation (£51pw), one beds (£32pw) and three beds (£34pw);3

well over 30% of new claims for two bed+ lettings between June and November 12 had insufficient bedrooms;

36% increase in level of threats of or actual illegal eviction since 2010 reported to us

A 16% increase in homeless applications to the Council since the start of 2012, with the cases involving loss of private sector accommodation for whom we accept a rehousing duty having nearly doubled in the year to June 2012;

amongst those on low incomes not eligible for LHA, officers are seeing evidence of increased use of sub-standard accommodation and severe overcrowding; and

singles aged under 35 moving out of borough.

Future trends

2.10 In addition to the worrying recent trends, boroughs like ours face a “perfect storm” from 201314 onwards in relation to the supply and demand for social rented lettings which will have major knock-on implications in the private rented sector locally. The causes reflect a combination of:

Major reductions in newly built affordable rented homes relying on national grant, down 83% in 201314 and then at least 50% down from 201415 onwards.

Ending of LHA transitional protection by March 13 and introduction of benefits cap, both of which particularly affect larger families.

2.11 The combination of the above and the continued popularity of the Borough with those on higher incomes and persistently rising rents will continuing to squeeze the supply of PRS lettings that are suitable and accessible.

2.12 An ever-strengthening market is likely to result in the better landlords in lower value areas—where LHA claimants tend to be increasingly concentrated—either selling their properties into owner-occupation or switching to interested tenants able to meet market rents without HB help. This would constrict supply for those on low incomes needing to move and needing or wishing to stay in the Borough. This in turn would squeeze yields for those landlords prepared to let to those on HB and/or low income, increasing the likelihood of falling physical standards at this end of the market, as well as other unacceptable circumstances (see below), being tolerated at least in the short-term by tenants desperate to avoid no roof over their head.

2.13 In addition, the shortages of council and housing association family lettings is resulting in increased need to find temporary accommodation, including from the private rented sector, with families in TA having grown significantly since December 2010, up from 813 to 1,026 at end of Sept 12.

2.14 Further increases in statutory homeless approaches are expected that placing increased pressure on us to make greater use of the PRS, both for TA and, if we agree, as a potential discharge of duty squeezing further the supply of PRS lettings available to non-priority groups.

2.15 Our principal concerns in relation to the sector going forward include:

increased overcrowding amongst those needing or choosing to stay in the borough, especially amongst those not eligible for statutory help as homeless;

increased impoverishment as an increased proportion of household income goes towards meeting the rent;

those aged under 35 and childless subject to the LHA Shared Accommodation Rate, with increased sharing of facilities (HMOs) likely or forced moves out of the borough; and

increased incidence of the emotional and mental stress caused by a landlord refusing or delaying a pivotal repair or furniture replacement, and in the worst instances more overt forms of harassment.

Ensuring all Private Rented Housing is of an Acceptable Standard

3.1 The strength of market to date has resulted in a general improvement in physical standards, although increased under-reporting of concerns may be taking place currently as tenants fear eviction if they pursue a complaint. It is also the case that tribunals/courts often view contraventions viz physical standards (inc health and safety) as minor offences and the fines imposed are often low.

3.2 Given the expected growth in the sector, and the likely pressures in the LHA market, we believe in principle that the Government should consider the case for the introduction of minimum national property standards for single family dwellings and houses in multiple occupation. These need to be clear and easily understood by tenants and landlords. Their adherence should be linked to compulsory landlord accreditation (see below).

3.3 Tenants would be able to refer matters to the local authority if any physical standards were not complied with. To ensure tenants do not face instant eviction for complaining, we would suggest new local authority powers are needed to prevent eviction, legal or otherwise, when the local authority is considering serving or has served an improvement notice under Part 1 of the Housing Act 2004.

3.4 However, we would re-iterate our in-principle support for the above standards, as we are concerned as to how local authorities in high demand areas like ours will be able to resource the extra regulatory and enforcement activities involved and need to be sure that that they can pay their way on sustainable basis. This requires further investigation. We naturally accept that it is incumbent on LA’s in high demand areas to review their PRS-facing services to ensure they remain fit for purpose, but remain concerned about the cost implications on the basis of past experience nationally.

Rent Levels, Rent Control and the Interaction Between Housing Benefit and Rents

Rent levels

4.1 Rent levels in Hackney are high by London standards, with evidence that they are also rising more quickly.

4.2 The greatest differentials are on lower quartile rents, with three bedroom properties having the highest differential and believed to reflect the high incidence of childless adult sharers found in our 2008 Housing Needs Survey. This is illustrated in Appendix A.

4.3 Lower quartile rents for three bedroom+ properties for the Borough as a whole exceed the national LHA caps, especially for 4 bed+, and are close to it for two bedroom. Even where landlords are prepared to let to tenants on HB, this means tenants face reduced supply compared to those parts of the country where the 30 percentile rent is within the national caps

Rent control

4.4 Clearly, the only way rent rises could be made more stable and predictable, beyond action to address rent levels (see below), would be activities that either sufficiently increased supply and/or sufficiently reduced demand. This situation is exacerbated by the regional imbalances in the national economy.

4.5 Increased supply, notably higher numbers of new rented homes affordable to those on low and middle incomes in areas of demonstrable shortfall would shift the balance of need away from the PRS and enable public sector costs to be contained as fewer households chased the same number of private lettings. We are keen to see, post-Montague Review, appropriate assistance that will enable a boost to high quality PRS supply.

4.6 We also think it important given current trends in rent increases to consider what can be done to ensure rents do not outpace trends in living costs. We therefore think it is important to consider the case for rent stabilisation/indexation measures.

Interaction between housing benefit and rents

4.7 HB previously helped underpin high rents charged by landlords prepared to let accommodation to claimants. Demand is so strong locally that we have seen no evidence of falling rents since the new LHA restrictions were introduced. Rent shortfalls on new LHA claims were generally as high in November 12 as they were in April 12.

Regulation of Landlords, and Steps to Deal with Rogue Landlords 

5.1 Most properties in the sector in Hackney are owned by small, amateur landlords with little evidence of large property holdings, as has been the case in the past. To date, we are not aware of any persistent rogue landlords operating in the Borough at the moment.

5.2 However, as with physical standards, we are concerned that poor or unacceptable conduct by landlords in the LHA part of the market could be set to escalate given the growing shortages, with those on low incomes ineligible LHA also at risk.

5.3 In principle, we believe that landlord accreditation in areas of high demand should be compulsory, with a set of minimum standards including (not exhaustive) meeting the definition of a fit and proper landlord, financial management, property standard and tenant rights awareness al standards.

5.4 However, we remain concerned about the resourcing of regulatory and enforcement activity locally, as signalled above.

5.5 Public authorities at all levels need to promote landlord accreditation as positive badge. Government needs to consider scope for disincentives for landlords not agreeing to landlord accreditation speedily.

5.6 Where landlord refuses compulsory accreditation:

(i)Make it an offence in law, with a minimum fine likely to deter all but the most determined evaders.

(ii)For any remaining evaders, name and shame and punitive tax measures where feasible.

(iii)Ultimate sanction: make persistent evasion a criminal offence.

5.7 Compulsory accreditation will not guarantee acceptable standards (both of property and landlord behaviours). We acknowledge targeted activity (including licensing) of unwilling landlords may be necessary, backed up by greater enforcement powers and greater fine imposition by courts/tribunals.

Regulation of Letting Agents, Including Fees and Charges

6.1 Subject to the earlier point about cost and resourcing implications for local authorities, we think the case for compulsory accreditation of lettings agencies requires investigation, with slightly higher standards than for landlords because of agents’ wider commercial interests eg an obligation to undertake some kind of continuing professional development.

Regulation of Houses in Multiple Occupation, Including the Operation of Discretionary Licensing Schemes

7.1 We do not favour borough-wide schemes unless they are manifestly necessary. This is principally because we think inspection and enforcement costs could be prohibitive on basis past national experience, and such schemes could cause reputational damage to the sector and aggravate relations with responsible landlords.

7.2 We support the principle of targeted licensing where demonstrable evidence of complaints and/or landlords failing to join accreditation schemes

Tenancy Agreements and Length and Security of Tenure

8.1 The perceived insecurity of the sector has been a factor in its relatively low popularity as a “tenure of choice”, along with negative perceptions of rent levels and landlord behaviour. Councils like ours have been able to negotiate one-year tenancies for prevention schemes instead of the statutory minimum six months, and it has also been shown (including by the “Rugg Review”) that tenancies are very often renewed, and can last much longer than six months provided the tenancy functions well. That review found that the average length of a private tenancy for families on benefits was three–five years.

8.2 Greater security of tenure could help tenants in feeling able to exercise their rights in terms of utilities, disrepair, etc and provide more family stability. The case for a longer minimum term merits investigation.

Local Authority Discharge of Homelessness Duty in Private Sector Housing

9.1 Increased minimum security of tenure would be especially helpful to boroughs seeking to discharge the homelessness duty into the private sector.

9.2 We also believe it is critical to offer HB direct as an incentive to enable increased supply, including for use as temporary accommodation under the statutory homelessness provisions.

January 2013

APPENDIX A

PRIVATE RENTS IN HACKNEY AND LONDON, SEPTEMBER 2012 (SOURCE: GLA RENTS MAP**)

LHA cap

Hackney

London

Hackney rent expressed
as %age of London rent

1 bed

Lower quartile

250

230

185

124.3%

Median

280

231

121.2%

Upper quartile

320

300

106.7%

2 bed

Lower quartile

290

285

231

123.4%

Median

350

288

121.5%

Upper quartile

400

370

108.1%

3 bed

Lower quartile

350

357

277

128.9%

Median

420

355

118.3%

Upper quartile

490

450

108.9%

4+ bed

Lower quartile

400

463

381

121.5%

Median

550

508

108.3%

Upper quartile

625

681

91.8%

** data based on rent levels in previous 12 months

1 Source: GLA Rents Maps, which use rolling median for previous 12 months

2 Source: Academtrics House Price Index

3 Figures are for Sept 2012

Prepared 16th July 2013