Communities and Local Government CommitteeWritten evidence submitted by Crisis

Summary

The PRS is a rapidly growing sector and will play an ever greater role in meeting housing need in the future. This inquiry is therefore very timely.

Although the PRS works reasonably well for some groups, there are real problems across the market, and particularly at the lower end around affordability, standards and security.

The PRS can be a cause of homelessness as well as a solution. Cuts to HLA and changes to the LHA is uprated will exacerbate this.

The approaches to regulation and managing the PRS used in Scotland and other European countries should be looked to.

The government should take action to address issues with the sector including considering introducing further regulation.

Crisis has extensive experience in making the PRS work and provide a sustainable home for homeless and vulnerable individuals, particularly through supporting establishment and development of PRS access schemes across the UK.

1. Introduction

1.1 Crisis welcomes this inquiry into the Private Rented Sector (PRS). The PRS has grown significantly over the last decade and now comprises three and a half million households across the UK (around 16.5% of all households).1 Predictions are that if recent trends persist, the PRS will become larger than the social rented sector this year and by the end of the decade one in five households could be private renters.2

1.2 The PRS has long acted as a temporary tenure for students or young professionals waiting to buy, as a stop gap for high income renters between homes, or for those at the lowest end of the market, such as new immigrants or homeless households. However, it is increasingly becoming a long term tenure for people on low to middle incomes, neither able to access social housing or to buy their own home. What’s more the PRS is increasingly being looked to as a solution to housing need by policy makers, for example through the powers to discharge homeless households into the PRS, the Localism Act and the commitment to encouraging institutional investment in the sector.

1.3 Independent research carried out on behalf of Crisis by the University of York and Heriot Watt University, The Homelessness Monitor3, shows that whilst the PRS has, particularly since the economic downturn in 2008, absorbed pressure from elsewhere in the housing market, the shortage of supply across all tenures and the impact of housing benefit cuts may mean, in its current form, it will not be able to do this for much longer. Crisis and others have long called for the PRS to be prioritised and a clear policy framework put in place to ensure it is fit for purpose. This inquiry therefore is particularly timely.

1.4 For some groups the PRS works reasonably well. The flexibility the sector offers is important for students, young professionals or those who are not looking to settle. At the higher end of the market, tenants with buying power are able to exercise this within the market and secure the best quality accommodation. However, for those on lower incomes who often have extremely limited choice over where they live and are not in a position to move, the PRS is not fit for purpose and is poorly equipped to provide a long term home.

1.5 A survey into consumer perceptions found that the PRS ranks 38th out of 45 different markets4 on how far people feel their consumer rights are protected. There is very little regulation in the PRS. By comparison, a licence is required to run a café or be a childminder, but there are no official checks, sanctions or permits needed to provide a home for another household. It is often cited that the majority of tenancies are ended at the behest of the tenant. However, this may be because people feel forced to end their tenancies due to rent increases, poor landlord behaviour or low physical standards. Greater regulation has the potential to make the market work better for all tenants.

1.6 At the sharpest end, the PRS is increasingly becoming a cause of homelessness. In the past two years there has been a 39% increase in the number of households becoming homeless when an Assured Shorthold Tenancy (AST) came to an end. It is therefore vital that issues with the PRS which contribute to housing instability and can lead to homelessness are dealt with urgently by Government and policy makers.

1.7 Our vision is for a thriving PRS which works for all. We believe it should offer good quality, well located housing, with an appropriate degree of security and at an affordable price. However, there are issues with the PRS which need to be addressed if it is to play a role in positively meeting housing need, including its role in both ending and causing homelessness, and questions of affordability, physical and management standards and security.

1.8 There is a real need for joined up action and political will at a national and local level to drive improvements in the PRS. In considering reform, the Government should look to examples in Scotland, Wales, and further afield to other European countries.

2. Affordability and Accessibility

2.1 Affordability is a problem in the PRS across the market. We are particularly concerned however that cuts to Housing Benefit will mean the private rented sector is increasingly unaffordable to those in receipt of benefits, which includes a growing number of people in work. Evidence from our network of access schemes (organisations which support homeless or vulnerable people into PRS accommodation) shows that three quarters of advisors are finding it more difficult to find accommodation for their clients as a result of the first wave of LHA cuts.5 It shows a particular problem for under 35 year olds on the Shared Accommodation Rate, with virtually all (94%) saying that it is now harder to find accommodation for this age group.

2.2 This is backed up by a recent mystery shopping exercise carried out by Crisis which found that, in a number of areas less than 2% of the shared accommodation advertised is available to claimants of SAR, due to a combination of rents being higher than benefit rates and landlords unwilling to let to benefit claimants.6 In addition to landlord reluctance to let to benefit recipients, some mortgage lenders place restrictions on landlords which specifically prohibit them from doing so.

2.3 Almost £2 billion has already been cut from the housing benefit budget with further cuts to come. From April this year, LHA rates will be uprated by CPI rather than with reference to local rents, severing the link between housing support and actual housing costs. This will be exacerbated by the government’s intention to uprate LHA by only 1% for the following two years. The Homelessness Monitor highlights how it is difficult to get a full picture of trends in rental increases—due to their being no official transaction data on what rents are being charged.7 However, there are clearly significant differences in different parts of the country. Statistics indicate that last year rents rose by 3.4% nationally, but by 7% in London.8 Capping benefit increases is therefore likely to have a disastrous impact on PRS affordability for benefit recipients, with areas where there is greater economic growth, employment opportunities and therefore higher rent increases becoming out of reach first. Benefit claimants risk being forced into the poorest quality accommodation and will be more at risk from rogue landlords.

2.4 The Government’s intention was that cuts to LHA would exert downwards pressure on rents—but as rent levels continue to increase this does not appear to have been the case.

2.5 Looking at affordability more broadly, we believe that key to bringing down rental costs is increasing supply. We are opposed to an arbitrary rent cap as it risks reducing PRS supply further with a risk that landlords will simply exit the sector.

2.6 However, there may be scope, for example, to limit rent increases with relation to inflation for the duration of a tenancy. This approach is used in some European countries where renting is more widespread and more stable, such as Germany. The government should explore how to encourage and incentivise landlords to adopt a system like this and if necessary bring forward further regulation to implement this approach.

3. Tenure

3.1 Compared to other OECD countries, the PRS in England has far less security of tenure. Most countries offer longer fixed terms, whilst still retaining flexibility for tenants who need it, and place restrictions on how often and by how much the landlord can increase the rent. For example, in Spain tenancies are offered for a secure period of five years with rent increases in line with inflation, and in Germany tenancies are indefinite with landlords expected to limit rent increases to no more than 20% above the market average.9

3.2 Both tenants and landlords benefit from greater security of tenure. Tenants often want to make a home and put down roots, whilst landlords want a guarantee over onging rental income. Although the average length of a tenancy in the PRS is 19 months,10 a longtintudinal research project carried out by Crisis and Shelter11 shows that the risk that a tenancy can be ended at any time with two months notice can be stressful and destabilising. The government should consider how to encourage landlords to use the flexibility of all tenancy options currently available, such as assured or regulated tenancies, rather than just six months ASTs. There could be scope for a model where landlords and tenants both agree to a longer fixed term period which could offer stability to both parties. Of course there would always need to be flexibility if the tenant needed to move for an employment opportunity or the landlord had to sell the property for financial reasons.

3.3 One issue that prevents longer tenancies being granted is the restrictions placed by banks, including some that are taxpayer funded, on some buy to let mortgage contracts prevent landlords letting tenancies of longer than 12 months even though many landlords would otherwise be happy to do so. We believe that these lending restrictions are potentially damaging not just to prospective tenants’ chances of finding a home but also the healthy working of the PRS as a major and growing component of the housing market. We believe that the government should seriously consider how to address this issue, including by working to encourage lenders—whether owned by the taxpayer or not—to rethink these restrictions.

4. Standards

4.1 Crisis believes that the majority of landlords are well intentioned and that many of those who break the law or operate at a low standard do so out of ignorance rather than intent. However, there are undoubtedly some rogue landlords in the sector who cause misery for tenants and give other landlords a bad name. More needs to be done to drive these landlords out of the market. There should also be greater efforts made to ensure landlords are aware of their responsibilities.

4.2 Physical standards are a serious problem in the PRS with 37% of properties considered non-decent. Most of these will be at the lower end of the market where people receiving housing benefit, including vulnerable tenants, are likely to be renting. There are already powers for local authorities to tackle poor standards, but they are used all too rarely. Councils must take a lead in managing the PRs in their area, including enforcing existing regulations. Currently, environmental health teams are often under-resourced and housing is not an area that is prioritised.

4.3 There are also barriers within the court system to local authorities prosecuting landlords. It is rare for landlords to be prosecuted and even where they are the fines handed down by the courts are often very low. Greater efforts should be made to close down hazardous properties and prosecute landlords who are breaking the law, including looking at the court process and sentencing guidelines.

4.4 There is little regulation to govern management standards in the PRS. There is no requirement even for a written tenancy agreement, for instance. Anyone can become a landlord without the requirement for training, licensing or background checks. Landlords failing to carry out repairs is a major problem across the whole market. Especially at the lower end, tenants can fear retaliatory evictions if they request repairs or make complaints. More vulnerable tenants should be better supported to hold their landlord to account.

4.5 There is a need for a new national policy framework to tackle these issues and concerted action by local authorities as part of this. Crisis is in favour of a national register of landlords, as proposed by the Rugg Review.12 Alongside national and local leadership to improve the PRS and proper enforcement, a national register could play a role in professionalising the sector, identify rogue landlords and make it easier to disseminate information, best practice and training to landlords.

4.6 Since 2006 in Scotland all private landlords must be registered with their local authority in order to let out their property. They must pass a fit and proper person test and adhere to certain minimum standards, including providing a written tenancy agreement. The Welsh government is preparing to introduce a similar system later this year when housing powers are devolved. The Government should look to the lessons of these approaches and consider how a similar system could be adopted in England.

4.7 Newham Council will this year begin to license all private landlords, under the selective licensing provisions in the 2004 Housing Act which allows local authorities to introduce a licensing scheme in all or part of their borough if there is either a surplus of housing or a persistent problem with anti-social behaviour. Crisis believes that the Government should consider the example of Newham and how effective licensing proves to be in driving up standards as well as the impact it has on the local PRS more widely. If it proves effective Government should consider giving local authorities the freedom to license landlords in their borough in a much wider set of circumstances in order to tackle poor standards in the PRS. This is already Liberal Democrat Party policy13 and we strongly recommend that the government considers taking it forward.

4.8 Professionalisation of the PRS could help drive up management standards across the board. There could be a role for RSLs in managing PRS stock alongside their social housing portfolio. Institutional investment, which the Government is keen to encourage, could also lead to more large scale, professional landlords.

5. HMOs

5.1 There is a great deal of demand for shared accommodation, particularly in cities and university town. The extension of the Shared Accommodation Rate (SAR) of housing benefit to single claimants aged under 35 is increasing demand for shared housing and placing more pressure on the sector. It is very important that property and management standards for HMOs are of good quality and licensing has a role to play in this.

5.2 It is important however, that as well as looking at standards, local authorities play a role in ensuring there is an adequate supply of shared housing in their local area to meet demand including for those restricted to the SAR. As noted above this is already a significant problem and we would be concerned if additional licensing had the impact of limiting supply.

5.3 For more vulnerable households, support is vital in making sharing work. PRS access schemes can play an important role here in matching tenants together and providing both pre-tenancy and ongoing help to ensure that the tenancy is sustainable.

6. Local Authorities and PRS Discharge

6.1 The 2011 Localism Act introduced provisions whereby councils can end the homelessness duty by placing homeless households in PRS accommodation without their consent. This means that we may see an increase of vulnerable individuals or families who have been homeless living in PRS accommodation. Crisis opposed this measure during the passage of the Act and raised concerns that it could lead to repeat homelessness.

6.2 The statutory guidance that has been put in place should help ensure that the housing offered is suitable at least on some measures. Unfortunately we do not believe it will be strong enough to prevent local authorities discharging their homelessness duty using out of borough placements, which can uproot households and force them to move miles away from their support networks. We know that councils are already making plans to do so—the most example perhaps has been Newham, who hit headlines after seeking to place homeless families on Stoke on Trent.14 However, other London councils such as Croydon, Westminster and Hammersmith and Fulham have taken similar steps.

6.3 We would also like to see local authorities committing to take into account affordability and only place households in properties that are affordable within LHA rates. We know from our experience of working with rent deposit schemes that placing tenants in properties with a rent shortfall risks them falling into rent arrears and facing possible eviction and repeat homelessness. We also strongly suggest that councils carry out physical inspections of the properties on offer to ensure they are suitable and seek to secure tenancies longer than the 12 months minimum. Local authorities should have a clear policy in place on the use of this power and must ensure that households who would particularly benefit from the security and stability offered by social housing are still offered a social tenancy.

6.4 If councils are to use the powers the new legislation brings they should also view it as an opportunity to really address the quality of all PRS stock in their area and take a more active role in managing it. Given the increasing use of out of borough placements there is a greater need for local authorities to work together to raise standards. Councils must always notify others if they are placing homeless households in their area. They must also consider how any discharge of duty into the PRS impacts on the work being done to support non-statutory homeless households into the PRS including by access schemes and through prevention of homelessness duties.

6.5 The Sustain research project15 carried out by Crisis and Shelter highlights that the support on offer makes a big impact to households’ experience of being placed in PRS accommodation. It is important therefore that if discharging duty into the PRS councils consider the support they offer households. Sustain found that whilst some councils are very good, too many just directed participants towards the PRS without helping them with benefit problems or dealing with landlord preconceptions. Issues like these must be overcome if the PRS is to be a viable option for both statutory and non-statutory homeless people.

7. Letting Agents

7.1 There is currently no legislation governing letting agent practices, yet both tenant and landlord organisations have long reported problems with private sector letting agents. These include the charging of exorbitant fees, failure to enforce basic health and safety standards in properties, and inadequate client money protection provisions. Scotland has banned the charging of fees by letting agents and Wales will be seeking to require letting agents to register and become accredited later this year. The government should consider regulation in England to deal with problems in the industry.

8. About Crisis

8.1 Crisis is the national charity for single homeless people. We are dedicated to ending homelessness by delivering life-changing services and campaigning for change. Our innovative education, employment, housing and well-being services address individual needs and help people to transform their lives.

8.2 As well as delivering services, we are determined campaigners, working to prevent people from becoming homeless and advocating solutions informed by research and our direct experience. Crisis has ambitious plans for the future and we are committed to help more people in more places across the UK. We know we won’t end homelessness overnight or on our own but we take a lead, collaborate with others and, make change happen.

8.3 Crisis has worked to open up access to the private rented sector for homeless and vulnerable housed people all over the UK since 1997. With the support of the Department of Communities and Local Government Crisis manages the Private Rented Sector Access Development Programme which funds and supports local community organisations across England to help single homeless people find and then keep a private rented home. We have already worked with 120 schemes across England helping 4000 into accommodation. We also work with the Scottish Government to support the development of rent deposit guarantee schemes. Crisis has a wealth of experience and practical resources on private renting available at www.privaterentedsector.org.uk

8.4 PRS access schemes support vulnerable people into PRS accommodation and work with landlords to help with some of the concerns they may have around letting to vulnerable tenants or those on housing benefit. Schemes can support tenants to live independently, offering pre-tenancy training and ongoing help. They build relationships with landlords and offer a liaison service should problems arise. Some guarantee rent deposit, removing the need for a large cash deposit whilst still assuring the landlord that their property will be maintained and looked after.

8.5 Our policy and research team have extensive experience of working on the private rented sector, including lobbying for the passage of the 2010 Mortgage Repossessions (protection of tenants) Act and producing research to demonstrate the impact of housing benefit cuts. We are conducting, jointly with Shelter, the Sustain research project, a longitudinal study of housing wellbeing in the PRS. Funded by the Big Lottery, the three-year study is designed to fill an important evidence gap on the PRS by exploring the long-term experiences, outcomes and wellbeing of homeless people who are helped to move into the sector by a range of support agencies. The research will support future policy and service development in the sector.

January 2013

1 English Housing Survey (2011)

2 BHSF (2010) Tenure Trends in the UK Housing System

3 Heriot Watt University and the University of York (2012) The Homelessness Monitor

4 Report on the 2009 Consumer Conditions Survey: Market research survey conducted by Consumer Focus March/April 2009 IpsosMORI

5 Crisis (2012) Hitting Home: access schemes and the changes to Local Housing Allowance

6 Crisis (2012) No room available: study of the availability of shared accommodation

7 Heriot Watt University and the University of York (2012) The Homelessness Monitor, Crisis

8 LSL (2012) Buy-to-Let index

9 Shelter (2011) Generation Rent: learning from different rental markets

10 ARLA members survey of the PRS, second quarter 2011

11 Crisis and Shelter (2012) Sustain interim findings

12 Julie Rugg and David Rhodes (2008) The Private Rented Sector, its contributions and potential, University of York

13 “Lib Dems adopt 300,000 home policy”, Inside Housing 26 September 2012

14 http://www.bbc.co.uk/news/uk-politics-17821018

15 Crisis and Shelter (2012) Sustain interim findings

Prepared 16th July 2013