Communities and Local Government CommitteeWritten evidence submitted by the Chartered Institute of Housing

1. Introduction

1.1 CIH is the professional body for people involved in housing and communities. We are a registered charity and not-for-profit organisation. We have a diverse and growing membership of over 22,000 people—both in the public and private sectors—living and working in over 20 countries on five continents across the world. We exist to maximise the contribution that housing professionals make to the wellbeing of communities.

1.2 The Chartered Institute of Housing (CIH) welcomes the opportunity to respond to the Select Committee Inquiry into the private rented sector (PRS). CIH has long been seen as representing only professionals in the social sector; however, we have a growing number of members working within the private rented sector or in local authorities (LAs) dealing with the PRS. At a time when nearly one fifth of households finds accommodation within the PRS, we are pleased that the Select Committee and CIH should turn its attentions towards this part of the housing market.

1.3 Our response is formed by engagement with members and the knowledge and experience of policy and practice team within CIH. We will respond to each consultation question in turn focussing on the areas of policy we feel deserve additional scrutiny.

1.4 CIH believes that the private rented sector is a resource that is frequently under-valued and overlooked in strategies and plans of local and national government. We were pleased however, that the Housing Strategy 2011 contained a firm commitment to increase institutional investment in the sector and increase supply. The emphasis on working with the sector to drive up standards and improve consumer awareness, at measures to deal with rogue landlords and to encourage local authorities to make best use of the powers they already have is welcomed; however we feel this should now go further.

1.5 We need a coherent national policy on the PRS which does not just look at new supply but at how the sector operates and the markets within it. This should also be coupled with local policies to ensure the wider market locally provides the right mix of housing to suit growing expectations.

1.6 There is already a vast amount of evidence available to the select committee on standards, quality and regulation of the private rented sector, with a number of independent reviews having been conducted within the last six years. Evidence and practice will not have changed substantially since both the Law Commission (2006) and Rugg Review (2008) so the evidence presented within those reports remains highly relevant today. However, we would like to see this evidence base further developed to encompass some of the issues we highlight in this response, so that we can build a coherent picture and create evidence based policies to deal with what in some areas is a changing policy and economic landscape.

1.7 We wish to see an effective private rented system which encompasses the manner in which tenants access properties. Bringing letting and managing agents within the context of the Estate Agents Act 1979 to create a single system for residential property would prevent consumer harm, increase understanding and ensue letting agents met minimum professional standards. In doing so, we would also wish to see a coherent system of regulation which addresses issues of consumer choice/power and offers adequate protection for tenants and landlords.

2. Background to the PRS

2.1 The PRS accounts for some 17% of the 22.4 million dwellings in England (EHS, 2012 Housing Survey) and is for now, on a par with the social rented sector. This means however, that the sector is growing quickly—indeed figures from the English Housing Survey Headline Report, 2010–11, show that the number of dwellings in the PRS increased by nearly two thirds between 2001 and 2011. Over 3.5 million people rent in the private sector; of those around to thirds go through letting agents to access the sector.

2.2 The PRS is no longer the prevail of simply student housing; more and more young professionals and families chose to live in the sector (1.1 million families with children are housed in the sector),(ONS, 2011 Census) and an increasing number have little choice but to live in the PRS due to high costs of owning a property for example.

2.3 Given the size and nature of the PRS, it is unsurprising that there are over 1.4 million landlords (DCLG, 2010, Private Landlords Survey). The large majority of landlords are private individuals who own a single property, have no or little relevant experience or qualifications and that over half had let for 10 years or less (DCLG, 2010, Private Landlords Survey). Of those landlords, Shelter report only 487 prosecutions last year for poor quality housing or standards. And finally, over 1 million landlords use letting agents to find a tenant or manage the property.

2.4 According to Savills research in January 2013, in 5 city locations in England, the number of PRS households has risen by 77% in ten years—in Birmingham, Leeds, Manchester, Liverpool and Bristol and now accounts for 23% of all households in these areas. Consequently, this increase has significantly altered the housing market in these areas. Outside of London, the rental market has been largely constrained by the wider economic outlook and it is clear that the profile of renter in London is different to that in the rest of the country. We will not dwell on these issues in this response.

3. Consultation Questions

The quality of private rented housing and steps that can be taken to ensure it is of an acceptable standard

3.1 The quality of the PRS is determined by a number of factors, of which, the property and the experience of landlords are key.

3.2 Over half of properties in the sector was built before 1945 (including 40% before 1919) in comparison to 21% of owner occupied dwellings which means old stock can fail modern standards. With 37% of PRS properties failing the decent homes standard (in 2010) there remains an unacceptable level of housing stock in this sector which is not safe, secure, warm or decent; this is despite the decent homes standard and associated funding to remedy the quality and standard of stock in the PRS. As this figure relates to 2010, then given the growth in the sector thereafter, absolute numbers of properties failing to meet decent homes are likely to have risen.

3.3 From 2018, renting out a property which has an F or G energy performance rating will be banned; detailed regulations on this are forthcoming. However, what will happen to those properties? Will they simply slip into the owner occupied sector with associated repair management difficulties, or will landlords simply fail to act, leaving tenants in poor quality conditions?

3.4 We do not believe more regulation in the area of standards and the housing health and safety rating system for example is required. Rather we support the previous housing minister in his calls for local authorities and others to make full use of existing powers to tackle poor conditions in the sector. We firmly believe there are already powers sufficient within local authorities to tackle poor housing conditions, standards and management practices but are aware that too often, enforcement is not as speedy or effective as it should be especially in areas where financial resources are stretched. In these cases, local authorities must use existing alternatives such as accreditation schemes to bring out those under the radar and work proactively with tenants, landlords, letting agents and others to identify and deal with, poor practices.

3.5 The provision of a good housing market operating efficiently locally requires local authorities to understand the detail of the PRS alongside social housing; where this does not happen sufficiently is cause for concern. However, we are realistic that local authorities, too often, simply do not have the required capacity to deal enforce standards; many simply do not know enough about who their landlords are; the quality or standards of stock; or where those properties are located.

3.6 Social landlords are increasingly being encouraged to think about the provision and/or management of PRS properties and the role of letting agents within their portfolios. A number of social landlords already operate social lettings agencies and while some question the extent to which wider direct engagement in the provision of homes for private rent, meets their aims and core purposes, others have relished the opportunities offered to enter such alternative markets. Some examples include: South Yorkshire Housing Association which recently bought Rotherlets in Rotherham with the aim of improving the quality of service in the sector; Regenda Group bought McDonald Property Rentals in deals in December 2012. Places for People bought Touchstone in November 2012 (a private rental company) to add to its existing PRS subsidiary Blueroom (which has over 3000 PRS properties within its portfolio).

3.7 CIH believes social landlords have a lot to offer in this area particularly in terms of expertise and knowledge in the management of properties over diverse areas.

Levels of rent within the PRS—including the possibility of rent control and the interaction between HB and rents

4.1 Rent levels in the private rented sector generally reflect market conditions; they are susceptible to regional and even local variation as well as seasonal variation. Indeed rent has a ceiling per area; people will not pay more than they need per bedroom or property.

4.2 Understanding rent levels across England is rather problematic as past statements from the prime minister, the previous housing minister and rental agencies attest. Collected in different ways, using variations in sample size, with properties being relet not with tenants in situ; and using advertised rents rather than actual rents inevitably leads to difficulties in determining actual rent levels.

4.3 The lack of official data on the sector is improving; the National Statistician Jil Matheson is proposing the use of Valuation Office Agency (VOA) data to provide England, Wales and Scotland wide rental statistics, with further work to be undertaken to define measures in Northern Ireland. Such statistics are based on a very large sample size, on actual rent paid and on new and existing market lets. Valuation Office Agency data shows in 12 months to September 2011, average monthly rents in England were £696 while 12 months to September 2012, average monthly rents were £705. While this seems a fairly minimal increase per property, this represents an increase of 1.3%, less than the CPI measure of inflation of the same time.

Rent control and tenancy length

4.4 We understand the arguments related to rent control but feel that there needs to be a conversation on how households’ tenancies interact with rent. There is some appetite in the sector to look at longer term tenancies in order to offer stability and certainty to both tenants and landlords. However there are concerns here around linking tenancy length to rent increases in tenancy agreements and we recognise the drawbacks of intervening in rent control in a free market.

Rents and housing benefit (HB)

4.5 We are concerned at increasing number of reports of landlords not wishing to offer properties to those on benefits especially as cuts to HB means the pool of properties available to claimants is growing smaller. We understand one reason for landlords reticence, is mortgage lender’s risk profiles and placing restrictions on landlords as to who they may house. This practice needs reviewing in light of a growing PRS and the changes to universal credit this year.

4.6 We are also increasingly concerned with the unhelpful argument that suggests HB is paying landlords to retain properties in poor condition. It is government policy to encourage personal responsibility of finances especially concerning benefit payments; hence the payment of HB should be seen as the tenants’ money not the landlord. We believe no one should have to live in poor quality housing, whether they are an HB tenant or not. In 2010–11, 25% of households in the PRS received Housing Benefit, compared with nearly 20% in 2008–09 (CLG, 2010, English Housing Survey). In 2010, we conducted research with BPF to understand what was causing the increase in housing benefit spend. Almost all of the increase could be attributed to an increase in caseload and in particular to more expensive housing areas.

4.7 Since then, research has also found that over 90% of new claimants for HB are in work. What is not clear, however, is links between those on HB and properties in poor condition; further research may be needed in this area,

Regulation of landlords; including steps that can be taken to deal with rogue landlords

5.1 In 2008, the Rugg review recommended registration of landlords although Labour ruled this option out due to cost a number of years ago. There appears limited evidence since then that adopting such a practice would be feasible or practical given the cost and nature of the sector and that it would be onerous to administer.

5.2 We do see the benefit of someone, somewhere knowing who landlords are in order to communicate effectively with them, to ensure tax revenue is paid and to offer assurance to tenants. In the social sector, a registration scheme with the HCA works well; but the PRS is not a social landlord and we can see limited chance of the HCA becoming the regulator for private renting.

5.3 Scotland has a national registration scheme which has been operating for a number of years. It would be prudent to review the efficiency, cost effectiveness and success of such a scheme prior to any consideration of implementation in England.

Rogue landlords and consumer protection

5.4 Tenants currently do not have a lot of power to challenge landlords behaviour as many simply do not feel safe or secure in doing so. This is not the case in other countries and we would suggest government could grasp the mettle on this now, to review consumer protection in order to deal with rogue landlords and poor practices.

5.5 The current emphasis on rogue landlords is welcomed, however, like many organisations, we query the terminology used. Rogue landlords are breaking the law in the activities they conduct and should be treated accordingly for the criminal activity they undertake.

Self regulation/accreditation

5.6 In the absence of a register of landlords, accreditation plays a key role. This helps play an important role in improving property standards and management in the PRS via the uptake of information on legislation and the continuing commitment to professional standards for landlords. With such commitments, we would welcome moves to ensure accreditation schemes are available to landlord across the country.

Challenges of the market?

5.7 Drivers to make accreditation work in some areas are not the same in others; therefore the circumstances and location of PRS properties affects the take up of accreditation schemes. Self regulation, including accreditation schemes and regulation by industry trade bodies, has proved to be an effective tool in raising knowledge and standards. However, its main weakness it that it is self-selecting and therefore tends only to be taken up by those landlords who could already be considered “good” with perhaps better quality properties and adequate legal knowledge. Those who chose not to step forward and join accreditation schemes are therefore more likely to be so called “rogue” landlords. Attention is required to increase standards and awareness with those landlords; however this, like compulsory licensing of all PRS properties within an area is not necessarily the answer either as it forces “rogue” landlords to opt out, remove themselves from that market or potentially take their business elsewhere.

Regulation of letting agents; including agents’ fees and charges

6.1 As noted earlier, a growing PRS has also led to an increase in landlords, many of whom may not have the experience, knowledge or skills to act as full time landlords and indeed do not know or understand the law. That is where a professional organisation can step in to provide a good quality service to that landlord and subsequently tenant. With around two thirds of tenancies now involving a letting agent, getting a good service is vital for both the tenant and landlord and we believe the majority do offer such a service.

6.2 At present, letting and management agents do not need professional qualifications to set up in business and need not to provide safeguards for the consumer either tenant or landlord. We remain convinced therefore, that the current system for letting and management agents is unsustainable and in general operates not in the best interests of either the tenant or the housing market as a whole.

6.3 Hence, we would urge the committee to revisit the recommendations of the Rugg Review; that proposed the regulation of letting agents.

6.4 In the meantime, we support the Royal Institution of Chartered Surveyors (RICS) in calling for government to introduce a single regulation for residential property aimed at preventing consumer harm and increasing consumer understanding. This would seek to ensure letting agents met minimum professional standards before they start trading which is not currently the case. It would also ensure appropriate safeguards with clients’ money (for example to have Client Money Protection Insurance) and consumer redress systems. For too long it has been possible for a letting agent who also acts as an estate agent to be banned from estate agency activities, yet not from the letting business. This needs rectifying; we are supporting RICS and Baroness Hayter’s amendments to the Enterprise and Regulatory Reform Bill to this end.

6.5 Moves to regulate letting agents would provide greater stability and security for tenants and landlords alike. However, in the meantime, landlords need to act in a more discriminatory manner to only choose those letting agents which adhere to professional standards such as those offered by The UK Association of Letting Agents (UKALA), The Association of Residential Letting Agents (ARLA), National Approved Lettings Scheme (NALS) or the Royal Institution of Chartered Surveyors (RICS). Equally, we would urge professional bodies to regulate and enforce high standards across the industry; this would seek to close the gap between unsatisfactory practices and full on legislation that may take a while to come to fruition. And we would urge local authorities’ trading standards officers to prosecute agents not complying with the law.

6.6 Letting agents in Scotland and Wales already operate under more stringent conditions than those in England and all agents in Northern Ireland, now come under a statutory regulator. It would be helpful if there were further information on how this has affected the market.

6.7 Concerning agents’ fees and charges, we believe prospective tenants should be able to work out the exact charges they will need to pay—upfront before they have signed a tenancy agreement. Setting a clear and transparent fee structure would help this. We would also suggest the need for increased consumer power to challenge unjust fees, including consumer redress using the ombudsman system.

6.8 We would like to see greater expectations of having a more professional PRS; supporting recognised qualifications for landlords, letting/managing agents and ensuring that those qualifications are used.

The regulation of HMOs, including the operation of discretionary licensing schemes imposed by a local authority for a category of HMO in its area

7.1 Landlords have a range of tools in their basket to tackle and identify PRS properties and in particular HMOs. The increasing number of accreditation schemes, licensing schemes, awareness groups, ombudsman schemes—all present a complicated picture to both tenants and landlords. Minimum standards exist for HMOs; what is not clear however, is the extent to which these standards are articulated clearly to tenants or landlords. It is right that both tenants and landlords should be aware of these standards and what to expect and we would wish to see greater awareness of this.

7.2 There appears to be an appetite to address PRS properties on a localised basis; with Newham and now Liverpool consulting on compulsory selective licensing for all PRS properties (50,000 in the city). We would request that authorities undertaking such approaches are open in their findings and to see whether they have achieved their specified goals—to improve standards and quality in the PRS in their areas and to tackle rogue landlords. In this respect, details about the cost effectiveness for the council or indeed the landlord would be helpful.

Tenancy agreements and length and security of tenure

8.1 With the PRS now accounting for a growing number of families it is perhaps inevitable that there is a call for the review of tenancy agreements within the sector in particular focussing on security of tenure and length of residency. We would urge the committee to review the proposals put forward by the Law Commission’s 2006 report on Renting Homes. This offered proposals for a simplification of tenancy agreements and the rented sector. We still believe these proposals would enable greater understanding and awareness of legal rights and responsibilities by tenants and landlords alike.

8.2 Should longer term tenancy agreements be appropriate, there are a number of significant obstacles to overcome; this includes issues regarding covenants or restrictions on mortgages and insurance issues for landlords, let alone issues relating to ending tenancies and repossession activity. We agree however, that the provision of longer-term tenancies would offer greater security for tenants and landlords alike. It is generally backed by tenants who see longer tenancies as a means of settling in an area and to plan ahead, and is liked by some landlords who would seek more stability in their property portfolios.

8.3 However, questions arise when tenants fail to pay rent or face difficulties in paying rent; although it should be noted the vast majority of tenants do not default. The current approximate timescale for a landlord to regain possession of a property in these circumstances can vary but around four–six months is standard; that is four–six months of lost revenue which of course, no landlord wants to lose.

8.4 We firmly believe every effort and protection needs to be in place to ensure tenants have access to good quality rented accommodation and that should an issue arise with payment, that they are treated fairly and firmly.

8.5 In amending the status of tenancy agreements to enable a longer term proposition; it would also be necessary to balance tenants’ interests in being able to leave a property early with those of landlords’ ability to gain (vacant) possession.

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

9.1 The PRS already plays a key role for local authorities in connection with their homeless duties and in meeting their temporary accommodation needs. In many areas however, the discharge of homelessness duty into the private rented sector is a political hot potato and one in which media are starting to shine a light on.

9.2 One of the aspects of the homeless (suitability of accommodation) order is that it requires local authorities to assess the suitability of the property in advance and to ensure the property meets specific quality standards.

9.3 In our view, a number of local authorities simply will not utilise this power and will carry on using existing mechanisms and strategies for housing homeless people. Some will take a targeted approach on the basis of demand for social stock, stock profile and vulnerability of applicants and some take an approach based on the supply of PRS accommodation in their area.

9.4 The impact of welfare reform in terms of an applicants’ income and expenditure will also weigh into these considerations and there is no doubt that vulnerable people (for who those owed the homeless duty are most likely to be) require extra support that may not traditionally be available within a PRS let. Such support may include ensuring tenancies do not fail, the provision of floating support services, debt or welfare advice. Indeed, if LAs are offering out of borough lets, what support will be available to that person away from their ordinary routine?

9.5 There is also an issue around expecting tenants to find money for a deposit or rent in advance. PRS landlords generally require rents to be paid calendar monthly in advance, yet local housing allowance (LHA) payments are generally paid in arrears. Tenants in receipt of LHA are often on very low incomes and may struggle to afford the deposit required by a landlord. Local authority bond schemes and guarantees are vital tools to support vulnerable tenants in this manner.

9.6 One final consideration here is the shared accommodation rate (SAR) extension to under 35’s. Research by Crisis in January 2012, reported young single people being able to access just 1.5% of the properties on the market at that time due to the SAR costs; implying there is simply not enough bed-space to provide the accommodation that is needed. With the ability for local authorities to now discharge their homeless duties into the PRS, there could be a knock on problem in finding suitable accommodation for this age group.

4. Conclusions

4.1 CIH believes the housing market should offer everyone the opportunity for a decent, safe and affordable home regardless of sector and we welcome the opportunity the select committee is offering to shine a welcome spotlight on the private rented sector given its increasing importance in the housing market today.

January 2013

Prepared 16th July 2013