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Communities and Local Government CommitteeWritten evidence submitted by LandlordZONE

1. LandlordZONE® Evidence Submission—Introduction

1.1 LandlordZONE® is a UK based independent commercially operated (owner Parkmatic Publications Limited) website for landlords involved in letting property—novice and experienced alike. It is also an on-line community with a Forum, News, Blogs etc attracting over 2.5 million website visits and currently over 12 million page views per annum. Operating successfully since 1999 we have a subscriber base of over 100,000 landlords and letting agents. We are in daily contact with landlords, letting agents, tenants, property managers, suppliers, and industry professionals and have been so for over 13 years.

1.2 Founder and Editor Tom Entwistle has extensive management experience and over 30 years’ experience as a landlord of residential and commercial property. He has a business degree and a master’s degree in Management Sciences from UMIST/MBS, a post grad Diploma in Marketing from the Chartered Institute of Marketing and is a Fellow of the Royal Society of Arts. Tom is a regular contributor to rental industry publications and a regular speaker at property and landlord events.

1.3 The evidence (mainly in the form of opinion) put forward in this submission is based on our own experience and in particular opinions expressed by those of our subscriber members who responded to our invitation to comment for the purposes of this submission. The submission is not an attempt to put forward opinion as fact, but to present informed opinion. I must emphasise that this submission does not purport to represent the views of all of our members. Ultimately, these are the responsibility of the author—Tom Entwistle.

1.4 The landlords we deal with range from the many thousands in the UK, from those who let a single room in their homes (to lodgers), those who let out their own home when moving or working away, buy-to-let investors with one or a small portfolio of lets, HMO landlords with one block or many blocks of bed sits or student lets, those running holiday cottage businesses, the full-time landlords with large portfolios or corporations running many hundreds of tenancies, to those ex-pats who live in over 50 countries around the world, owning and renting property in the UK. This is a very diverse industry which is largely impossible to fully communicate with or quantify—government estimates claim around 1 million landlords in England and Wales. LandlordZONE® has one of the biggest landlord contact data bases in the UK.

1.5 The Private Rented Sector in 2013 has grown to be one of the most important multi-billion pound industries in the country, supplying accommodation and work to more people than all the local authorities’ council housing combined. Renting, as a major mode of accommodation, is here to stay in the 21st century and is set to grow considerably.

1.6 Today’s landlord in not in one of the most revered occupations, indeed the term to many carries a Dickensian era image and stigma compounded in the 60s by the likes of Peter Rachman, which is hard to erase. The occupation probably ranks somewhere alongside used car salesmen, journalists and, dare I say it, politicians in terms of popularity. But the typical landlord is no longer the stereotype wealthy landowner, more likely the striving middle class worker wanting to improve his or her pension nest egg and working hard to provide a good future for their family, whilst at the same time providing a very valuable community service.

2 The quality of private rented housing, and the steps that can be taken to ensure that all housing in the sector is of an acceptable standard?

2.1 By far the majority of landlords provide decent accommodation for their tenants. Indeed, competition between landlords in most areas means that landlords must provide good accommodation and modern facilities if they are to attract and retain good tenants at market rents.

2.2 The vast majority of good landlords abhor the activities of a minority of bad and rogue landlords and feel aggrieved that they are allowed to get away with their bad practices.

2.3 Good landlords would support and encourage local authorities with any measures that they can use to tackle these problems, so long as these do not adversely affect the majority of good landlords who are already following good standards and practices.

2.4 Many good landlords are members of local authority accreditation schemes and landlord associations. They maintain their properties and follow best tenancy management practice, keeping themselves up-to-date with and fully implementing the many rules and regulations. These landlords deserve all the encouragement they can get as they are providing a very valuable community service as well as providing accommodation above the minimum standards required by law and operating their businesses in a professional manner.

2.5 There already exist very adequate measures within the various Housing Acts, Landlord and Tenant Acts and safety legislation to deal with properties and the poor management methods of those landlords involved. Anecdotal evidence shows us that many local authorities need to make far better use of the provisions that are already available to them in actively pursuing enforcement to ensure compliance by a relatively small number of rogue landlords. Granted, some areas are more affected than others.

2.6 To be blunt, many local authorities are toothless in the way they deal with problem landlords and whether it is fear of being accused of targeting minority groups, or exacerbating an already critical housing situation, they at best simply ignore and at worst tolerate poor standards, overcrowding and illegal accommodation modes such as “beds in sheds”.

2.7 We work with and support those excellent local authorities that are trying to help and train their landlords through local forums and advice activities. We also support initiatives such as landlord accreditation schemes which help train landlords and set and monitor management and housing standards. We also are very supportive of the landlord associations such as the Residential Landlords Association and the National Landlords Association who are providing excellent resources and support for their landlord members. Voluntary schemes such as these we think are far more efficient and effective than more regulations and government inaction when it comes to enforcement and improving standards.

2.8 We also are supportive of the Energy Efficiency schemes which the Government is introducing which allow landlords to bring their properties up to efficient energy standards over time and cost effectively.

2.9 It is common knowledge that local authorities are increasingly short of money and resources to implement the measures they already have. They don’t have a good track record in the “good times”, so the chances of them being able to effectively implement even more onerous regulations imposed on them by government in the future are, in my opinion, very limited.

2.10 Several surveys have shown that private landlords receive a lower proportion of tenant complaints than do local authorities through their provision of council housing. How many council workmen are prepared to turn out to their tenants in the evening or at week-ends when a boiler breaks down, there is a burst or the electricity fuses? None! Believe me, as a private landlord over a 30 year period this is a common occurrence. Good landlords see these incidences as opportunities to prove to their tenants what good landlords they are. A quick and effective resolution of problems like these not only delights their tenants, it cements a long term relationship which encourages tenants to stay on as long as possible.

2.11 For a clear and concise exposition of the problems facing government, local authorities, businesses and the citizenry now and in future I would highly recommend anyone who is able to read a report published January 2013 by the authoritative Boston Consultancy Group (BCG) titled: Ending the Era of Ponzi Finance: Ten Steps Developed Economies Must Take. http://goo.gl/cxQ6h This really spells out what we are up against post credit crunch and beyond, and in my opinion, the futility of government churning out and imposing on wealth producers more and more regulations.

3. Levels of rent within the Private Rented Sector—including the possibility of rent control and the interaction between housing benefit and rents

3.1 With the exception perhaps of Central London rent increases have not kept up with inflation in many areas in England & Wales. Indeed rents have been falling in some areas and some buy to let landlords are finding it difficult to make a good return on their investments given the recession, with tenant redundancies, unemployment, increasing rent arrears and void periods. Some landlords right now, given the opportunity to choose again, would have put their money into a building society rather than invest in a buy-to-let.

3.2 Landlords want to keep good tenants in their properties as long as they possibility can. If rent is being paid on time and the tenants are respecting the property, then landlords will do all in their power to retain those tenants. This often extends to not increasing rents for several years to encourage a tenant to stay. After all, a vacancy and a long void period, plus re-letting costs, can cost a landlord far more than the revenue they lose by allowing rents to fall behind market levels.

3.3 Rent Affordability is being affected by slow or zero wage growth, higher energy costs, food price inflation, unemployment and the inevitable long-term cut backs in social assistance—see the BCG [2.11] report. Pressure is on renters due to the increasing demand, shortage of affordable housing and the high cost of buying—mortgage deposits at a minimum of 25% plus high set-up fees from the banks. Add to all that the ever increasing costs of operation for landlords, insurance, and costs imposed by regulations such as mandatory and discretionary licensing, and the inevitable result is either higher rents or squeezed returns.

3.4 Whenever and wherever rent controls have been introduced they inevitably distort the market mechanism and the result is misery for the very people they were intended to help. Rent controls would have an immediate impact creating “landlord flight” out of the market, exacerbating the housing crisis. Rent controls mean that over time renters tend to rent accommodation which is bigger than they need, purely because they can afford it, thereby reducing supply, job mobility is impaired as favourable rents mean people just stay put. Landlords receiving low rents and lack of competition for tenants mean than there’s no incentive to keep the housing stock up to standard.

3.5 For evidence of the impact of rent control look no further than the Rent Act era (which prompted the Peter Rachman debacle) prior to the conservative government’s introduction of the Assured Shorthold Tenancy (AST), which revolutionised renting in the UK. Rent controls decimated the private rental market prior to 1988. When I started letting property just after the introduction of the AST I would receive 30 plus enquiries for a rental the first day it was advertised—this was the level of pent-up demand because landlords had left the market completely. Surely, this generation does not have to learn that 30-year lesson all over again?

3.6 The open market is a transparent and cost effective way of setting rent levels as they should be. Rather than trying to implement an expensive and ultimately impossible gigantic planning system, which would create all sort of negative anomalies, government should concentrate on creating the conditions for a truly efficient housing market, either buy building more affordable housing or by bringing in measures which encourage developers and landlords to do it for them.

3.7 With increasing pressure on housing assistance and social security payments of all kinds, in the future it is inevitable that many claimants will experience hardship. A shortfall in their rent assistance will have to be made up from their own resources; they either move to better jobs or cheaper accommodation.

3.8 The issue of affordability is best addressed by increasing supply, not by controlling rents. Rent control will make the situation far worse in the long run. Increasing demand, particularly in London, is pushing up rents. If local authorities are prepared to work with the private sector, there is no reason why the supply situation can’t be addressed fairly quickly.

4. Regulation of landlords, and steps that can be taken to deal with rogue landlords; also the regulation of letting agents’ fees and charges

4.1 Do we really want or need more and more regulation of activities? The more aspects of our lives that are regulated the more restrictive employment and entrepreneurial activities become, the greater the cost burden on society, and very often there is little or no evidence of improvement on the situation prior to all of this.

4.2 Existing regulation particularly that regarding HMOs is so complex and ambiguous that even local authorities as well as landlords have difficulty interpreting, let alone implementing and enforcing it. This all results in situations where rogue landlords operate with impunity and some careless landlords operate completely unaware of their responsibilities. See 2.5 above.

4.3 There is plenty of evidence of a minority of bad letting agents. A letting agent’s job is a very difficult one and they come in for much criticism, but most are honest and want to give a good professional service to their landlords. Again, an expensive system of regulation will not solve the problem; it will simply increase costs which the landlords and eventually the tenants will bear in increased rents. The are several highly respected professional bodies within the letting industry including RICS, ALRA, NAEA, NALS, plus the Property Ombudsman scheme all of which offer mechanisms for imposing rigorous codes of professional conduct, which can be used and applied to protect their clients and renters.

4.4 It would be beneficial in my opinion that all letting agents are compelled to join one of the associations within a short period of setting up a new business, with an affordable form of membership for the small operator in the its early stages. In particular a scheme enforcing client accounts and client money insurance bonds/protection is needed. Many new letting agents are one-man bands who cannot possibly afford professional indemnity cover and professional association membership in the early stages, but many grow to become substantial businesses. A means of providing protection in these early stages is very desirable.

4.5 Again, there is much anecdotal evidence of the impotence of local authority Trading Standards departments in tackling rouge letting agents.

4.6 Controlling agent fees has the same effect as rent control—it distorts the market and will inevitably have all sorts of unintended consequences—let the businesses operate in a transparent and competitive environment and let government get on with providing the conditions for this rather than trying to impose lots of expensive regulations and controls.

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

5.1 There is without doubt a need for tight control of where HMOs are allowed to operate and how they are operated. On the other hand, there is a severe shortage of housing for the type of tenant catered for in this type of accommodation. As has been said already, legislation brought in to control this type of housing is over complicated and typically poorly enforced [2.2] by local authorities. Local authorities need to be more strategic, cooperate, encourage and work more closely with landlords willing to provide this type of accommodation.

5.2 Simply introducing more complex regulation without the will to enforce what’s already there is not only counter-productive, it’s wasteful of society’s resources. Likewise, introducing discretionary licensing schemes does little to improve standards and will discourage investment and the future supply of much needed shared accommodation. More often than not the full impact of this regulation is felt only by the good landlords, as the schemes lack the teeth to deal effectively with the rouges. The result will be to create more and more homelessness as landlords opt out by either selling up or offering a different type of accommodation.

6. Tenancy agreements and length and security of tenure

6.1 The default tenancy, following the demise of the Rent Act tenancy is now the Assured Shorthold Tenancy Agreement (AST).

6.2 Since the introduction of the AST under the housing Act 1988 this has been a resounding success and a major factor in the revival of the Private Rented Sector in the UK. In my opinion, despite many landlords feeling that the legislation favours bad tenants, this is a balanced piece of legislation which has stood the test of time and which provides good and adequate protection for tenants against bad landlords. At the same time it gives landlords the protection and incentive they need to continue to operate and to invest vis-a-vis bad tenants.

6.3 In my experience of letting to working and professional tenants for over 30 years, 95% of tenants are good to excellent. They look after the property and pay their rent on time, appreciating their good accommodation and leaving it as they found it, subject to normal wear and tear. It’s the other 5% of really bad tenants who are prepared to abuse the system and give landlords nightmares. Under the current legal system, using the county courts, it can take up to 9 months to evict a really determined “tenant from hell”, one who knows a little about the law and their “rights”.

6.4 A six month tenancy is fairly short, but landlords want tenancies to last as long as possible. Good landlords do not want to evict good tenants, ever. Experienced landlords let on a short term tenancy until they know they have a good tenant, and then most are happy to either extend the tenancy length or allow the tenant to stay on indefinitely on a periodic tenancy. I’ve housed some tenants for many years.

6.5 If compulsory long term tenancies are introduced, then unless the courts and eviction process can be considerably improved from what it is now, very unlikely as many over burdened county courts are being closed in the cut backs, I for one, along with many other private landlords, would be looking to sell up and let someone else have the hassle.

6.6 Evictions occur not because of some whim of the landlord but more specifically for reasons such as rent arrears, job losses, and the breakdown of relationships and anti social behaviour. It is simply not possible for the average private landlord, with mortgage payments to make, to finance a situation where no rent is being paid for an extended period. The length and complexity of the eviction process already results in some landlords having their rentals repossessed through enforced mortgage payment arrears.

6.7 These are additional reasons why I feel government should be very wary of changing the existing balance with private tenancies:

The AST has a long history of successful operation and although not all landlords or tenants are happy with it, it suits the majority—the law abiding tenant and the good landlords. It’s the small minority of bad tenants and landlords that one way or another abuse the system. Give more power to one party or the other and this balance will be upset and abuse will be rife. Landlords will leave the market in droves.

Currently, mortgage lenders’ terms and conditions for buy-to-let mortgages restrict the type and length of a tenancy, and for very good financial reasons—they want to protect their interests just as do landlords. Long tenancies are anathema to that.

Whereas with a commercial tenancy the value of the property increases with the length of the tenant’s lease, providing the tenant is a good covenant, with residential the opposite is the case. It’s simple business economics. Residential property sells best with vacant possession. Many landlords do not want to tie up their capital for extended periods because they do not know what the future holds. Where the business landscape changes for the worse, and increasing regulation is one example, where profitability is affected, landlords want the flexibility to be able to sell an investment and/or trade up or down relatively quickly.

Introducing a compulsory longer term tenancy could put the recent success of the Private Rented Sector in jeopardy. Government need to think long and hard before introducing such a measure if they wish to avoid private landlord flight and an even bigger housing crisis than they have now.

The only way I see a longer term tenancy option being acceptable to landlords is if the eviction process can be streamlined to, for example, removing a rouge tenant within one month—guaranteed! I just cannot see that ever happening in the UK, even though it has proved feasible in other countries such as the USA and Australia.

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

7.1 Councils have a major problem. Enforce housing rules more strictly and deal with the many abuses more efficiently and they simply increase their own problems—housing shortage. Demand for rental accommodation from the working population puts more and more pressure on existing availability and leaves far less for social housing and government supported accommodation. Further, threats of regulation such as Article 4 discretionary licensing discourages private sector investment and exacerbates the problem.

7.2 Councils should work with the private sector to strategically plan for future provision and encourage/incentivise private investment.

Conclusions

Given the importance of the Private Rented Sector to future housing provision in the UK, and the exponential likely future demand for renting, it is too important an industry to risk being stifled and tied up with more and more red tape.

My experience in management and business over many years is that systems that work effectively and efficiently are simple ones—the more complex the rules, regulations and systems that are made (example HMO Regulations) the absolute less chance there is of people complying, and the more time, effort and resource wasted interpreting and arguing about these rules. Regulation, where it is needed, fine, but keep it simple, straightforward and to a minimum.

The Private Rented Sector has done a great job in providing the much needed accommodation as the social housing sector has declined. Given the current financial environment, likely to continue well in to the future, it is not likely government will ever have the resources to improve provision without private investment. If this is to occur, landlords must have the confidence to know that their interests are taken into account and they are being supported. Threats of further regulation, licensing and control, and compulsory long term tenancies will not do that.

Recommendations

No compulsory registration or licensing for landlords or letting agents.

No compulsory extended tenancies; perhaps voluntary ones with guaranteed support from the authorities and radical improvements in the eviction process.

Voluntary but monitored training and qualification/certification schemes run in conjunction with existing professional bodies and the landlord associations.

Councils to review their strategies on HMO and affordable housing provision and work more closely and collaboratively with private landlords to streamline planning issues and encourage and incentivise private investment.

Central government and councils to streamline wherever possible the structure and interpretation of the existing rules and regulations and to more effectively enforce them against rouge landlords. Councils to radically improve their game when it comes to enforcement and management of existing mandatory and discretionary licensing schemes. Councils to use their existing powers to more effectively and quickly tackle bad trading standards of rouge letting agents.

Those who desire change and improvement, in my opinion, need look no further than Boris Johnson’s proposed THE MAYOR’S HOUSING COVENANT: Making the private rented sector work for Londoners http://goo.gl/fnlpV I think this is a well thought out and eminently sensible scheme potentially acceptable to both landlords and tenants and an ideal model for a national way forward.

January 2013

Prepared 16th July 2013