Communities and Local Government CommitteeWritten evidence submitted by Tom Glancz

I jointly created and ran a successful pub/restaurant business restaurant pub business in Nottingham from 1974 to 1990 employing at its peak 100 full and park time staff.

I entered the buy to let market as, it is now called in the late 1980’s. Most of my portfolio has been long term. I have endured all the recessions/property crashes and black wednesday over that time. I have been in recent years an unpaid Director of a local Landlord association called EMPO representing 300/400 landlords. I sat on several Landlord/City Council committees with the view of improving the sector. I am no longer a Director.

There are a number of factors effecting the private rented sector. These all have an impact on having a healthy and thriving private rented sector (PRS).

Rent Controls

When I first came into the market in 1990, rent controls had just been abolished. I live in a good residential area. It was blighted because the rent controls had the effect of stopping capital investment in the properties being rented out. Large numbers were run down. I know because I bought one. There are various references to the fact that rent controls had a devastating effect in reducing dramatically the supply and quality of the private rented sector.

Vince Cable was recently interviewed on TV by Andrew Marr on the 18th November when asked about rent controls, his comment is quoted below:

You have housing benefit escalating out of control. It’s effectively a subsidy to landlords and you cannot continue in that way. So what do you do about it? Well you could introduce rent control, but that creates more problems, it reduces supply. So we’ve got to cap the housing benefit element while at the same time increasing the supply of affordable housing. That is absolutely critical:

One past report into this area

Review by York University

http://www.york.ac.uk/media/chp/documents/2006/modernprivaterenting.pdf

This chapter has set out a short history of the private rented sector, and outlined some of its key features that cannot be examined through analysis of the 2001 census data. Although it is the minority tenure, the PRS is marked by diversity in terms of both its supply and demand characteristics. It is perhaps due to its small size and heterogeneity that the PRS has sometimes been defined by reference to what it is not: that is, it is not owner occupation and it is not social rented housing (for example, Dodd, 1990; Holmans, 1987).

Compared with the other tenures, important characteristics of the PRS are its flexibility and relative ease of entry and exit, which are features that can be important in supporting, amongst other things, geographical mobility for job movers (Crook, 1992). A healthy private rented sector may perform other important functions within the modern housing system, such as helping to dampen overheating on the owner occupied housing market (Maclennan, 1994).

In general terms, there is a broad political consensus on the importance of the modern private rented sector. Thus, New Labour has emphasised on a number of occasions that is has no intention of making changes to the tenancy arrangements introduced by the Conservatives in the 1988 and 1996 Acts, and neither that there is any question that it would re-introduce rent controls in the deregulated private rented market (for example, DETR, 2000).

Financial Factors that have an Impact on the PRS

1. The private rented sector is classified by the Inland Revenue as unearned income. That has various consequences. Unlike a trading business any sale is subject to capital gains tax of 28% on the profit gained on the increase in the property value. No tax roll-over tax relief is available. (I am assuming that the investor has some other income that uses the lower 18% rate.) A normal business would be taxed 10% on its gains under qualifying for Entrepreneurs’ Relief and would be entitled to rollover the gain into another qualifying business. This encourages entrepreneurship.

2. Unearned income cannot be used to gain pension payments relief.

3. Any improvements on a property (as opposed to repairs) cannot be set against current tax calculations. They can be eventually be set against a gain at the time of a sale.

4. The assets are subject to inheritance tax.

5. Any money used to pay off a loan is not allowable against tax, only the interest. It has to come out profits earned. It therefore does not appear in profit and loss accounts at all. It has to be paid though. Tax paid does not appear in the accounts but does come out of the surplus.

6. There is no relief on capital expenditure.

7. There is an option to take a 10% of rent relief on fixture and fittings.

8. Many mortgages taken out in recent times have been interest only. There is talk of stopping these. Forcing people to then repay the capital and interest would force many our of the market completely.

9. The supply of buy to let mortgages on offer are vastly reduced compared to pre 2008. Getting a buy to let mortgage either as a new entrant or re-mortgaging is extremely difficult. Signing up fees are high. Due to the financial crisis larger deposits are required and proof of income is much more stringent. All this will have a negative effect in the overall market place.

10. If roll over tax relief were introduced, the market would become much more fluid, investors could go out an improve more properties, sell them on as but to let and move on. It would generate jobs raise quality and with all the current regulations be done in a controlled way to suit councils.

Purpose Built Accommodation in the Student Market, what Happens when Institutions Enter the Market Place

A. Only a tiny percentage of the market is controlled by large providers. One may think that a bad thing. I believe the opposite from a tenants of view. The proof is what has happened in the student purpose built block market. Here you will see the private rented sector offers amazing value to the tenants whereas the large providers have pushed rents sky high. UNIPOL are a registered charity that work with local councils and universities to service the accommodation needs of students in Leeds and Nottingham. They supply local market data on the student market. Attached is a photo of the average rent for student accommodation in a shared house in Nottingham. The higher price is £70.01. Below is a link to a survey on purpose built accommodation nationally. Apart from London, Nottingham will be no different to other Cities and the average rents. Far in access of the individual private rented sector. I suspect that difference will apply whenever a large institution enters the market.

http://news.rla.org.uk/wp-content/uploads/2012/12/002118-nus-unipol-purpose-built-student-accommodation-survey.pdf

B. Clause 4

The need to apply for planning consent for residential properties that wish to be able to enter the rented market.

This has now been introduced on a wide spread basis and has the effect of basically putting the breaks on any expansion. I fully understand the reasons for introducing this rule. It has one big downside, by stopping new entrants, mostly of a higher quality, it will protect the provider of poorer quality accommodation.

C. Licensing

I support the HMO licensing of properties of five or above in three stories. However through the new Localism Act, Councils can now, and have done so, introduced licensing of properties with only three occupants and above. At least under the Housing Act any scheme could be challenged and vetted by a government department. That is no longer the case. The introduction of the localisation bill removed any independent challenge/review. I am afraid that Public consultation does not work if a council is set to introduce its policy. Please review this part of the bill and ensure proper vetting of policy decisions in the future. I am told that in Leeds ex student areas are becoming blighted.

D. Getting rid of rouge landlords

At the end of the day this is the wish of all parties, including landlords. The only way to do this is for councils to send personnel onto the streets and find those not conforming to legal requirements. For this reason I do support additional and selective licensing in high density rented areas, but only if a pro-active policy is introduced to find the culprits.

E. Part time landlords and those ignorant of their responsibilities.

This is such an important area. My view is that no-one should be allowed to rent out a property until they have completed a basic course and have a certificate. I am sure this would have a dramatic effect on making people fully aware, encourage them to join landlord associations and create a database for councils and the inland revenue to act on and communicate on.

Summary of Suggested Actions/Inaction

1. Not to introduce rent controls.

2. Introduce capital gains roll over tax relief in the private rented sector. Consider allowing pension contributions to be set against profits.

3. Ensure that local councils have a policy to “go onto the streets” to seek out rogue landlords and not wait to be informed as is now the case.

4. Alter the localism bill to allow proper challenges to additional/selective licensing proposals.

5. Make it a legal requirement that any person wishing to offer buy to let go on a basic training course and obtain a certificate.

6. Be wary of institutional investors entering this market just for profit.

Nottingham average rent student private rented sector £70.01

January 2013

Prepared 16th July 2013