Communities and Local Government CommitteeWritten evidence submitted by SpareRoom

Summary

Representing over three million landlords and tenants in the Private Rented Sector, SpareRoom seeks to express the concerns raised by many about the possible effects of changes to the sector.

Shared accommodation is a crucial part of the overall housing picture, and can help to alleviate the effects of the housing crisis. However, moves to aggressively regulate HMOs and landlords, and even ban agents’ fees could have negative repercussions on the cost and supply of housing without ameliorating the lives of tenants.

(a) Concerning the quality of private rented housing and steps that can be taken to ensure all housing is of an acceptable standard

1. Demand for shared housing is at unprecedented levels. This demand is far outstripping supply, leaving those in need vulnerable to greedy suppliers. Shared housing is now the norm for the vast majority of young people, not just students. Any actions taken should bear this in mind.

2. Whilst it is a positive step in terms of supply, encouragement of large corporate investment in student and shared housing may well drive up rents and offers a one-size fits all solution. Purpose built accommodation may suit international students, but for home-grown students it’s a very expensive option. Some Student Unions have come out against this development (eg Nottingham, Newcastle). Cumbria University appealed for landlords to offer homes to students for this academic year due to an accommodation shortage in the city, and Birmingham’s Aston University has come out against plans for two tower blocks to house 472 students.

3. Private landlords are able to supply a range of housing to suit every need, at varying levels of rent to match student and young professional budgets. The supply of quality housing by live in landlords is generally overlooked as part of the solution.

What the Government can do:

Increase the Rent a Room Scheme limit above £4,250 to £9,000 to align with average room rents. The limit has not risen since the scheme was introduced in 1997 and at the current level, it costs HMRC more to process tax returns than it receives in tax.

(b) Concerning levels of rent within the PRS, rent control and housing benefit and rents

1. We’ve seen rent levels for shared accommodation increase 6% year on year1 (according to SpareRoom’s Room Rental Index data based on asking prices), and rents are growing fastest in London and the South East, affecting the region’s ability to house the talent needed to provide the engine of growth. If even shared accommodation becomes unaffordable, people will be left relying on the state, or homeless.

2. The following factors affecting rent increases on shared accommodation:

Inflation.

HMO licencing.

Mortgage servicing—HMO mortgages are rarer and more expensive.

Insurance costs (including increased risk of flooding).

Landlords covering for arrears, voids and re-advertising costs including tenant screening.

Rising costs of utilities (average rents in the index are inclusive of bills—gas, electricity, council tax, water and broadband are included as standard).

Rent not being paid direct to landlords (LHA)—means shrinking of the supply available to tenants in receipt of benefits, just as more people are now only eligible for a room rate, since last January. From April, the social sector will become more reliant on moving people into the PRS, due to the introduction of under-occupancy rules and the benefit cap. Landlords seeking to protect themselves from growing risks, will need to pay for expensive rent guarantee insurance, meaning rents will need to go up to cover this extra cost.

Years of not building enough homes, together with a growing population and more people living alone has resulted in a chronic shortage of supply.

The rising demand for rental accommodation:

Young people are renting for longer due to the need to save for longer to accumulate the larger deposits necessary to buy a property of their own. With saving rates at record lows, it’s much harder to save for a deposit.

A more mobile working population, often working on short term contracts, means a whole cohort of people who are not keen to commit to purchasing a property. Coupled with fears of negative equity in a volatile economy, this is pushing more people into renting.

Social and economic factors are affecting lifestyle decisions. Generally couples are choosing to settle down later in life.

Divorce, moving for work, and chaotic life patterns have forced older people into shared rentals too. The fastest growing demographic seeking rooms to rent on SpareRoom.co.uk is the over 40s.

3. Rental controls are a blunt instrument that may have unintended consequences. They could lead to a mass exodus of landlords and a shortage of rented housing. Additionally, landlords will be very choosy about who they let their properties to, as they would be unable to raise the rent, and restrictions on eviction will leave them tied. Tenants may need to commit to large deposits as well as finding a suitable guarantor (who normally needs to be a property owner) to secure a tenancy. For young people from less well off backgrounds, these may be difficult to find.

4. Stopping the payment of LHA directly to landlords has already restricted the supply of housing available in the PRS to tenants reliant on housing benefit. Some landlords have been able to continue to receive rent payments directly in the situation where they have vulnerable tenants, but this will be phased out on the introduction of Universal Credit, as tenants are expected to manage their own money responsibly. Facing more hassles, and with less security of income, more landlords are likely to pull out of this market, further affecting supply.

5. Some LHA landlords have expressed concerns to us about safety. Large sums of money will be exchanged in cash, leaving tenants vulnerable to muggings and theft. Basic bank accounts and credit union services are not yet in general use universally.

What the government can do:

Make payment of rent in advance with full deposit the norm, and guarantee payment for landlords housing tenants in receipt of benefits. This move will save councils thousands in B&B costs and allow them to invest in housing for the longer term, whilst making provision of housing for LHA tenants by private sector landlords more appealing and sustainable.

Make it an obligation for Councils to pursue claimants for benefit fraud if the LHA portion of their benefits is not used to pay their rent.

(c) Concerning the regulation of landlords and dealing with rogue landlords

1. Landlords have expressed their concerns to us about being overburdened with further regulation, which would only be ignored by rogue landlords. There is plenty of regulation already in place—it’s a question of how the sector is policed—is enough being done to enforce existing regulation?

2. Landlords with the best of intentions to comply with regulations are often bombarded with inconsistent and unclear information from planning offices and councils.

3. Good landlords need recognition of the work they do to provide good standards of accommodation for those in need. Many good landlords are members of landlord associations already. They keep up with the legislation and responsibilities expected of them through the NLA and others.

4. Bundling all landlords, good and bad, together as if they all need a stern telling off, gives the impression that being a landlord is a choice that will not be respected in the community, and discourages new entrants who could do much to improve the housing stock and proving accommodation to those in need. The authorities should start by tackling the bottom end of the market.

What the Government can do:

Give Landlords powers to reclaim lost rent and damages from tenants.

Encourage local authorities to use existing powers to deal with criminal landlords.

(d) Concerning the regulation of letting agents including fees and charges

1. Fees are of concern to tenants throughout the UK, who often feel they’re getting a rough deal. People seeking a property to rent have little choice but to pay the fees demanded of them, in a tight rental market.

2. Fees are often charged by agents to both landlord and tenant for the same service (eg reference checking) at grossly inflated prices. Fees for re-issuing tenancy agreements can be as high as finding the tenant in first place, whilst clearly there is much less work involved.

3. SpareRoom found a proliferation of fees being charged to room seekers, in the results of a survey we ran in January 2013, to which over 400 tenants responded:

2/3 of tenants have been asked to pay fees.

60% of those were levied by agents, 40% by landlords.

70% of fees were under £200. 17% were charged between £201-£400 and 13% were charged more than £400.

Only 52% of respondents said that all fees were made clear up front when they enquired about a property. The vast majority (78%) think that fees should be made illegal in England & Wales as they have been in Scotland. A further 17% think they should be capped or regulated.

4. However, the result of banning fees outright may be that some extra costs are simply passed on to tenants through higher rents. This is already happening in Scotland, where fees have been banned. Some agents are frontloading the first payment and calling it rent, and others are spreading the costs across the annual rental amounts. This regulation hasn’t done anything to support tenants.

What the Government can do:

Introduce regulation to ensure fees are transparent to all parties in advertising lettings.

Cap agents and landlords fees at a reasonable rate which takes into account the costs of the services charged for.

(e) Concerning the regulation of HMOs

1. There is currently a severe shortage of affordable housing for single people. We are concerned that the trend towards aggressive regulation of HMOs will only exacerbate the crisis.

2. HMO Licence fees must be reasonable and proportionate, to ensure that licencing does not turn into a revenue-seeking exercise. Landlords would like to see the money raised put into policing and inspecting dangerous properties, and prosecuting rogue landlords who bring the sector into disrepute.

3. There is a tendency for the media, commentators and even authorities to conflate and confuse the issues surrounding HMOs. Not all HMOs are bedsits. Not all HMOs are student houses that will lead to the “studentification” of an area. Councils applying Article 4 Directions to swathes of their jurisdiction may be simply responding to a kind of nimbyism prevalent amongst homeowners in some communities. This kind of crackdown can cause serious lack of supply for young independent professionals in need of affordable housing—and reduce the vital mobility of the workforce.

4. HMOs reduce under-occupancy in a time of housing crisis, and students bring income to many towns and cities. Forcing students into purpose built blocks reduces choice and can often leave rows of HMOs empty or filled with those on housing benefit, bringing social problems to the area that weren’t there previously.

5. Students tell us that they resent being blamed for anti-social behaviour, shortage of parking, and other issues, by older residents whose voices are perhaps more listened to as a key voter group. No other segment of society is being told where it can and can’t live. Students and young people are priced out of most accommodation. Purpose built accommodation tends to be pricey and so open to wealthy international students only.

6. Problems in university towns are caused by lack of planning and resources to cope with the boom in student populations. But the effect of the introduction of higher tuition fees is that student populations are starting to decline. There will be a reduced incentive for large-scale investment in dedicated student blocks, as many already in existence are struggling to fill their spaces, especially as non EU students are now experiencing visa issues.

7. Mortgage companies are put off from lending in areas of compulsory licencing because they assume they’re rough areas already, further exacerbating the downhill slide of these areas and preventing landlords from investing in them.

What the Government can do:

Make requirements for landlords of student HMOs to keep them in good repair and contribute to local services (eg rubbish removal).

Require councils to justify their applications of Article 4 restrictions and HMO licence fees to a higher authority to prevent nimbyism.

Ensure that any new rules have the desired impact—eg reducing the licensing period from five to three years, and increasing fees at the same time has effect of making life more difficult and costly for landlords, without solving the problem of landlords who don’t comply with regulations at all.

(f) Concerning Tenancy agreements and length and security of tenure

1. SpareRoom consulted both flatsharers and landlords on the subject of tenancy length in 2012. These are our findings:

77% of flatsharers are against the idea of increasing length of tenancies.

Many expressed the sentiment of feeling trapped, unable to escape rent rises. They suggested that any efforts to enforce longer tenancies would only serve to restrict the mobility of the workforce.

Some tenants expressed a preference for three-month contracts.

2. Longer tenancies may make landlords feel they have to impose larger deposits, stricter rules for guarantors and may make it harder for many, often inexperienced and vulnerable young people, to get a tenancy at all.

3. Landlords would offer longer tenancies if they could in many cases. They are restricted by mortgage lender rules—about 50% of rentals are in properties subject to a mortgage lender’s approval. In most cases, mortgage lenders opt to be able to reclaim their property at the earliest opportunity, to avoid risk.

What the Government can do:

Make the eviction process quicker and simpler and enhance landlords’ powers to reclaim unpaid rent and damages. This will reduce their risks of taking on a bad tenant, enabling them to offer greater security to good tenants.

Landlords further suggested that regulations should allow Section 21 to be used at any time after the first six months regardless of the fixed term of the tenancy. This simple change would mean many landlords and lenders would be comfortable to offer longer tenancies to those tenants that wanted them. They should also make the Notice period for a tenant the same as that of a landlord ie two months ending on the day before the rent is due.

About SpareRoom.co.uk

SpareRoom.co.uk is the UK’s leading specialist house and flatshare company, with over a million people using our online services every month. Serving those not able to afford their own home, flatsharing has become one of the most common methods of urban living, but is rarely talked about, as home ownership, whole property renting and social renting steal the nation’s attention.

SpareRoom’s mission is to make flatsharing easier and simpler for everyone involved—flatmates, homeowners renting out a room, landlords and agents alike. We don’t only provide free access to the widest choice of listings around the UK, we also offer practical advice and timely information for all our audiences, on regulation and changes to the private rented sector that affect their lives. We actively listen to the voices of renters and landlords, and aim to feed back some of their concerns and hopes in this submission.

January 2013