Communities and Local Government CommitteeWritten evidence submitted by Newcastle City Council

(i) Background to Private Renting in Newcastle

The stock of private rented homes makes a significant contribution to Newcastle’s housing market and has almost doubled in size in the last 10 years—from 14,400 properties in 2001 to 27,060 or 22% of the housing stock in Newcastle in 2012.

A large part of this increase can be attributed to the substantial growth in full-time students at our two universities, which has created a rental market to accommodate those studying away from home. This said, student only accommodation in the private rented sector make up approximately 6,000 properties, or 22% of the private rented market in Newcastle; still leaving a sizeable majority of this sector catering for single people and families, including the vulnerable and those on low incomes.

Since 2001 Newcastle has been a centre for asylum dispersal. This has added further to the numbers of private renting in Newcastle.

(ii) Past National Initiatives to Help Improve Standards in the PRS

While some tenants in the private rented sector live in high quality properties, this is not the experience of many. Problems with disrepair can be a significant issue. This is because the sector is largely made up of older housing stock in many areas.

The Housing Act 2004 brought in limited regulation of conditions in the private rented sector. The Act saw the introduction of the Housing Health and Safety Rating System (HHSRS), as well as mandatory licensing for some houses in multiple occupation (HMOs), discretionary licensing and tenancy deposit protection schemes

At the time we welcomed these efforts to improve conditions in the sector. We now believe that much more needs to be done if we want to see safe and appropriate housing conditions and management standards applied to this sector.

The 2008 Rugg Review commissioned by the then Labour Government set out proposals for a number of initiatives to improve standards, including the establishment of local letting agencies to help low income households access accommodation, a national register of landlords and regulation for the commercial lettings industry. We feel that if this Committee is serious about improving both the management and physical standards of this sector, then it should now seek to enact some of the proposals set out in the Rugg Review.

(iii) Licensing of Houses in Multi Occupancy (HMOs)

The 2004 Housing Act brought in a mandatory requirement of licensing of HMOs with five or more unrelated occupants sharing amenities in accommodation comprising three or more storeys.

In Newcastle we have been successful in using this legislation to ensure the licensing of HMOs that meet these criteria, and so improve management and physical standards. However, given the level of private renting in Newcastle we have a sizable proportion of shared houses with five or more unrelated people who are sharing that are not in buildings of three or more storeys, and are not therefore subject to the licensing requirement. We feel that this does nothing to ensure satisfactory living standards and safety of occupants of smaller HMOs. For this reason we would like to see the licensing requirement extended to all classes and sizes of HMOs in line with the scheme operational in Scotland.

Newcastle appreciates the flexibility provided through the Housing Act 2004 to allow local authorities to apply additional and selective licensing in areas it deems necessary. Selective licensing has been used in two areas in Newcastle experiencing high level of private renting coupled with significant voids and anti-social behaviour. We feel that this has given some control to local authorities to try and remedy bad management practices and poor physical standards in certain quarters of the City.

Newcastle has made use of the powers under Town and Country Planning (General Permitted Development) Order 1995 and introduced an Article 4 Direction into certain parts of the City experiencing high levels of private renting. We feel that this is a useful tool for local authorities to call on to try and re-balance the housing market in areas experiencing high levels of private renting.

However, we feel that extending the requirement to licence all classes of HMOs/shared housing regardless of size would negate the need for local authorities to undertake resource intensive consultation while ensuring that this type of housing meets the needs of its occupants.

(iv) A Landlord Registration Scheme

In the current system tenants who are looking for a new home may have to provide credit checks, references and rent deposits. Yet landlords and lettings and management agents do not need to show any equivalent references, nor are they required to have any business skills, knowledge of housing law nor are they required to be registered to undertake their line of business. Most other professions require a registration to practice, with those deemed to be not fit and proper to practice being barred from the profession or struck off.

For this reason we would like to see a national mandatory landlord registration scheme that requires landlords, including lettings agents, to register their details and portfolio with the local authority or authorities where they operate. This will allow local authorities to actively engage with landlords to promote good practice with regards to property and management standards. Those landlords who fail to register after a given time period would face a fine; with those who fail property or management standards having failed to remedy problems within a given time period being exempted from joining or remaining on the register, and thus unable to continue to rent out sub-standard housing that is detrimental to the health, safety and well-being of occupants.

We believe the government should make available to local authorities some start up funding to assist with setting up and managing a local registration scheme. This funding, coupled with a fee chargeable to landlords based on the size of their portfolio, would cover the cost of administrating the scheme, training for landlords; as well as a limited amount of inspection to ensure compliance to standards. The aim would be to make any registration scheme self financing thereafter.

(v) Property Standards and Professionalism

Over the last fifteen years, the number of people who rent their home from a landlord in England has almost doubled to 3.5 million people, and nearly a third of renters are families with children. Unlike the social rented sector there is no body to set standards and oversee regulation of private providers. For someone to set themselves up as a letting agent they need no formal qualifications, training or experience. This lack of knowledge of the sector can, and often does, lend itself to mal-practice, poor value to landlords and a sub-standard service to tenants—either through ignorance or willful intent.

Vulnerable people accessing the PRS often do so at the bottom end of the market. They are all too often the tenants living in poor quality accommodation, suffering from exacerbated fuel poverty due to inadequate energy efficiency; with households living in private rented accommodation having a higher likelihood of living in fuel poverty—19% of households in private rented were in fuel poverty compared with 11% in other tenure.1 Similarly, tenants in private rent are less likely to complain to, or about, their landlord in case they become the victim of retaliatory eviction.

Improving the professionalism within the PRS is therefore of vital importance if we aim to improve the management and physical standards of this sector. Where landlords operate at a sub-standard, many do so out of a lack of knowledge rather than intent. For this reason it is important that such landlords are educated about their responsibilities via a prescriptive set of standards that they will be expected to adhere to.

There are currently a number of landlord organisations that promote best practice as well as a number of voluntary codes. However, the Law Commission estimates that just 2.2% of landlords belong to a professional body, and in our experience, the very worst landlords are unlikely to join voluntary schemes or undertake accreditation courses, and often give the sector a bad name. It is therefore important that these landlords either change their practices via being given a prescriptive set of standards to follow: or are barred from this market.

A national regulatory body for lettings agents and managers of large rental portfolios

For this reason we would like to see an autonomous body set up to regulate lettings agents. This proposed organisation, like the Homes and Communities Agency (HCA) for the social housing sector, would issue a regulatory code of guidance on property and management standards. Lettings agencies and managers of large rental portfolios would then need to undertake a Test of Professional Practice (TPP).

We feel that this will bring some accountability to the market and improve standards for private sector tenants.

(vi) A Fairer Deal on Private Rent Levels

We believe an unregulated private rented sector with uncapped rents is the primary reason why rents in certain parts of the country have become unaffordable for working families and single people.

For this reason we believe the government should examine moving towards a system that existed prior to January 1989 and cap the amount of rent a private landlord can charge—with any system of fair market rent setting incorporated into a mandatory landlord registration scheme.

We feel this will offer a fairer deal for private renters. It will offer a protection in law against unaffordable and unfair rent increases. It will offer a fairer deal for tax payers faced with footing the housing benefit bill that has inflated the profits of many private landlords and management agents. We think that capping rents could in the long term reduce the cost of housing benefit. It will offer a fairer deal for those in receipt of housing benefit, rather than solely penalizing them via the Local Housing Allowance cap.

(vii) Security of Tenure

Private renters in England typically have short contracts of only six or 12 months, resulting in uncertainty for renters and high levels of churn in the sector. Millions worry about unpredictable rent increases, their contract ending before they are ready to move, and never having the certainty of being able to make their rented house a home—with the need to continually set aside or find deposits and a month’s rent in advance often stretching some family budgets to breaking point; with many relying on short term high interest loans companies to provide the necessary finance.

High levels of churn are also bad for communities—and rapid turnover can be a hassle and an expense for landlords too. Whilst most landlords want good tenants to remain in a property, a lack of security of tenure does mean that many tenants are in a position where they can be evicted with only two months notice if their landlord chooses.

Uncertainty like this is obviously bad for families trying to give their children some stability as they go through school. We believe parents who rent should have the peace of mind that they won’t have to move their children during the middle of the school term, especially exam periods, and know that they won’t be hit with a surprise rent increase that increases the burden on their family finances.

However, a home in the PRS can be a long term option. Indeed, 21% of private renters have been living at their current address for five or more years.2 When tenancy breakdown does occur it is often due to a range of factors such as rent arrears, anti-social behaviour and breakdown of the relationship between landlords and tenants.

There is often insufficient help available to both tenants and landlords to address these issues. For this reason we would like to see a national regulatory body which takes final decision in landlord/tenants disputes if all other avenues of redress have failed.

We would also like to suggest that Committee observe the call by the national housing and homeless charity Shelter for a new type of five year tenancy in the private rented sector called the “stable rental contract”.3 This should help tenants put down roots and give landlords greater certainty over returns. Shelter’s proposals include flexible terms so tenants can leave with two months notice, with landlords able to end the tenancy if they want to sell the property or evict bad tenants.

This call comes as research shows that private renting has soared of late as graduates seeking accommodation renewed the pressure on a market already facing strong competition from would-be buyers struggling to get on the property ladder.

(viii) Overview of Main Recommendations

Extend the HMO licensing requirement to include all HMOs regardless of size.

A national, autonomous body with statutory powers to oversee and regulate lettings agencies via a statutory code of guidance (similar to that in the social housing sector). This will improve redress and complaint routes and promote tenant rights.

A requirement for a national landlord registration scheme to be administered locally.

Improve security—review security of tenure and address the issue of retaliatory evictions.

(iv) Potential Future Issue for Newcastle and other Northern authorities

Research carried out by the Guardian shows several London councils have acquired rental properties in Luton, Northampton, Broxbourne, Gravesend, Dartford, Slough, Windsor, Margate, Hastings, Epping Forest, Thurrock and Basildon, and are considering accommodation further North. 17 out of 33 London Councils have advised that they are placing homeless applicants outside of their authorities and said the move was inevitable because there was virtually no suitable private rented temporary accommodation for larger families in London that was affordable within the Local Housing Allowance.

We feel that if this becomes practice, then this could lead to an influx of untrained, unregulated and unlicensed lettings agents and individual landlords to gain contracts with these London boroughs to house, what could be vulnerable low income households, in properties which are at the lower end of the market.

January 2013

1 Fuel Poverty Advisory Group. Eighth Annual Report 2010

2 Rugg J, Rhodes D (2008) Review of Private Rented Sector Housing, The University of York CHP

3 A better deal? Towards more stable private renting. Shelter. September 2012

Prepared 16th July 2013