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Lord Meston: I should like to express my support for the amendment on the simple basis that Clause 93, as I understand it, simply introduces an arbitrary limitation on the right to apply to a rent assessment committee. It limits the ability of a tenant with a new assured shorthold tenancy being able to refer an excessive rent to the committee under Section 22 of the Housing Act 1988. The limited security of tenure afforded by an assured shorthold tenancy will be further eroded by that loss of right to refer to the rent assessment committee. Some tenants will be vulnerable to the threat that, as a result of attempting to bargain for a more affordable rent, their shorthold tenancy agreement will not be renewed.
The opposition to Clause 93 is supported by the Law Society which responded to the White Paper produced by the Government by pointing out, quite correctly, that tenants are, broadly speaking, in the economically weaker position and tend to be less commercially aware, and are therefore more vulnerable. They are in greater need of protection, not only in terms of being aware of their position but also in terms of protection against demands for unreasonable rents by landlords who seek to benefit in areas of housing shortage.
There are already hurdles within Section 22(3)(a) and (b) of the 1988 Act which serve to limit the number of cases in which application to a rent assessment committee can be made. In the White Paper, the Government, as I understand it, sought to justify that provision by saying, "Well, the existing rent assessment committee regime is little used". However, the other hurdles which already exist must be taken into account when drawing inferences from the limited number of applications to the rent assessment committee. I suggest that the clause as it stands will do a great deal of harm and, potentially, very little to assist tenants or, indeed, landlords. I suggest the tenant's right to refer an excessive rent to a rent assessment committee should be preserved.
Lord Mackay of Ardbrecknish: I am now back in my more customary position of addressing amendments proposed by the noble Baroness, Lady Hollis. When I read the amendment before us, I have to say that it seemed to me that she still hankers after the days of rent regulation, as indeed, according to a recent survey by the Roof magazine, do 93 per cent. of her colleagues in local government.
I have to confess that I have some difficulty in reconciling the amendment with the belief that I thought, throughout the time we have run in Committee this afternoon, was shared by us all; namely, that we need to sustain a healthy private rented sector.
De-regulation of the private rented sector since 1988 has allowed landlords to earn a reasonable return on their investment. Research shows that the average gross return from a shorthold tenancy is now about 9 per cent. From that, management and maintenance costs and rent
lost from arrears and voids must be deducted. I do not regard that as excessive. Indeed, research shows that only about two-fifths of lettings have been acquired mainly for investment purposes.Assured shorthold tenants were given the right in 1988 to refer to a rent assessment committee to provide a safeguard against unreasonably high rents as the shorthold tenancy and market rents were introduced. As Members of the Committee are no doubt aware, the Government originally proposed in the housing White Paper to remove that right on the grounds that it was little used. In 1990 there were just over 400 referrals from 140,000 assured tenancies--less than 1 per cent. Referrals are still running at the same level; that is, about 1,600 a year from over 800,000 assured tenancies. However, in the light of responses to that proposal, we decided to maintain shorthold tenants' right of referral during the first six months of the original tenancy. Six months provides a reasonable opportunity for the tenant to make an application while giving the landlord the certainty that an appeal cannot be made after the deadline has passed.
I believe that the noble Baroness suggested that extending the role of rent assessment committees would save the Government substantial amounts in housing benefit expenditure. However, I should point out that, since last October, rent assessment committee determinations have not been binding for housing benefit purposes. Housing benefit is calculated on the basis of rent officers' determinations, even where a committee has made a determination. The rent agreed by the rent officer for benefit cases may be below the contractual rent for various reasons--for example, the property may be too large or it may be too expensive, despite the fact that it is the market rent for that property. So even if a fixed, contractual rent at market level is there, there is no guarantee that housing benefit will meet it.
The legislation was changed last October in the light of evidence that landlords and local authorities were encouraging tenants to refer the rent to a rent assessment committee in the hope of obtaining a higher rent for housing benefit purposes. We have therefore already dealt with one of the issues which the amendment seeks to address.
Similarly, I cannot accept the proposal that a committee should set a rent for a period of more than a year. The landlord must have the certainty that he can increase the rent in line with market movements. It is unlikely that a landlord would be able to get a rent above the market rent from a new tenant. If he puts up the rent and gets a tenant out, he is unlikely to find a new tenant if that rent is way above the market level. Indeed, he is unlikely to find a new tenant who will take on that tenancy.
Therefore, I do not believe that there is an incentive here to evict as suggested by the noble Baroness. The tenant will have the opportunity to negotiate with the landlord the new rent for any replacement tenancy. He will be able to take account of any determination by the committee during the original tenancy.
If the original tenancy lapses into a periodic tenancy, the tenant will have another opportunity to apply to the committee for a determination if the landlord serves a notice of a rent increase under Section 13 of the Housing Act 1988. Any such determination will have effect for a year. If the landlord serves a further notice after a year, the tenant can apply to the committee again.
I believe that our proposal in Clause 93 provides adequate protection for the tenant while giving the landlord the confidence to let the property in the knowledge that he can at least cover the costs of letting and perhaps also make a small return on his asset. With that explanation, I hope that the noble Baroness will feel able to withdraw the amendment.
5.45 p.m.
Baroness Hollis of Heigham: I am most disappointed by the Minister's reply. I really feel that he failed to engage with what it is like "out there". Because he calls something a market rent, the noble Lord assumes that any rent that follows represents a fair, negotiated balance of power, if you like, between landlord and tenant. That is not the situation. For the most part, it is a landlord's market out there. It is tenants who find it difficult to get reasonable, clean and relatively salubrious accommodation, especially if they have children or are regarded as "DSS".
The same research to which the Minister referred earlier shows that the two biggest groups to which private landlords will not let are, on the one hand, young people, people with children and, on the other hand, "DSS" families. Most landlords will not let to those groups. But they are precisely the groups that are most at risk of falling into arrears if housing benefit does not cover the rent; most at risk of eviction if they fall into arrears; and, therefore, are most likely to add to the growing pressure of homelessness on local authority stock. That is the world out there. It is not the world as the Minister wishes it to be, with markets being somehow a matter of fair negotiation; it is the world of supply and demand where the landlord has most of the cards, and certainly the trump cards.
I do not recognise the response the Minister gave to those two arguments. We argued that it was not unreasonable that because a tenant's situation may change he may appeal to a rent assessment committee. The Minister did not answer my next point. The tenant may suddenly become unemployed and therefore need to apply for housing benefit. He may find that housing benefit will not cover his rent. We need to protect a tenant in that situation; otherwise he may be evicted.
The Minister made much of the point that landlords should be in a position to raise their rents after six months. He said that they were in a market situation and would only attract tenants if their rents were reasonable. That is not the case. People may well accept such accommodation because the alternative is to sleep rough, sleep in a car or go to a hostel. The Minister simply does not know what housing stress is like out there. Once a tenant has accepted accommodation he may hope to negotiate a lower rent but he may find that he cannot do so.
The other argument the Minister offered was that the landlord needed to have the right to raise his rent after six months. Why is that? I thought this was the Government of low inflation and that we had inflation of 2.5 per cent. Why is it that landlords, peculiarly, have to have the right to impose two price increases in a year, even when the rent assessment committee says that it is not reasonable?
This is a simple amendment. It allows the tenant to have the rent reviewed, not just at the beginning of the tenancy, but also later. If the rent is fair, the landlord has nothing to worry about. It is only if the rent is excessive that the landlord has something to worry about. Are the Government really on the side of landlords who charge excessive rents, because that is what the Minister is saying? The amendment provides that if the rent assessment committee so judges it, the rent should be stable for a year to two years, thus protecting the tenant from being evicted for trying to exercise his rights under the law. Is the Minister saying he is on the side of the landlord who evicts the tenant for exercising his rights under the law? Is that what the Minister is saying? I wish to test the opinion of the Committee.
5.52 p.m.
On Question, Whether the said amendment (No. 242J) shall be agreed to?
Their Lordships divided: Contents, 43; Not-Contents, 109.
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