PRS campaigners release renter's manifesto
Published by Max Salsbury for 24dash.com in Housing and also in Communities
Key players move to position private rented sector as tenure of choice to solve housing crisis
A campaign group that fights for tenants' rights in the private rented sector has released a renter's manifesto - and is now asking for people's views and additional proposals.
Generation Rent claims that PRS landlords are currently failing too many of their tenants, while across the country spiralling rents are leaving people more and more out of pocket.
The protest group also says that the PRS is characterised by "insecure, short-term tenancies that mean lives can be disrupted with very little notice, forcing people to become transient".
The manifesto in full:
Security of Tenure
1. Reforming assured shorthold tenancies
Different groups have suggested that the legal minimum length for an AST needs to be increased, where tenants can remain within their homes for 3-5 years without fear of no-fault (section 21) evictions. Tenants themselves would be able to end the contract early but the landlord or letting agent would be committed to the longer period. The most radical position in this area would be to abolish section 21 altogether, meaning that tenants would have unlimited security of tenure, only ending the tenancy when they chose to do so. Included in this could be detail that allowed the tenancy to end if the home was being sold, or the landlord was moving in.
Should section 21 be abolished or is it necessary in certain cases?
2. Incentives for landlords
A competing policy to increase longer tenancies is to encourage landlords to make them available voluntarily, until they become the norm within the sector, and are offered as a matter of course. Such a proposal could include financial incentives, such as tax breaks for landlords who offered longer-term contracts. It would also mean making the case for the advantages that come with long-term, stable tenants, such as avoiding void periods and receiving guaranteed, long-term income.
Should landlords who offer long-term tenancies be given financial incentives to do so?
What other measures can be taken to encourage landlords and agents to voluntarily offer longer tenancies?
3. Reforming the law around tenant notice periods
A different approach would seek to ease the transition of moving between private rented homes when a tenant is evicted. It would involve a system whereby longer-term tenants are awarded longer notice periods when they ultimately leave a property. Many renters stay in properties for a number of years but still only have two months’ to leave, potentially massively disrupting their education, work and other life commitments. Under this model, in addition to the two months’ notice period given as standard, tenants would have a right to a sixth of their whole tenancy as a notice period, for example. This could be capped at a reasonable amount – for example a year - but would mean that families and others with major commitments and connections in an area would have a longer amount of time to look for alternatives where they live and to plan their move according to other work and life pressures.
Could the length of a notice period be connected to the amount of time spent in a property?
1. First-generation rent caps
This would bring back a previous policy that existed until the 1980s in England, limiting the total amount of rent that could be charged for a certain type of property (e.g. one-bedroom flat, a house etc). A rent cap would ensure that rents were kept at a fair level and not subject to limitless hikes, out of touch with other costs. There are questions around how this could apply to the current market though, with it potentially only being applicable for new lets.
Are first generation rent caps desirable? What level should they be set at and to which properties should they apply?
How could rent caps function alongside the existing rental market?
Could a dynamic rent cap apply where Landlord’s profits were capped at a reasonable level rather than their revenues?
2. Second-generation rent caps
A different kind of controlled rent would see landlords set the initial level of rent and then have increases linked to an index over the term of the tenancy, to stop sudden rent hikes and to make costs predictable for renters. In this sense it seems to require a change to the law around security of tenure. A functioning example of this is the rental market in Germany. One challenge to this proposal is that if we consider rents to already be too high, then allowing the market to set the starting level would mean an exploitative level of rent is locked into the system. Furthermore, if we see rent controls rolled out that include annual rises, this may become the norm across the whole sector, whereas currently many long-term tenants are able to stay in their properties without annual rent rises as their landlords choose to rebase their rents between tenancies. Finally, although inflation may appear to be an objective measure on which to base increases, a more appropriate one might be wage levels.
How should the starting level of second generation rent caps be set?
Should there be annual rent rises, and what would be the best way to set this?
What other legislation or policy initiatives would be required to make this policy work?
3. Increasing the housing supply
There is broad political and public consensus that a central housing priority is to build more houses across the country to meet demand and bring down house prices and rents. Shelter and KPMG’s recent report, Building the homes we need, sets out a wide range of proposals to make this happen within the first parliamentary term of a new government. These are grouped within four broad areas for reform – the land market, house building market, affordable housing investment, and strategic local leadership – and three key policies are:
- Introduce ‘New Homes Zones’: Implemented by various planning authorities, these would be strategic sites focused on delivering low cost developments of mixed tenure, with incentives for businesses to build.
- A National Housing and Infrastructure Investment Bank: Based on an established lender in the Netherlands, the National Housing Bank could be owned by government and shared with local authorities or as a not-for-profit vehicle to lend to affordable housing providers.
- Integrate major new infrastructure with new homes: This proposal involves placing housing within the long-term, £100 billion plan of capital investment set out by government over the next parliament, which currently includes major national infrastructure but nothing for housing. For example, Shelter state that ‘Settlements of 1500 units could be planned in the long term alongside major transport investments like Crossrail, HS2, electrification of the West Coast line and any new airport capacity.’
- Increasing the supply of permanently affordable private rented homes: A different approach would be to initiate a secondary market of new private rented homes, built by government and sold at close to cost price, to anyone who wanted them. To make these affordable, public land would be requisitioned by government. Buyers in this market would be able to rent out their homes, but only at a greatly reduced rate, to reflect the fact they had bought the properties cheaply – effectively buying into a rent cap at the time they make their investment. Those who chose not to rent them out would have access to vastly cheaper housing to buy. The money recouped from sales could be reused again and again by government to build more homes. Such a policy would mean there would be cheap homes not subject to the open market, and rental properties with affordable rents on a permanent basis, not subject to the housing bubble and property speculation.
- Banning letting agents’ fees for tenants: A modern-day, and very expensive feature of private renting, is the huge fees paid to letting agents for services that often unclear and overcharged. These can range from ‘administration’, through to drawing up contracts and putting together an inventory. There is no standard process across the industry and with fees often close to £1000 for new tenants, they are completely out of proportion to the service offered. When a tenant moves, or even when they sign a new contract on the same property, the process is repeated and more fees are charged.
- Mandatory capital share: A fundamental cause of the problem for renters is the way the housing market turns tenant wages into Landlord capital, at a rate that prevents tenants from accruing their own capital. This makes the inequity inevitably more imbalanced over time. Having said that, Landlords argue that their capital gain, a large chunk of their profits, is illiquid and shouldn't be “counted” as profit.
1. ASBOs for exploitative landlords and letting agents
As the housing market has become less balanced, landlord and letting agent behaviour has become more exploitative, particularly with vulnerable tenants. Existing legislation allows local authorities to use their powers to criminalise the worst landlords who continuing abuse their position but are often difficult to prosecute.
Should councils use Anti-Social Behaviour Orders to punish Landlords and Letting Agents who exploit vulnerable people and to criminalise repeated behaviour?
2. A national register of landlords
Mandatory registration of landlords would mean that government would know for the first time how many people are operating in the private rented sector and could communicate with them to support the professionalisation of the sector. Furthermore, problem landlords would become known to all local authorities rather than just one at a time, enabling more effective enforcement.
A national register of Landlords would also enable HMRC to crack down on Landlord tax evasion and for useful advice to be targeted at landlords and tenants about their rights and responsibilities.
How should the register be put together? Is it possible to use existing public data, or would information need to come from landlords themselves?
3. Licensing of letting agents
Licensing of letting agents, linked to a fit and proper person test would mean that the industry could be subject to certain uniform standards, opening the way to regulation around practices. The letting agent industry has shown itself to have no barriers to the extent to which it will abuse tenants, with hidden fees and discrimination often the norm. We believe that anyone undertaking lettings agency or tenancy management should have to hold a licence to do so that can be revoked if the holder is unfit.
How can licensing of letting agents and banning of letting fees work together? Is one preferable to the other?
4. Large-scale, professional management bodies
Many landlords own 1-3 properties, and many problems in the sector stem from amateur landlords who are not equipped to help tenants and maintain their properties to a decent standard. An alternative to this may be a model where amateur landlords hand over their property to a large-scale, professional management company that would be responsive to tenants and guarantee standards across a large number of properties. This could be encouraged through the tax system or other potential incentives. A REIT-style (Real Estate Investment Trust) vehicle would be ideal for this, though current rules would be make it difficult to access. The addition of allowing such vehicles to become SIPPs (Self Invested Personal Pensions) would make them significantly more attractive, though currently, residential property is not allowed within a SIPP.
Essentially, we believe the clustering of properties into effective management companies would reduce the harms to tenants of incompetent landlordism, while giving landlords a more cost effective investment in return. We would advocate the creation of a REIT-style residential rental property vehicle with the right to convert it to a SIPP.
Would this help professionalise landlords and would this benefit tenants?
5. Reforming tenancy deposit protection
Tenancy deposit schemes have vastly improved the ability of renters to retrieve their deposit at the end of a contract. Whereas before, landlords or agents would routinely keep deposits, a disputed deposit is now held in a scheme that means there is mediation when the amount to be returned is disputed. Two types of scheme exist: custodial (where the deposit is held in a neutral account), or insurance-based (where the landlord retains the deposit but pays to insure it). A recent loophole was discovered in the insurance-based schemes; if a landlord is expelled from a scheme, for breaking its rules for example, then the deposits they hold are no longer insured and they can just walk away with them. This means the worst, rogue landlords are exactly the figures that tenants are not protected from. There are various ways deposit protection could be reformed to close this loophole:
- Force the insurance based schemes to protect deposits for the life of the tenancy rather than the landlord's membership.
- Ban insurance-based schemes.
- Make it the tenants' choice which scheme is used.
- State funded prosecutions and fines of landlords who don't protect deposits, rather than relying on the tenant who has just lost hundreds of pounds.
- What is the best way to ensure that tenants’ deposits are protected under all circumstances?
6. Landlord taxation
According to the UK’s biggest Buy-to-Let broker, Paragon, landlords are making an average of 16.3% return on their investments annually. Despite this profitability landlords straddle the line between sole traders and companies. Given the degree to which landlord amateurism harms tenants, we believe the tax system should be differentiated to be of benefit only to those landlords who are willing to professionalise their operations.
7. A right to know your landlord
We believe there should be a right to know who your landlord is and from whom you can seek redress if something goes wrong in your tenancy. Too often land owners are hiding behind rent-to-rent landlords, managing agents or complicated company structures. The responsibilities of a landlord should sit ultimately with the owner of a property and it should be a mandatory requirement of a tenancy agreement to state the name and contact details of the person, people or organisation that owns the property.
How best should a tenancy agreement be formulated? Is there other information that should be mandatory?
1. Linking decent conditions to the right to rent out property
Currently landlords can rent out their properties privately without showing that they are free from hazards and poor conditions like damp, mould and vermin. Rather than relying on tenants complaining to their local authorities about conditions, we propose a requirement that private landlords prove their properties are decent, perhaps linking this proof to local licensing schemes. Landlords would fund the inspection which could be based on the existing Housing Health and Safety Ratings System. Properties would then have a certificate as a guarantee of good conditions. There should be sanctions on landlords allowing tenants to live in substandard conditions.
What should be included in a test of living conditions in the private rented sector?
2. Reforming the legal standards for private rented conditions
The current legislation implies into every contract of letting that the premises will be fit for human habitation at the start of the tenancy and during the tenancy. The standard of fitness that applies is the standard of fitness that existed in other housing legislation before it was amended in 1989. The implied term also only applies to tenancies where the annual rent is £80 in London and £52 elsewhere.
The law could be updated to incorporate current health and safety legislation so that implied in every tenancy is that there are no Category 1 hazards as assessed under the HHSRS and the premises should remain free of any Category 1 hazards. The rent limits would also have to be removed.
Should HHSRS be incorporated further into tenancy law?
How would this fit with local authority enforcement?
3. Making tenure secure where there are hazards within a property
The Department for Communities and Local Government are currently consulting on measures to limit the use of section 21 by landlords where category 1 or 2 hazards are found within a home (that is, reported to the local authority and identified through an environmental health inspection). This would mean that tenants could not be evicted while a process to improve the property was underway, driving up standards and stopping retaliatory eviction. The consultation also considers whether rent repayment orders could be used as a further penalty where hazards are found. The difficulty with this system is that it still relies on complaints from tenants, the most vulnerable of whom may not be aware of their rights or willing to assert them.
What are the appropriate penalties for landlords who are unresponsive to hazards and poor conditions in their homes?
How can local authority enforcement be improved?
What is the best way to encourage complaints to local authorities from private renters?
4. Greater proactive local authority enforcement
It has been argued that the system we have for maintaining conditions in the private rented sector would work effectively if it was better resourced and able to take on many more proactive inspections. Where licensing is taking place, for example in Newham, inspections have been targeted and it has therefore been easier to take on the worst landlords, bring a legal case and levy large fines. Ensuring that prosecutions take place, and changing the system so the local authority can retain the fines, would allow a council to better fund its environmental health team.
What are the best ways to improve current local authority enforcement?
How should environmental health teams be funded?
Other than through registration and licensing, how else can enforcement be focused and prioritised?
Politics, law and housing
Alongside specific areas of policy, there are other initiatives that would provide more support from government to the private rented sector and housing generally:
- A new Landlord and Tenant Act: Rather than consider legislation piece by piece, it may be time to re-evaluate the main piece of legislation, written in 1985, and make it relevant and proper for the twenty-first century.
- A government Department of Housing: This would ensure that different housing issues, like house building and housing benefit, were not treated in isolation and true political priority was given to housing, which has been neglected for far too long.
- A housing tribunal: A new system, focused specifically on housing, could ensure that housing was treated in its proper context and take pressure off the existing courts system.
Generation Rent would like to hear views on the different proposals and suggestions for other solutions.
Interested parties can email email@example.com by Friday 6 June 2014 with their views on the proposals and other relevant ideas.