Labour and Privately Rented Housing – at last Cinderella comes to the ball

28th May, 2013 5:43 pm

There’s sometimes a tendency to talk down Labour’s record on housing in office, though in particular the massive investment in raising the quality of social rented housing was something to be proud of.  But a critical area which received too little attention, at least up until 2009, was the private rented sector (PRS).  Progress here is now vital.  The PRS has grown exponentially, now making up 17% of England’s housing stock.  In 2001, there were 2.2 million privately rented homes, now there are 3.7 million.   Back in 2001, the PRS housed many who expected (and wanted to) rent privately, such as students living out, and professionals at the start of their working lives.  Now, it accommodates many who might have owned their own home, before the toxic combination of rising house prices and reduced mortgage availability on the one hand; and those who might reasonably have expected to access social housing on the other.  For these groups, the PRS is often a tenure of necessity, not of choice.

It is therefore entirely welcome that Labour has now published three policy documents: on regulating letting agents, on giving greater stability and affordability to tenants, and today on raising standards.  Each of these provides a very encouraging basis for future policy development.

This is an area where powerful vested interests will resist radical reform (and were partially successful in doing so in the 1997-2010 era), and you do not have to look hard to find those who claim the world will end if landlords are subject to greater regulation.  After all, this is classic politics where the interests of a relatively wealthy minority (landlords and letting agents) might appear to be at odds with a far less organised, poorer, but larger group.  Such a view, of course, neglects the fact that good landlords and agents lose out reputationally and financially by being undercut by cowboys.

Each document sets out potential paths.  The first is for modest change – absolutely in Labour’s comfort zone, and unlikely to offend many people.  So on letting agents, we “will work with the lettings industry to achieve greater transparency, clarity and accessibility of information relating to fees and charges”.  On tenure reform, we might ask landlords politely to introduce longer tenancies.  On standards, there would be benchmarking of standards.  All this is worthwhile, but just not enough to address the serious problems in a sector which is too expensive, too insecure, and of insufficient quality.  A second, more radical approach, might also be compatible with the documents though: for instance, adopting the Scottish model on letting agents’ fees, requiring tenancy agreements to be for a minimum of five years with index-linked rent increases (and tenants able to move at three months’ notice), and banning those with criminal or housing-related civil convictions from a National Landlords Register from the outset.

In Oxford, we’ve had good experience with an additional licensing scheme for shared housing, which has raised standards and reduced complaints about management – introduced in the face of strong opposition from some with a vested interest.  But such local schemes are the exception rather than the rule (this is an area which has suffered badly due to local government cuts) and, even with the additional powers proposed by Labour for councils in this area, concerted national action is necessary.

It is vital that Jack Dromey and our shadow ministerial team get backing and encouragement to pursue reform of the private rented sector with real vigour.  Millions of households – many with children, many in poor-quality homes, deserve nothing less.

Ed Turner is Deputy Leader of Oxford City Council, leading on finance, assets and privately rented housing, and speaks on planning issues for the LGA Labour Group.  He is Lecturer in Politics at the Aston Centre for Europe.  The views expressed are his own.

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  • Quiet_Sceptic

    Sometimes I despair.

    People want to own their own homes, they don’t want to rent. The votes are in recognising that and finding a way to allow more people to buy their homes.

    The private rental sector’s growth has been at the expense of those couples and families at the bottom end of the income spectrum who once would have bought but are now out-bid by landlords snapping up what were once starter homes.

    You state that people who once would have bought now rent but you have the causality the wrong way round: with a fixed pool of housing when a landlord decides to buy a house, in removing that house from the pool, he creates a new tenant.

    Our policies on the private rental market have to stem its growth, we have to recognise the impact its having on young families, most of whom should be our voters. We also have to consider the inequality it creates now that more and more families are paying off the mortgages of their landlord rather than their own, building wealth for the landlord rather than their own family.

    Accepting the status quo with some minor regulation isn’t enough.

    • jaime taurosangastre candelas

      I think you are right, but it will be very difficult to achieve your aim without some truly “unintended consequences” along the way.

      The average house seems to cost somewhere between £170-200,000, depending on which figures are published in the news. This drags up the price of the smaller and cheaper houses that first time buyers typically want (and the landlords, as you state).

      Even if the “starter home” is £130,000, that is still 5 times the average salary in the country, and more relevant, probably 7-8 times the average salary of those wanting to buy a starter home. The mortgages are unaffordable for them.

      So, to get house prices down to levels where they can be afforded, even if the supply was perfect, the prices must come down by about half, or the wages double (which seems unlikely). And crashing the house prices means that millions go into the negative equity and cannot move if they want to.

      Even then, if house prices were cut in half, unless you have passed a law prohibiting ownership of second, third, etc houses, all that happens is that the landlords buy their property more cheaply.

      The only way I can see to avoid this is some form of national shared ownership scheme (forget the councils, they get in the way and add little of value), and a big building programme, with the Government’s share funded by a national bond issue, and repaid over many years.

      I was once told that in Germany they have “generation mortgages” of 50 or even 75 years, which can be inherited. Perhaps that is another possible solution. It does not stop someone from selling a house they inherit if they do not wish to keep it.

      • Quiet_Sceptic

        You don’t have to introduce draconian laws or change house prices over night. We didn’t get here over-night, it happened over 10-12 years and you can undo it over 10 years.

        Have a policy of keeping house prices steady, no falls but no rises, steady nominal prices, let inflation do the work – 2.5% on general prices and incomes over 10 years would make housing 20% cheaper than it is today. No negative equity, no impact on repossessions.

        It would also help kill off this nasty disease of housing being something to speculate on or invest in for financial gain rather than its true end purpose as a means of shelter, for living in.

        To discourage BTL you just need to change the tax system, again incrementally, wind-back the capital gains tax relief, wind-back the tax exemption on BTL mortgage interest payments.

        • jaime taurosangastre candelas

          I can see your arithmetic, but you propose a -2.5% rate of return, and I think that for normal householders, they look for something around +2.5% annually. The BTL people probably want more, but they are part of of the problem, so their expectations can probably be ignored, over time (not all at once).

          But I think 10 years or so is also too timid – it has to be, if you look at the ratios of new housing, population growth and rates of immigration in the UK. The demand out-strips the supply. And if you are forced to try to solve the problem in 5 years, there are the unintended consequences.

          To me, the whole housing problem looks like a gyroscope approaching the end of the stability phase, and liable to topple over but still have enough “spin” to do very real damage to normal people. I think we have left it too late to have a soft landing.

          • Quiet_Sceptic

            For householders continuing to live in a house the rate of return is immaterial; they cannot access the capital until they sell up, either by emigrating, or to some extent by down-sizing or equity release but I don’t think that is factored into people’s decision making process. You don’t buy a house in your 20s or 30s thinking about pension provision/equity release for when you’re in your 70s or 80s.

            So long as you avoid nominal price falls you stop negative equity becoming an issue and impacting on mobility.

          • jaime taurosangastre candelas

            How do you correct the market and also stop a nominal price fall when the main problem is that “most people” have a salary:average price ratio of about 1:6 or 1:8, and the mortgage companies are not interested in more than 1:4, and indeed the supply is not adding very many new houses?

          • JoeDM

            I disagree. Many people buy a family home with the objective of selling up and down-sizing on retirement of after the kids have moved out and started their own lives, thus realising the capital gains of an investment in a very tax efficient way.

    • Monkey_Bach

      The real problem is that housing is massively overvalued. Some house price inflation is explicable in terms of the activity of the buy-to-let brigade but a lot of it isn’t being caused by other factors.

      One solution to the housing crises and a help to our sluggish economy would be a government funded programme to build many more units of social housing, retaining the “right to buy” clause in tenancy agreements. Long-standing tenants would then have the option to purchase (or part-purchase) homes they were renting if/when in a position to do so and to rent them securely otherwise. Finance for such a scheme could be arranged by issuing a government bond which paid investors a fair dividend: I would imagine that pension funds and similar investors would snap up an issue like this as a safe investment. Such a scheme would certainly be much more sensible than an awful PFI scheme, or similar, which principally benefited private profit making companies which built, equipped and leased the premises back to the country in a ridiculously costly fashion with the nation not even owning the asset itself after paying for it many times over, or Grant Shapps idea to attract private investment to build social housing by raising the rents chargable against such property by social landlords to 80% of the local market rent for similar properties (which would put such accommodation out of the reach of all benefit claimants who are restricted to the bottom 30th percentile of rents as far as housing benefit is concerned).

      Fair rents and security of tenure should be at the top of the list of priorities as far as the interest of tenants is concerned. The days of cheap money are over and with it the days of easily available mortgages have ended too. The balance between home ownership and renting is bound to swing away from home ownership however much people regret it.

      Eeek.

      • Quiet_Sceptic

        “The balance between home ownership and renting is bound to swing away from home ownership however much people regret it.”

        But in the context of the private housing market and the rental sector, what that means is greater inequality of wealth; a growing proportion of families failing to build wealth whilst a landlord class own an increasing proportion of the housing stock.

        It also stores up trouble for the future when a generation hit retirement with no home, no assets and have to rely on the state to fund their housing.

        The continual growth of the private rental sector is not inevitable, it isn’t desirable and our policies should lean against it.

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  • It’s great the way that they emphasise the two simplest and cheapest and best ways of sorting this out – which is build more social housing and tax land rents instead of earnings.

  • mattwardman

    ” introduced in the face of strong opposition from some with a vested interest. ”

    This is a little more than a partial report, Ed

    You mean:

    “opposed by some people who pointed out that our scheme as proposed was in breach of the law, and who threatened legal action when we tried to ignore them and railroad it through”.

  • Redshift1

    I have to tip my hat to Cllr Ed Turner for doing exactly that here. It would be very, very easy to make London/South-East-centric arguments purely revolving about supply and demand (e.g. go to Burnley and quite evidently there isn’t a lack of supply – half a street might be empty), especially being an Oxford councillor but talking about it in terms of regulation of landlords is something that I think is relevant in every area. That isn’t to say I don’t think rents are too high in many areas, they quite obviously are, but I do find myself questioning how you adopt a message that’s purely about lack of supply to an area that doesn’t have one!

  • mr and mrs ginn

    we got married if either of us had sold our house we would have lost £12k so we rented out responsibly and are currently losing £70 pcm.If house prices fall further or stagnate we would lose more.Finally buy to let mortgages are more expensive than residential forcing rents and letting fees u

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