Developments in private rented sector policy

Last reviewed 14/08/2009: any recent updates in this colour.

This page contains information on:

Introduction

Government has long recognised that the private rented sector (PRS) has a vital role to play in offering a flexible tenure providing homes for those for whom neither home ownership nor social renting are currently appropriate.

More recently housing commentators have begun to note some shift in the balance of housing tenure towards the PRS as some of the factors that have underpinned rising levels of home ownership appear to have become less significant. The most recent edition of the Survey of English Housing contained evidence of falling levels of home ownership.

Housing reform green paper

In 2008 the government announced that work had commenced on a housing reform green paper, which would contain reform proposals affecting both the PRS and the social rented sector. Working groups were set up on which the CML was represented. As the banking crisis developed and the economic downturn increased in severity the CML argued that the present situation was so volatile and that long-term trends in relation to to housing tenure and the role of the PRS so difficult to determine with confidence that production of a green paper as a prelude to reforming legislation was premature and that further research and analysis would be needed.

In the event it appears that this warning has been listened to. The green paper has been postponed more than once and external working groups have been suspended. There is not advertised date for the appearance of the green paper and it is not expected before Autumn 2009.

Back to top

Rugg review

The Rugg review of private rented sector housing is a decisive contribution to the discussions surrounding the PRS. Commissioned in January 2008, Rugg undertook the review against the backdrop of the planned housing reform green paper. The review reported on 23 October 2008. A copy of the report can be found here

Rugg makes some key points that the CML believes should shape government thinking as it moves to include measures relating to the PRS in the forthcoming green paper now expected in February 2008:

The PRS provides good levels of tenant satisfaction, and there is no evidence that larger corporate landlords score more highly in this regard. The sector needs both large and small landlords.
The emphasis in terms of regulation should be one of effective enforcement of existing powers (notably by local authorities) rather than on additional regulation though Rugg does advocate non-prescriptive registration of all rental properties as a means to assist the authorities in enforcing existing powers. Registration would be low-cost, have minimal "hurdles" and the process should be easy in practice.
The existing assured shorthold tenancy is essentially fit for purpose.
Government should focus on providing tax and other incentives to both institutional and investors and individual landlords (including BTL landlords) to further expansion and raising of standards.

The CML believes that the Rugg review provides a positive focus for future government policy for the PRS. It is also, with its emphasis on investment, very relevant in the context of the banking crisis.

Rugg to some extent moved the policy debate away from concerns about a supposedly poorly performing sector to discussions about incentivising landlords to build on success. Though consumer groups continue to focus on specific problems at the lower end of the market, the prospect of a general increase in PRS regulation beyond registration (which already exists in Scotland) has probably receded.

Back to top

Government response to Rugg

The government published their response to the review on 12 May 2009. The response took the form of a consultation paper The private rented sector: professionalism and quality.

The government welcomed the review and in terms of proposals, divided its response into three strands:

Improved regulatory framework

The government has taken up Rugg's suggestion for a national register of private landlords. The aim would be to increase the "professionalisation" of the PRS and to use existing powers of local authorities to target poor quality. The register would be nationally run by an independent organisation and would be primarily web and telephoned based. The annual fee would be "small" and information would be minimal: name, address of landlord and addresses of property holdings. The resister would provide an opportunity to convey assistance and information to landlords as well as being a regulatory tool. Unacceptable activities could lead to removal from the register and takeover of the management of that landlord's properties.

Though the government is not proposing general increase in regulation the response does propose an assessment of existing licensing regimes and the possibility of widening the criteria for selective licensing of the PRS by local authorities.

All tenants should be supplied with written tenancy agreements.

The upper rental limit for assured shorthold tenancies is to be lifted from £25,000 to £1000,000.

There should be compulsory regulation of letting and managing agents by an independent body.

Back to top

Supporting the market to deliver increased supply and professional management

The government appears to implicitly link professionalism with larger corporate landlords (unlike Rugg) in that the key proposal is to promote institutional investment in the PRS through the Private Rented Sector Initiative (PRSI) to be administered via the Homes and Communities Agency (HCA). There are no proposals to encourage buy-to-let investment; a significant and unwelcome omission.

The response does draw attention to the plight of tenants when landlords default on their mortgages however though specific proposals are not set out.

There is a brief reference to the possibility of fiscal incentives for PRS investment but again, no specific proposals.

Back to top

Improved engagement with the sector

The response sets out proposals for improved research into the sector and for better links between the PRS and the voluntary and local authority sectors.

There are specific proposals for initiative for local authorities to secure more PRS tenancies for low income households and broader use of landlord accreditation schemes.

Industry reaction

While the lending industry will be relieved that the government is not planning a major general increase in regulation that could threaten future growth, the assessment of selective licensing will have to be watched carefully to ensure that it does not become an opportunity for creeping regulation at local authority level. Rugg was clear that registration of landlords was to assist in enforcing existing powers; a general increase in regulation was not (and is not) required.

While the support for increased institutional investment is a positive move the lack of interest in future buy-to-let investment is disappointing. While institutional investment can and does play a role in certain niche markets within the PRS such as students, there has been insufficient return on such investment to support it across the sector as a whole. By contrast, smaller landlords (supported by buy-to-let investment) have been able to invest in the sector and provide a good service supported by modest rental returns, a fact noted by Rugg. There is no evidence that this position has fundamentally changed.