The Squeeze On Landlords
Hugh Sullivan examines whether the government’s increasing regulation of the private rental market will actually benefit tenants in the manner it claims
In an era of low economic returns on mainstream investments, historically low interest rates and tax hikes on pensions, it was hardly surprising that those aiming to secure a financial nest egg should look closer to home. Someone else’s home, as it happens. Which is where opposing roles of landlord and tenant come into fundamental conflict: property ownership versus the right to live in a secure home.
PICTURE: Dave Young
For several decades residential property has looked like an investment winner. Not only has the national population increased inexorably year on year, mainly through net immigration. It has also atomised in terms of housing needs, with families splitting, expanding numbers of singles, and increased workforce mobility. Social housing has in the same era been decimated by the right-to-buy policy inaugurated by Mrs Thatcher. Meanwhile the supply of new-build housing has failed miserably to keep pace with demand.
The result? A bonanza for property owners, with both rents and house prices on a steep curve upwards even while the rest of the economy has been staggering through austerity. Moreover the regime set up by the Housing Acts of the 1980s and 90s, less regulated than almost any other residential scheme in the western world, has been particularly favourable to landlords.
From their point of view there have remained the inconvenient obligations of repairing and maintaining houses that comply with basic statutory requirements – keeping buildings wind- and water-tight, with functioning heating and plumbing installations. There is the risk that tenants may not pay the rent on time, or at all, may cause property damage, or behave in anti-social ways. But at worst they could be evicted without too much ceremony by way of court action. The need to prove fault on the part of the tenant under section 8 of the Housing Act 1988 has become increasingly mired in the sludge of county court procedures, though that has from a landlord’s point of view been balanced by the withdrawal of legal aid from any tenants daring to mount effective challenges. But no matter: after an initial six month period a notice could be served under section 21 of the Act terminating the tenancy within two months without having to give any reason at all.
And that is the way that most landlords have effected most evictions. If tenants complain about substandard housing conditions, or won’t agree to increase rent payments to a new market level, there’s the easy solution.
Over the last 20 years there have, however, been increasing inroads into this happy landlords’ nirvana. In 1998 the Gas Safety (Installation and Use) regulations required landlords to provide certification of annual safety checks. Under the Housing Act 2004 lettings of HMOs (Houses in Multiple Occupation) have needed local authority licences that impose conditions on use and occupation; in selective areas (including a number of central wards of Hastings and St Leonards) licences are made mandatory for all lettings. The cost per unit of letting is £400, with punitive sanctions for non-registration.
Since 2007 tenancy deposits have had to be protected under an authorised scheme; under the Localism Act 2011 penal sanctions, again, can be imposed on landlords who fail to comply or are late in doing so. More importantly a section 21 notice is rendered ineffective by non-compliance.
Further bars to the operation of section 21 were added by the Deregulation Act 2015: if the landlord has failed to obtain a licence when it was required, or failed to respond adequately to an improvement notice issued by the local authority following a tenant complaint, or failed to serve the tenant with an Energy Performance Certificate or with a booklet published by the Department for Communities and Local Government entitled How to rent: the checklist for renting in England, or used the wrong form, or served it at the wrong time, the eviction notice will have no effect.
The regulatory pace isn’t slackening. Under the Tenant Fees Bill, due to be enacted shortly by Parliament and put into legal effect by the beginning of June, landlords and their agents will be barred from charging any admin fees for completing or renewing tenancy agreements.
Now under Mr Brokenshire’s watch (see columns below) section 21 is intended to be abolished altogether, leaving landlords to rely upon section 8 evictions alone.
How Management Works
As in other areas of the economy where bureaucratic regulations abound (compare, for instance, food standards), large-scale corporate providers can take them in their stride, setting up systems, adopting protocols. That’s how management works in a managerial world. And the more complex the rules, the more they work to corporate advantage as they raise bars to less organised competition.
But could we be reaching the point at which the trickle of small-scale buy-to-let landlords leaving the sector becomes a serious outflow, as the pressures on them escalate?
National property solicitors Collyer-Bristow reacted to Mr Brokenshire’s pronouncements with a blog accusing the government of having “a Dickensian view of private landlords offering substandard homes for extortionate rents. Whilst the market is far from perfect, this view is outdated. Private landlords want tenants in their homes, and most tenancies are in fact ended by the tenants themselves”.
Tracey Wells, of Home & Castle estate agents (based in Polegate but undertaking lettings across East Sussex, including in Hastings) agrees. She admits that some agents and mostly corporate landlords – not, of course, her own clients – have brought regulation on themselves by squeezing rents upwards and imposing frankly extortionate admin charges on desperate would-be tenants. But there are increasing numbers of buy-to-let investors who are talking to her of getting out – serving notice on their tenants while they still can, and selling up. When they do, the majority are unlikely in her view to pass their property on to replacement landlords for re-letting. In Hastings in particular, there are enough DFLs (those Down from London) and other incomers to purchase for themselves.
There’s another bogey in the field that is already cutting the stock of rentable homes: Airbnb. That’s the ultimate unregulated system. Pay a small percentage to those nice folks in San Francisco, and all those requirements for notices, licences, booklets, gas safety etc. fall by the wayside.
In the long term there’s only one way to restore a reasonable balance in the housing market between landlords and tenants: increase the supply of rentable accommodation. But there seems no reason to think that exposing private landlords to greater cost, risk and regulatory intervention is going to do that. Rather, the contrary.
The Failing Court System
Nearly 30 percent of households in Hastings live in private rented accommodation. So both tenants and landlords will have been alert to the sudden announcement on 15th April by the Secretary of State for Housing, Communities and Local Government, James Brokenshire, that his ministry was consulting on a radical overhaul of private housing law.
“Private landlords will no longer be able to evict tenants from their homes at short notice and without good reason”, proclaimed Mr Brokenshire, promising repeal of section 21 of the Housing Act 1988 under which landlords can unilaterally serve notice on their tenants with two months’ notice: so-called ‘no-fault’ evictions.
“This will effectively create open-ended tenancies, bringing greater peace of mind to millions of families who live in rented accommodation”, he said, “ whilst creating a more secure rental market for landlords in which to remain and invest.”
Reassurance was offered to “responsible” landlords, who would still, by amendment of the section 8 eviction process, be able to regain their home should they wish to sell it or move into it. “Court processes will also be expedited so landlords are able to swiftly and smoothly regain their property in the rare event of tenants falling into rent arrears or damaging the property – meaning landlords have the security of knowing disputes will be resolved quickly.”
Tenant pressure groups such as Shelter have, on the whole, applauded the proposal, though it is difficult to understand how much security tenants will really gain if landlords can continue to demand vacant possession when they want to sell. Landlords’ associations have been less sanguine. They are only too aware of the current workings of the local county court system that is supposed to adjudicate housing issues.
Hastings County Court in action
First, the number of county court venues has been drastically pruned in recent years. Hastings is fortunate in retaining its building in Bohemia Road but, with those in Eastbourne, Tunbridge Wells and other neighbouring towns closing, Bohemia Road has to serve a much wider area than formerly.
And it’s already plainly overloaded. A deputy district judge deals with section 8 claims and other contentious housing issues on a weekly basis. A glance through last Friday’s list showed 30 cases, with a time allotted for each between 5 and 15 minutes. The time provided for the judge to complete this list before addressing other kinds of cases was three hours, which works out at an average of six minutes per hearing. Allowing a minute for the parties to shuffle in and another for them to shuffle out again, that’s actually four minutes each. No wonder that if any issue, whether factual or on a point of law, is raised on either side, the judge will have to adjourn to a longer hearing weeks or months later.
A regularly practising Hastings solicitor tells me that, in a straightforward rent arrears case with perfectly ordered documentation and no factual challenge from the tenant, it should still generally be quicker to get an eviction order under section 8 than by serving a notice under section 21. But in any case where facts are in dispute, or there are other hindrances to a summary disposal, the parties will be in for the long haul – months, even years of delay and costs.
Soon, if the section 21 route is cut off, every non-consensual termination of a tenancy could become one of proving fault. It’s ironic that a government which is about to promote legislation to end the need to prove fault in divorce proceedings should decide to go in the contrary direction for housing.
But in any event Mr Brokenshire’s talk of landlords “swiftly and smoothly” regaining homes under an “expedited” court process will surely invite some rude retorts when his consultation gets under way.
According to figures released by the Ministry of Housing, Communities and Local Government, a higher volume of residential houses was completed in 2018 than in any year for the past decade. But not in Hastings: only 60 were completed – 50% by private developers, the other 50% funded by housing associations – a reduction from 150 in the previous year. Moreover only 50 units were started in 2018, compared to a figure of 110 in 2017.
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