Margaret Thatcher is credited with the Right to Buy legislation which allowed long-term council tenants to purchase their homes at a discounted price.
This piece of legislation was great politics and dreadful housing policy, as it has robbed the UK of the pool of low cost social housing stock which we now so desperately need, particularly in London.
Council housing was built in three phases – after WW1, mid-1930s and then a big programme in the 50s and 60s.
By the late 20th century the debt on this stock would have been paid down and the properties would have been available at rents which reflected only the cost of ongoing maintenance and refurbishment plus management costs.
By contrast “affordable rents” offered by social landlords are now typically running at 80% of market rents, not really affordable at all and a reason why the UK’s housing allowance benefits bill is so ridiculously high.
We use taxes to subsidise the consumption of housing instead of subsidising its supply – but I digress…
Housing Act triumph
However, Maggie’s uncredited housing triumph was the 1988 Housing Act which introduced the Assured Shorthold Tenancy and the new Section 21 notice.
This meant that a landlord could let, safe in the knowledge that he or she would not be trapped with a tenant for life and an unsaleable property.
Conditions for the tremendous expansion of the PRS would not fully form until mortgage lenders produced specialist buy-to-let mortgages (back in the day, mortgage lenders would increase the interest charged if a home owner wanted permission to let out their home) but the legal framework was now in place.
It’s also the reason why we now naturally think of tenancies as being a renewable six-month fixed term because the shortest term for an Assured Shorthold Tenancy was set at six months in 1988.
Section 21 has come under fire because of a perception (not borne out by the facts) that landlords evict tenants who have the temerity to complain about a lack of repair – so called “revenge evictions”.
In fact most use of the courts for repossession actions is by social landlords removing tenants who fail to pay rent or are exhibiting anti-social behaviour.
The reality is that the limited security of tenure offered by an Assured Shorthold Tenancy is probably not conducive to families feeling settled in a rented home with their children attending a sought-after school because they live in the right catchment and two working parents juggling their journeys to work.
As the demography of the tenant population shifts, and the average length of tenancy extends to 30 months and beyond, it seems to most people to be archaic that a tenant who is meeting all of their contractual obligations could still face the loss of their home at (relatively) short notice.
Solutions for the modern PRS
- Get over it! If you want security buy your own home.
- Negotiate a longer term contract with your landlord – he or she will probably welcome the certainty of rental income.
- Government to legislate to change the minimum term of an Assured Shorthold tenancy to be (say) 36 months but retain the Section 21 notice mechanism.
- Abolishing Section 21 notices which will mean that a compliant tenant can stay forever unless the landlord has a justifiable reason to take the property back. If Section 21 notices are abolished then the purpose of a fixed term tenancy looks to be redundant and we enter the world of indefinitely renewable monthly tenancies which is the new Scottish approach.
Does it matter? Yes, it does, because if the purpose is to grant tenants greater security of tenure, then unless this a handled by a formula in a fixed term contract it can only be accomplished if there is a statutory mechanism for resolving rent increase disputes.
A landlord trap
Labour politicians are quick to point out that abolition of Section 21 is a half-way house and that rent controls would have to follow.
It seems to me that the twin danger is a civil service which knows that we need a supply of rented accommodation particularly at the more affordable end of the range; plus a Government unwilling to allow social landlords to borrow the money to fund a mass building programme because of the effect on public sector borrowing targets.
Thus, the solution is to trap current PRS landlords into being providers of low-cost housing for decades to come, unable to remove their tenants, unable to increase rents, and only able to sell their stock at a discount to open market values.
Remember the point above about the housing allowance benefit bill rising as rents rise. If rents can be capped then so will the tax burden.
Market reaction – the law of unintended consequences
Bad news for the disabled, single parent families and anyone on benefits – if the personal circumstances of the tenants currently in occupation mean that they are probably going to want to live there long term and need state aid, then these could be a sitting tenant problem in the making.
Bad news for the over-worked court system – if the Government can be believed, the clock is now ticking and landlords may be well advised to use the time remaining to serve Section 21 notices to de-risk their stock.
Bad news for buy-to-let mortgage providers – if vacant possession of the asset might not be so easily obtained in future, and might even be discounted to open market value, then lending on buy-to-let properties looks a great deal riskier.
Bad news for anyone thinking about a buy-to-let investment – why take the risk until the exact future legal framework is made clear, and there is a cross-party consensus on the future of the PRS?
Good news for insurers providing rent guarantee and legal costs insurance – as the likelihood of being stuck with a tenant who is not paying the rent and who cannot be easily evicted goes up, and so will sales of rent guarantee and legal costs insurance, and so will the insurance premiums.
Good or bad news for agents? – as installing and removing tenants becomes a process in which procedural legal matters are of vital importance then arguably, even if the PRS shrank overall, those landlords who are left might take up the services of agents to a greater degree than they do now (50% use an agent to let, 14% to let and manage).
What is certain is that a Government minister has (once again) set in motion a destabilising thought process for many actors and agents involved in a finely balanced economic eco-system which will have unknowable consequences in 2019 and 2020 at the least.
Just what we needed!
* Ian Wilson is CEO of The Property Franchise Group