The PRS crisis and what to do about it

Properties sold to another private landlord, or perhaps to a local authority or a social landlord, are still available for rent. Those sold into owner-occupation will reduce demand for rentals if the new owner was previously a renter. 

The really damaging destination is when homes for rent are sold, or converted, into short-term holiday lets.

That’s a powerful reminder that reforming the private rented sector is about much more than ‘greedy landlords’ or a ‘war on buy-to-let’ and that any new system has to balance different interests and demand from different groups for decent homes to rent.

Section 21 is understandably at the forefront of the minds of many, since no-fault evictions are (depending on your point of view) a symbol of an unfair system rigged in favour of landlords or a vital tool for landlords to regain their property from tenants who do not pay their rent.

“Although it is taking its time about actually doing it, the government has promised to abolish Section 21”

Although it is taking its time about actually doing it, the government has promised to abolish Section 21. It is balancing the interests of landlords and tenants by introducing new grounds for possession under Section 8.

The MPs on the committee, which has a Labour chair but a Conservative majority, come out unequivocally in favour of scrapping Section 21, arguing that “the blight of unfair eviction and insecurity of tenure experienced by too many tenants can only be remedied by its repeal”.

However, they say that proposals in the white paper for new grounds for possession by landlords who want to sell their property or move themselves or close family members into “could be too easily exploited by bad landlords and become a backdoor to ‘no fault’ evictions”.

The MPs recommend doubling the period after the start of the tenancy before landlords can use them and the period after they are used before landlords can market or re-let the property.

Whether those changes will be enough to prevent abuse remains to be seen, but what happened in Ireland and what seems to be happening in Scotland after similar measures were introduced suggests that the government should listen.

However, landlords’ resistance to reform is also informed by their experiences of pressures on the courts that will only increase as proposed new grounds for persistent rent arrears and anti-social behaviour come into force alongside those for sales and occupation.

The MPs say that there is a real risk that current systems will be overwhelmed, and that the issue must be addressed, either by a specialist housing court or by setting and meeting a target for processing claims before Section 21 is repealed.

They also disagree with the government on repealing Section 21 in the student market, arguing that abolishing fixed-term contracts will make it considerably less attractive to landlords.

Add the prospect of a legally binding Decent Homes Standard and the need for much better enforcement by local authorities, and the report is a powerful reminder of the issues that will need to be addressed when (if?) the Renters’ Reform Bill finally appears.

Almost as important, though not directly linked to the bill, is another report just published by the Institute for Fiscal Studies (IFS) on the arbitrary impacts of another freeze in Local Housing Allowance (LHA) rates from this April.

This is the third freeze in a row since LHA rates were restored to the 30th percentile of local rents in April 2020 and this new freeze is happening not just in the middle of a cost of living crisis, but also as rents rise at their fastest rate since the Office for National Statistics started its experimental index in 2016.

The IFS estimates that renter households will receive an average of £50 a month less in LHA than they would have got if rates had risen in line with rents.

“The longer the freeze continues, the more arbitrary and unfair the effects will be on tenants and the more likely landlords are to see one more reason to sell up”

This is a replay of what happened after 2011, when a succession of restrictions on LHA culminating in a four-year freeze forced tenants to make up growing shortfalls from their other income.

Of the 193 broad rental market areas in England, Wales and Scotland, only a handful now have LHA rates that meet the full rent for different sized properties.

There is an even tinier group of just 15 areas across the five types of home where LHA rates are more than rents. Notable and perhaps surprising examples include the four-bed rate in Reading (+£55 a month), the three-bed rate in inner west London (+£20 a month) and the shared rate in inner north London (+£18.50 a month). These almost certainly reflect temporarily reduced pressure on rents in London during the COVID-19 pandemic.

The generosity of LHA has fallen in almost all areas but with varying local results that the IFS says have led to “bizarre consequences”.

For example, the 30th percentile of rents in Bristol is £100 a month more than it is 60-odd miles down the M4 in Newbury, but the LHA rate is £12.50 less. Meanwhile, around one in four renters in the bottom percentage of the income distribution receive no support at all with their housing costs.

The longer the freeze continues, the more arbitrary and unfair the effects will be on tenants and the more likely landlords are to see one more reason to sell up.

As the LUHC committee puts it today: “If the government believes the PRS is the right place for those on the lowest incomes, it should at least make sure housing benefit does what it was designed to do and covers benefit recipients’ housing costs.”

However, as the MPs note pointedly, “the affordability crisis in the private rented sector can only be properly solved by an increase in housebuilding, particularly affordable housing”, and they repeat their call for 90,000 new homes for social rent per year.

The stage is set for a battle over the key details of the Renters’ Reform Bill, but the wider context matters just as much – if not more.

Jules Birch, columnist, Inside Housing