My Lords, I thank those Peers who have already taken an interest in this Bill and those who have worked to improve the private rented sector over many years. The Renters (Reform) Bill brings forward the most significant changes to the sector in 30 years.
For England’s 11 million tenants, representing some 4.6 million private rented sector households, the Bill provides the robust protections needed to increase security and standards, helping people to put down roots in their communities, keep jobs and build careers in their local areas. We are also supporting England’s 2 million landlords and recognising the importance of privately rented homes to our economy. The Bill will give good landlords the confidence to let their properties, equipping them with the tools needed to charge a fair rent and reclaim their properties when they need to, while driving out rogue and bad actors who undercut the majority. The Government have worked closely with those across the sector and across political parties to ensure that our measures strike the right balance. I will now move to the specific content of the Bill and outline the ways in which, when taken together, this package of reforms will support responsible landlords and tenants alike.
The measure that noble Lords will be most familiar with is the abolition of Section 21 evictions. We know that the threat of a Section 21 eviction can make tenants feel very insecure in their homes, with good reason. Unexpected evictions can cause real financial difficulty and interrupt employment and schooling for parents and children. By removing Section 21, we are helping tenants to feel settled and to challenge poor practices if their landlord is not meeting their basic responsibilities. We recognise that the vast majority of landlords provide an excellent service. In the absence of Section 21, it is important that they have the confidence that they can get their properties back. That is why, alongside abolishing Section 21, we will strengthen Section 8 possession grounds.
Landlords will be able to get their properties back if their circumstances change—for example, when they are selling or moving into their property. We are also protecting landlords and expediting their ability to evict those who disrupt neighbourhoods through the evils of anti-social behaviour, as well as introducing new grounds for persistent rent arrears. To protect tenants where there are more complex circumstances, such as a breach of tenancy conditions, the grounds will remain discretionary so that judges can consider whether it is reasonable to evict them.
After listening to concerns from the sector, we have also made changes to protect the functioning of the student market by introducing a new ground for possession to ensure that student landlords can continue to offer tenancies which align with the academic year.
To further protect people from homelessness, as well as abolishing Section 21, we will make sure that tenants still have certainty that a homelessness prevention duty will be owed when a valid Section 8 possession notice is served. This means that vulnerable households will continue to receive support while the threat of homelessness remains.
My Lords, I am grateful for the opportunity to open this debate for the Opposition. I thank the Minister for her comprehensive introduction, and for all the time she has taken in meeting us prior to the Bill coming to the House.
Given the expectations generated among renters that the Bill will make improvements to their situation, it is of considerable regret that the Government have dragged their heels in getting it through the other place. The Bill finished its Commons Committee stage last November, but did not return for Report until last month. In the meantime, the concessions made considerably watered down the initial potential. However, as the Bill delivers some improvements, it is not our intention to hold things up any further.
It is also very regrettable that the Government appear to have put the priorities of some grumpy Back-Bench MPs—I do not blame them for being grumpy—before the needs of millions of aspirational renters, people who simply want the secure, affordable and comfortable home that they have every right to expect. For a fifth of UK households—over 4.6 million people—who live in private rented housing in England, this Bill held out a great deal of promise that they would see much-needed fundamental reforms of the sector. As the Local Government Association put it:
“We have argued for the Bill to go further in supporting tenants’ rights and providing stronger regulatory and enforcement powers, and for government to ensure sufficient funding”
for councils to enforce these measures. However, during the Commons stages, concessions were made on a number of these key measures, and the Bill no longer lives up to its stated intention of creating a fairer and more secure private rented sector. That is from the LGA’s briefing. I apologise—I should have declared my interest as a vice-president of the LGA.
My Lords, I remind the House of my relevant interests as a councillor, a vice-president of the Local Government Association and an accidental landlord. I too thank all the groups that have provided informative briefings on a wide range of issues, which I and my colleague, my noble friend Lady Thornhill, have found immensely useful.
There is much in the Bill that we support. Legislation that rebalances the rights and responsibilities of landlords and tenants in the private rented sector is long overdue. However, the context in which the Bill is being debated is important. Much has changed in the rental sector since the Housing Act 1988. The private rented sector has continued to grow, with, according to the latest figures from the ONS, 5 million households renting from a private landlord—the equivalent of 20% of the housing market—whereas 17%, or 4.2 million households, are renting in the social housing sector.
The private rented sector has doubled since 2002. The stark fact is that for many households, especially families with children, private rent is the only option. Even 20 years ago, the first choice for families on low incomes would be social housing. Rents in social housing are within the local housing allowance, and there is a much higher degree of security. That is not to deny that some social housing fails to be of a decent standard, and that some social landlords neglect the needs of their tenants. However, the right-to-buy legislation without the right-to-build replacement housing has resulted in a large reduction in social housing, putting the most vulnerable households at risk of homelessness or leaving them with limited, or often no, choice as to where to live.
The solution to this fundamental problem is not provided by the Bill. What is needed is a substantial increase in the number of homes for social rent being built every year. This is not “affordable housing”—the vast majority of homes provided through that route are not for social rent. The Government have a much-vaunted principle of choice for consumers but tenants needing housing at a social rent are not given that choice. Can the Minister explain why the Government deny the choice of housing at a social rent to so many families in need?
My Lords, I draw attention to my housing and property interests as on the register. This Second Reading provides an opportunity to review the current state of the PRS—the private rented sector—and to consider the impact on this sector of the Renters (Reform) Bill. Does the Bill address the key problems facing renters and, if so, will it fix those problems?
Let us take a quick look at the private rented sector today. By the late 1980s, the PRS accounted for only some 9% of the nation’s homes. Then, in the early years of this century, the sector dramatically doubled in size to around 20% of the stock, and it achieved this growth without building virtually any new homes.
Two factors propelled this extraordinary turnaround. First, the Housing Act 1988 removed rent controls and security of tenure for new shorthold lettings. This created a profitable opportunity, enhanced by low-interest buy-to-let mortgages for investors: today, there are 2.3 million private landlords. Despite tax and regulatory changes to dampen this phenomenon and the recent interest rate hikes, the PRS has continued to sustain its new-found size, bolstered by the shortages that have pushed up prices and rents.
The second big change, which has led to today’s dependency on the PRS, was the demise of council housebuilding. At its peak, local councils regularly accounted for some 150,000 to 200,000 new homes built in a single year. The housing associations have only ever built a fraction of these numbers. Along with council house sales under the right to buy, now approaching 2 million homes sold, the social housing sector—that is, councils plus housing associations—has suffered a huge decline. It has gone from around 34% of the country’s housing stock to just 17% today. Those who would have looked to the social housing sector in the past must now turn to private renting instead.
Has this switch from social housing to private renting been a success? Although PRS rents are higher and security is lower, the PRS has provided a satisfactory home for many. But the switch has not helped with the nation’s biggest housing problem: supply. There are simply not enough homes to go around. Building new homes has not kept pace with increases in households. PRS landlords do not build new homes, with the exception of a valuable but modest program of build-to-rent and purpose-built student accommodation; rather, private landlords have inevitably outbid others, particularly first-time buyers, to acquire existing properties. Critics argue that this has inflated house prices and led directly to a reduced number of people being able to become home owners. We are left with acute housing shortages, which only a big expansion of social housing can fix.
My Lords, it is a pleasure to follow the noble Lord, Lord Best, from whose wisdom and experience I have personally gained such a lot. I am grateful for his contribution today. I declare my interest as the Church of England’s lead bishop for housing. Also, as I am in clergy-tied housing myself, my retirement house is currently let to a long-term tenant.
My starting place is that good homes are the building blocks of strong communities. Bad homes threaten mental and physical well-being, hinder personal and economic development, and compromise safety. Everyone needs a good home so that we have a good society where people can flourish. As others have said, there is much to welcome in the Bill. Private renting is the most insecure and expensive tenure, and it requires significant reform. I am pleased that the decent homes standard will be applied to the private rented sector for the first time. I am also pleased that the Government have tabled amendments to prohibit landlords and letting agencies from discriminating against families with children and people in receipt of benefits. I will seek more details on how this will work in practice.
I have three children, all of whom are young adults. Without a significant shake-up of the entire housing market, it is likely that they will struggle ever to buy their own property. With more than 11 million people renting privately, they are not alone, and young people face particular difficulties in switching to home ownership or social rent. With some notable exceptions, young people are not particularly well represented in either House, which might be one reason the Bill has taken so long to reach us. I am determined to speak up for them as the Bill progresses. Those 11 million, including my three children, know how important it is to improve the private rented sector. The old phrase that we are a “nation of home owners” is now outdated. We are a nation in which many people are in the private rented sector for long periods, if not permanently.
My Lords, I begin by thanking my noble friend the Minister for her comprehensive opening statement and for the time that she has already devoted to discussing the provisions of this Bill privately.
I think that I am the first speaker in this debate not to have to declare a relevant interest. I do not have any institutional housing interests, social, private or any other. I own one house and I live in it. If I do have an interest—and it is the reason that I speak today in this debate—it is the interest in living in a country that one day has a minimally functioning housing market. Unfortunately, we do not have that in this country. That should be the starting point for discussing the Bill.
We have an utterly dysfunctional housing market. We have far too little supply, as has already been noted. We last met the 300,000 building target in 1977 and, if we had been building at the same rate as the French over the past few years, we would have 4 million more houses than we do now. It is therefore not surprising that house prices are at nine times incomes—a historic high. Most policy has focused on Help to Buy schemes rather than expanding the supply.
Ideally, we would want a policy approach that involved building more houses of all kinds by liberalising planning, expanding supply in the rental market and, meanwhile, trying to make the market that we have work better and reducing the dysfunction. In fact, we are seeing that housebuilding is falling further. Last year, we built only 189,000 houses and, in the first quarter of this year, we are building at a rate of only about 100,000. There has been an attack on private landlords through the tax regime and the rental sector is shrinking. That, plus anticipation of the measures in this Bill, is taking private rental property off the market. It is therefore no surprise that, while sale prices for houses are flat, we are seeing rental prices in the private sector accelerate by 9%.
My Lords, I declare my interest as chair of the Property Ombudsman. I warmly welcome the Bill. I am sure the Minister is well aware of the large number of organisations from which we have all had briefings. The Bill has taken a long time to get here, and expectations are riding high.
That is not surprising. Since 2001, the number of families forced to rent privately has doubled. High housing costs both cause and worsen poverty. The number of family homes available to social rent has reduced dramatically. For households on low incomes, this has significantly worsened living standards. The Bill needs to be seen in that context. We must not miss the opportunity to tackle long-standing issues of unfair eviction, rent increases and access to dispute resolution.
A number of issues will be raised in this debate from organisations such as Shelter, Crisis, Marie Curie and others, which I hope to be able to support in Committee. Today I will say a few words about Section 21 —in effect, the centrepiece of this legislation. I will then look briefly at some points that affect social housing providers and the property portal, the front door that will be crucial to enabling enforcement, then focus my main attention on the new PRS landlord ombudsman.
There is now some real doubt about when Section 21 evictions will actually be abolished. This part of the Bill has near-universal support, and tenants and landlords need certainty. The Government have said that it would be wrong to introduce it before the courts are ready, but have not defined what ready means or how we—or they—will know. It is five years since the Government made this commitment, yet there is still no progress. I hope the Minister will take the opportunity to give the House, as well as landlords and tenants, the certainty they need, by providing a plan for court reform and a timetable for when the abolition will come into effect.
5:12 pm
Lord Etherton (CB)
My Lords, I declare at the outset that, although I do not own any property in the private rented sector, my husband owns a number of such properties. I am grateful to the Minister and the Bill team for engaging with me on some of the issues that I will raise in this debate.
Like others, I warmly welcome the Bill’s additional protection for tenants. But, in judging the overall merits of the Bill, it is necessary to have regard to the state of the PRS and the possibility of unintended consequences. In that respect, I will elaborate to some extent on the description of the PRS given by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Best.
Paragraph 8 of the Explanatory Notes states that
“4.6 million households (c 11 million people) … rent from a private landlord”,
representing 19% of the entire housing market. According to a DLUHC publication in June 2022, it appears that this includes some
“1.3 million households with children and”
nearly 400,000 households with people over 65. The crucial importance of the PRS is highlighted by the fact that there is a shortage of about 1 million homes. In excess of one in five households in England—and one in four in London—rely on the PRS for accommodation.
Who are the landlords of the PRS housing? According to figures given by the Department for Communities and Local Government in 2010, 89% of landlords in England were private individuals, and 98% of these owned fewer than 10 properties. In 2019, the successor housing department indicated that 45% of private landlords, representing 21% of tenancies, owned a single property—the noble Baroness, Lady Warwick of Undercliffe, alluded to that—and a further 38% of landlords, representing 31% of tenancies, owned between two and four rental properties. What does that show? First, the PRS plays an absolutely crucial role in the provision of accommodation; secondly, the overwhelming majority of landlords in the PRS are private individuals; and, thirdly, nearly 50% of them own a single property for let and some 83% own four or fewer properties for let.
All this is important background for the Bill. It demonstrates the need for an extremely careful balance between, on the one hand, protecting tenants in the PRS from bad landlords and giving them appropriate redress in the case of landlords’ defaults, and, on the other hand, not imposing on the many small investor landlords standards and obligations that drive them from the sector. Does the Bill achieve that balance? I ask the Minister what steps have been taken by the department to obtain data on the possible number of private landlords who are likely to leave the market because of fears arising from the Bill. In the absence of such data, I consider that in some respects the Bill does not achieve the right balance and runs a high risk of driving many small investors from the sector. I will focus briefly on four areas.
My Lords, I declare an interest as a landlord of almost 30 years and before that as a renter in the private rented sector, so I have seen the private rented sector from both sides of the fence. It has been a long time coming, but this Bill is welcome. I support the creation of an ombudsman for the private rented sector and the application of a decent homes standard. There are some rogue landlords and action needs to be taken against them. The fact is that 81% of private renters are satisfied, according to the English Housing Survey.
Some seek to blame the current housing crisis on landlords, but I think that is a little unfair. The issue with rising rents and lack of supply is a failure of government housing policy over a long period, a point that the noble Lord, Lord Frost, mentioned earlier. His Majesty’s Government have repeatedly failed to meet their housing targets of 300,000 new homes per year—a point made by the noble Lord. As the noble Lord, Lord Best, pointed out in the recent debate on affordable housing, an estimated additional 90,000 social rented homes need to be built every year, partly to offset the 1.5 million social homes sold under the right to buy. The Government are nowhere near to achieving this.
It is also estimated that an additional 50,000 private rented homes are needed to help fill the gap, yet that does not look feasible. It is undeniable that renters are having a tough time, with sharply increasing rents. While I wholeheartedly agree that tenants’ rights should be protected, let us also look at this from the landlords’ perspective so that we have a balanced debate.
We must be wary of unintended consequences—a point referred to by the noble Baronesses, Lady Pinnock and Lady Warwick of Undercliffe. I am reminded, in that context, of a documentary that I saw about Chairman Mao’s response when told that sparrows were damaging China’s crops. He ordered all sparrows to be killed—millions of them. The next year, locusts, which were previously kept in check by the sparrows, destroyed all the crops, leading to the great Chinese famine of 1958 to 1962 that killed up to 30 million people. The documentary was a brilliant piece of anti- communist propaganda, but it showed in colours how policies must be properly thought through.
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The strengthened grounds are fair, comprehensive and efficient. It is reasonable for landlords to regain their property when they need to, but they should rightly give tenants a specific reason for ending a tenancy rather than securing possession simply to avoid the responsibilities of being a good landlord.
We are also simplifying the tenancy system by abolishing fixed-term tenancies and moving to a system of periodic tenancies. Fixed terms lock in both tenants and landlords, even when their circumstances change, on a property of poor quality. Much has been said and written about fixed terms, and not always accurately. It is important to acknowledge that under a fixed term, tenants cannot end the tenancy and landlords cannot evict them using Section 21. However, at the end of a fixed-term contract, a tenancy does not automatically end, and to regain possession a landlord still needs to issue a notice and apply to the court if the tenant does not leave. In the new system, after the minimum six-month initial period at the start of a new tenancy, either party will be able to end the tenancy when they need to.
The Government are also exploring potential exemptions to the minimum six-month initial period where it is absolutely necessary for the tenant to end the tenancy early. This could include, for example, where a tenant has died, instances of domestic abuse or where a landlord has not remedied a serious health hazard such as severe damp or mould. We remain committed to abolishing Section 21 as quickly as possible. However, we should be clear that delivering a smooth transition to the new system is essential so that tenants understand their rights and landlords have the confidence to remain and invest in this important sector. That is why we have committed to ensuring that county courts are ready to deal with our tenancy reforms so that landlords and tenants can benefit from a modern, efficient possession system. To ensure the courts are ready, we will work with the Lord Chancellor to assess the readiness of the county courts ahead of abolishing Section 21 for existing tenancies.
To help illustrate this, it may be helpful for me to explain what needs to happen to prepare for the new tenancy system. Following Royal Assent, a raft of secondary legislation is needed to switch on the Section 21 ban, alongside important consequential amendments to other legislation. Guidance is being developed so that the sector is fully prepared for the new system. Court rules and systems need updating to reflect these new rules, and we have already committed to aligning changes to the tenancy system with improvements in the courts. We are working closely with the Ministry of Justice and His Majesty’s Courts & Tribunals Service to digitise the county court possession system, and we are investing some £11 million this year to design this new digital system. Other target areas for improvement include the prioritisation of certain serious cases such as anti-social behaviour and improving bailiff enforcement by enhancing recruitment and retention practices. We will also provide early legal advice and better signposting for tenants.
Although we know that a majority of landlords provide an excellent service for their tenants, the Government are committed to providing tenants with free and easy access to redress where their complaint has not been dealt with as it should be by their landlord. That is why the Bill allows for a new private rented sector landlord ombudsman. The ombudsman will have strong powers to support tenants, including being able to compel unscrupulous landlords to take or cease action and issue an apology or an explanation, and to award compensation where needed. For the vast majority of landlords who provide a quality service, the ombudsman will have the power to protect them by dismissing vexatious, malicious or unfounded complaints. It also means that fewer cases will need to be dealt with in the courts, further reducing burdens on the judicial system.
In the other place, we set out that the Government’s preferred provider for this service is the existing Housing Ombudsman, which already provides redress for the social rented sector. Although no final decision has been made, the Housing Ombudsman is uniquely placed to deliver a single streamlined service for both social and private tenants.
Home should be where we feel comfortable and safe but, for some tenants, the rooms and homes they live in, the stairs they climb and the air they breathe can be a clear and present danger. To improve quality and drive up standards, we are introducing a decent homes standard in the private rented sector for the first time. This will ensure that all tenants have access to the safe and decent homes they deserve. It will also support the Government’s aim to reduce the number of non-decent homes by 50% by 2030. We know that the vast majority of landlords already provide decent housing and a good service for their tenants. The decent homes standard will help good landlords by simplifying and clarifying requirements, while providing local councils with effective and proportionate enforcement powers to deal with the minority—I stress that it is a minority—who do not meet their obligations. It is imperative that we get the new standard right, ensuring that it is proportionate and fair. We are working closely with the sector to co-design it and make sure the balance is right between landlords and tenants. We will set out our proposals in due course.
The Bill will also introduce a new property portal, which will set out landlords’ responsibilities clearly in one place and support tenants to make more informed choices. It will also support local authorities by providing them with the information and tools they need to support enforcement and drive out the bad actors from the private rented sector. To ensure the new property portal works with existing requirements, we will review how it interacts with selective and HMO licensing. This includes how we can reduce administrative burdens and make the system more effective for landlords, tenants and local authorities.
Blanket bans on letting to families with children or people who receive benefits have no place in a fair and modern housing market. People are much more than their benefit status, and no two families are identical. Everyone in the private rented sector is entitled to access a safe and decent home, and landlords should consider prospective tenants on their individual basis. That is why the Bill will also ensure that no family is unjustly discriminated against when looking for a place to live. We are making it illegal for landlords and agents to have blanket bans on renting to people who receive benefits or to families with children. The Bill will address overt discriminatory practices, such as “No DSS” adverts, and indirect practices designed to intentionally prevent someone entering a tenancy. Working with the devolved Administrations, we intend to extend these measures to Wales and Scotland, further protecting vulnerable tenants from discrimination.
Everyone has the right to make the house they rent into a home and, for many, pets are part of that, which is why we are making sure that private landlords do not unreasonably withhold consent when a tenant requests to have a pet in their home. We will give tenants the right to challenge unreasonable refusals. We know that some landlords are concerned about potential damage caused by pets, so landlords will be allowed to require insurance covering pet damage. This will provide landlords with reassurance that any damage caused by a pet can be taken care of, with the responsibility for damage caused by a pet falling explicitly to the tenant.
All the changes I have set out today must be underpinned by a robust, proportionate and effective enforcement framework. That is why we are extending councils’ powers to collect and retain revenue for future enforcement work from financial penalties against landlords who flout the rules. Local authorities will be able to issues fines of up to £30,000 in the most serious cases, with the alternative of a criminal prosecution. We are also introducing enhanced investigatory powers that will make it easier for local councils to obtain financial information from bad landlords when seeking to build a case against them for suspected abuse.
We understand that supporting local authorities to deliver these functions is critical. That is why we will ensure that additional burdens created by the new system are fully funded and that local councils are able to keep the revenue they receive from civil penalties ring-fenced for further enforcement activity.
I hope we can bring to scrutiny of this Bill a shared perspective that, when it works best, the private rental sector can deliver both a stable home and a healthy return for investors. The Bill seeks to support these aims by providing a comprehensive, balanced package of measures that will meet the needs of the sector for the 21st century. The Bill will give tenants the protections and security they need to feel truly at home in their communities, and give landlords the confidence that, if they do the right thing, they can be rewarded for providing those very homes. I beg to move.
I thank the many organisations that have sent through briefings, met with us, and expressed their concerns about the Bill. There are too many to mention them all, but I particularly thank the LGA, the Renters Reform Coalition, Generation Rent, the National Residential Landlords Association, Shelter, Crisis, Citizens Advice, London Councils, Universities UK, Battersea Dogs & Cats Home, and the Law Society for keeping us informed of their campaigns and for their views on the Bill.
Unfortunately, and at the risk of my sounding like a stuck record on legislation I have dealt with in your Lordships’ House, the reforms that the Bill delivers come hand in hand with a missed opportunity to improve the situation of the UK’s growing band of renters. Of course some elements of the Bill are very welcome; it changes possession grounds, introduces compulsory periodic tenancies, extends the decent homes standard, and introduces a new ombudsman and a property portal, as well as introducing the very important right for tenants to keep a pet. We very much welcome the Minister’s comments about blanket bans; she is absolutely correct in saying that they have no place in a modern housing system.
However, other key elements have been watered down in the Commons. Absolutely critical, and of fundamental importance, are the barriers put in place to delay the commencement of the abolition of the punitive and much-abused Section 21 no-fault evictions. Recent figures show that more than 80,000 households have been threatened with homelessness and had to approach their local authority for support following a Section 21 eviction notice, since the Government’s 2019 pledge to end them. As the charity Crisis tells us, this equates to 52 households a day being threatened with homelessness.
In my time as a councillor, I saw the dreadful impact of that on families. Having to move on short notice is incredibly expensive; the Renters Reform Coalition estimates that each move costs around £1,700—that is quite a low estimate. These moves disrupt employment and education, and shatter connection with communities and family support.
Indeed, it has a particular impact on vulnerable children. Imagine spending months trying to get your child with special needs into a suitable school and then being evicted from the home near that school. It also takes a terrible toll on people’s health and mental health, with parents often feeling guilty that they are not able to provide the stability they know would benefit their children. There is a very significant economic cost of this as families present as homeless to their local council. The cost of temporary and emergency accommodation has risen to £1.74 billion and consumes around 30% to 40% of net revenue budgets for some local authorities.
It is surely time for a definitive ban on Section 21 no-fault evictions, but recent amendments made in the other place just kick the can down the road. The Bill now requires the Lord Chancellor to publish an assessment on the readiness of the courts. Of course the court system must work effectively to get decisions made in a timely way for the benefit of both tenants and landlords but, with that pledge having been made five years ago, why was this work not already under way or even thought about until the final stages of the Bill? We are now left with an indefinite timeline for court reform and, although the Minister has today given us some indication of the necessary steps, there is no clear route map to say what needs to change and how it will be done and funded, and families are left with sword of Damocles-like evictions still hanging over them. The Secretary of State repeated his pledge this weekend that this court reform would be completed before the general election. Will the Minister say which general election he was referring to? It is shameful that the Government did not have the courage to face down Back Benchers in the Commons on this and put their concerns over the trauma of eviction faced by private renters. We will try again with amendments to enact a ban on Section 21 evictions on Royal Assent of the Bill, although I suspect this too will have to wait for a Labour Government.
We have significant concerns about the introduction of what could represent a tenant trap in the Bill. One of the key purposes of this legislation was to bring the UK more into line with the longer-term tenancies enjoyed in most other parts of Europe by creating open-ended tenancies. In Germany, for example, the average length of a tenancy is 11 years compared with just over two years in the UK. We welcome these more flexible tenancy proposals but, in a move which runs completely counter to this flexibility, the Bill now extends the right to move out from within two months’ notice from the start of the tenancy to six months. This could lead to some real issues in certain circumstances—for example, if a property has been mis-sold and the renter finds themselves living in a property not fit for purpose, whether through damp and mould or other maintenance issues. Being trapped in this way for six months could be extremely damaging to their health or that of their family. Yes, there are consumer protections, but these are difficult to enforce and may not be enacted as quickly as would be necessary.
Noble Lords know that I have a particular passion for supporting victims and survivors of domestic abuse, and indeed set up our local organisation, Survivors Against Domestic Abuse. It is of great concern therefore that victims and survivors may find themselves trapped in a property in a dangerous situation, potentially even with their abuser, because of the six months’ notice period. We are also concerned that there may be other vulnerabilities, such as mental health issues, which make it inappropriate to force this fixed period on certain tenants. Does the Minister feel that there may be some scope to amend the Bill to allow for those exceptions? Domestic abuse and support charities are also very concerned that the vague definition of anti-social behaviour as a ground for eviction could lead to people being evicted on ASB grounds while still undergoing their trauma.
We have outstanding concerns about why the Government have not used the opportunity of this Bill to extend the provisions of Awaab’s law to the private rented sector. It seems nonsensical that protective provisions introduced for the social rented sector to give tenants more power to have issues such as damp and mould rectified are not available to those in private rented properties—or in Army properties, which were debated earlier today in your Lordships’ House. My noble friend Lord Khan has detailed knowledge of them and will say more later in the debate.
Like many noble Lords, I have been lobbied heavily by student bodies regarding the provision to exempt landlords of student properties from the move away from fixed-term tenancies. We understand the purpose of that but, as Universities UK has pointed out, there may be significant unintended consequences. I quote Universities UK:
“We note the government’s amendment which would see landlords serving notice between 1 June and 30 September. This is welcome as it would not be in the interest of students if landlords could evict tenants at any point in the year. However, given the increased diversity of how and when courses are delivered there will be some courses which are inappropriate for this model. The government should consult with the sector to identify where this is the case and what amendments can be made”.
Students and professionals in higher education have made the point strongly to me that there may be students who cannot live at home—care leavers, for example—and need longer tenancies than an academic year. If this measure is too rigid, it may cause significant problems for those whose study pattern is different from the traditional undergraduate pattern. Can the Minister outline what discussions have taken place or will take place with the sector in this regard?
On the appointment of the ombudsman, I know that my noble friend Lady Warwick has questions about whether there will be a process to appoint the most appropriate body. I look forward to hearing the Minister’s response on that.
We welcome the pet-friendly provisions in the Bill, including those that prevent the unreasonable refusal of pet requests from tenants. I have seen from personal experience the great health and social benefits that pet ownership can bring, and for those who live alone or who have other vulnerabilities it can be extraordinarily life-enhancing. Passing the legislation would mark a significant step forward for renters across the country who have pets, as well as those who aspire to do so. However, pet charities and organisations, including Battersea Dogs & Cats Home and Cats Protection, have asked for some strengthening of the Bill—for example, shortening the time limit within which landlords must respond to a written pet request from the current 42 days to 28 days, and giving a presumption of acceptance if no response to a legitimate request is forthcoming. I hope the Minister will give due consideration to amendments in that regard.
We have no intention of holding up the Bill as it will put in place some provisions that will improve things for renters, but we wanted to see a much more fundamental reform and have called for that for many years. Regardless of whether you are a home owner, leaseholder or tenant, we believe that everyone has the right to a decent, safe, secure and affordable home. Hopefully, a Labour Government will soon be able to build on the foundations put in place by the Bill. In the meantime, I look forward to the debate today and to hearing the Government’s response.
I will be more positive now. Many of the changes in the Bill are positive, although they do not go far enough, as my noble friend Lady Thornhill will demonstrate. The key change must be the abolition of Section 21 eviction notices—without delay. The disruption to family life by the constant need to find another rental property is not considered anywhere near enough by the Bill. Children having to change schools on a regular basis because of the insecurity of tenure must be a thing of the past. Ending Section 21 and implementing the decent homes standard are key to the Bill.
Apart from the fundamental policy changes that the Bill offers, there are inevitably consequences for areas of housing provision that may not be fully recognised by the Bill as it stands. My colleague in the other place, Helen Morgan MP, raised the issue of decent housing standards being required for military accommodation. The Government gave her a commitment that they would table an amendment to do so. On these Benches, we look forward to that amendment from the Government in Committee.
Student accommodation is the first issue I want to raise. On Report in the Commons, the Government introduced new provisions regarding student accommodation, as the Minister outlined. This has the effect of enabling landlords of student accommodation to ensure that student tenancies end with the academic year. I ought to say, perhaps, that I am vice-chair of the council of the University of Huddersfield. I know that many courses start in January and many, particularly master’s degree courses, last 15 months. Many students, particularly international ones, need permanence in their accommodation. I would like to hear from the Minister what protections there are for these students. Can she explain the reasons for expecting students to pay six months in advance for accommodation?
I turn now to what I hope are the unintended consequences of the Bill. With regard to social housing, the National Housing Federation raised concerns in its briefing about the impact of ground 1B, rent to buy, in the possession orders because in its current form it prohibits social landlords from converting rent-to-buy properties into social or affordable rented homes. Perhaps the Minister can consider concerns from the sector on this and on ground 6 where social landlords are redeveloping properties. I am sure that we can overcome these issues but I think they are very important to social landlords.
In its helpful briefing, the Domestic Abuse Housing Alliance seeks remedies for specific concerns regarding the use of the repossession order at ground 14, where safeguards are especially needed for the victims of domestic abuse; and ground 8A regarding rent arrears, where women in controlling relationships may not have the financial oversight of domestic bills and fall foul of that particular reason for repossession.
Finally, there are 10 clauses which give new statutory responsibilities to local housing authorities. For these reforms to be effective, it is vital that enforcement powers are clearly defined and able to be implemented; therein lies the crux of the challenge for government. Councils are experiencing very significant financial pressure—local authority external auditors are regularly making that case. The Bill gives councils the right to retain financial penalties but, quite obviously, that will be inadequate to fund the enforcement teams necessary. The Minister rightly pointed out that the new burdens agreement between government and local authorities is to fully fund new duties. However, in practice that rarely occurs in full, so the Bill relies on strong enforcement; the powers are there, but currently not the means. I really look forward to the Minister reflecting on that, because the whole of the Bill depends on enforcement powers being effective.
It is good that the Bill is tackling some of the long- standing injustices in the sector. However, to be the sea-change Bill that was promised, it needs to put consideration of individuals and families at its very heart —and on that important test, currently the Bill fails.
However, the Bill does try to address other serious criticisms of the private rented sector. These criticisms are, put simply, that landlords can—and some do—take advantage of the acute housing shortages and lack of options; and that the power imbalance between landlord and tenant means that renters have had to put up with rents that absorb half their incomes, with poor conditions and appalling service, all because they have nowhere else to go. Underpinning this imbalance is the constant threat—whether articulated or not—of retaliatory eviction, whereby the landlord can get rid of a complaining tenant through the notorious Section 21 no-fault eviction route.
The Bill takes some important steps to correct the landlord-tenant imbalance. It does not have much to say about the affordability of rents, because it is a fundamental characteristic of a private rented sector that rents are set by the market. As economists frequently tell us, tough rent controls could lead to an exodus of landlords. While a gentle reduction in the size of an overextended PRS could rebalance the sectors, too many landlords exiting the market at the same time because of controls on rents would create chaos. However, the Bill does seek to block rent increases in excess of market levels, to stymy an underhand way of forcing a tenant out when no legitimate grounds exist.
On other matters, the Bill has some valuable ingredients. Landlords will have to meet a set of decent standards, which will be established to address poor conditions such as cold and mould. Renters will all have access to a new ombudsman who will handle complaints and will be able to levy quite serious fines for incompetence and bad behaviour. As in Scotland, Wales and Northern Ireland, a register will be available online: a property portal will be maintained of all PRS properties, covering their compliance with legal requirements, to enable prospective tenants to check for health and safety features, and so on. The Bill will also make it more difficult for landlords to refuse a tenancy for those with a pet.
All these changes empower tenants in helpful ways. However, there are modest changes, which your Lordships’ scrutiny may achieve, that would amend the Bill for the better. There is also a desperate need for energetic enforcement. In addition, renters need a good online advice service to explain all their rights and responsibilities —one is being developed by the TDS Charitable Foundation.
However, a cloud hangs over what was the centrepiece of the Bill: the fundamental issue of renters’ security—their consumer protection against arbitrary evictions. As well as particular concerns about lettings to students, there are at least three further issues here. First, new grounds for possession will allow landlords to get the property back for a family member’s occupation or their own, or because they are selling. This means, perhaps inevitably, that any private sector tenant could still be evicted through no fault of their own. These are understandable grounds for repossession because a sector based on private investment has to enable the investor to sell up at some point, but could this change be made less sudden and less painful?
Secondly, the new measures to speed up the gaining of possession in arrears cases introduce some tough changes that may have gone a step too far. This needs exploring.
Thirdly, the biggest problem with the Bill is not content but implementation. The all-important ending of no-fault Section 21 evictions is now to be delayed until such time as the Lord Chancellor reports that the county courts are likely to process cases speedily. This could take a long time and, with no fixed date and no backstop for triggering the end of Section 21, the central plank of the Bill is missing.
In conclusion, the doubling of the size of the private rented sector and the halving of the social housing sector has exacerbated shortages and led to some cases of poor performance and exploitation of tenants. The Renters (Reform) Bill introduces some welcome measures, for which the Government deserve full credit, to redress the landlord/tenant imbalance. But last-minute government amendments to delay the ending of no-fault evictions for an indefinite period have led to anger and frustration from tenants’ representatives, such as Generation Rent and the Renters Reform Coalition. Perhaps the Minister can head off a Lords rebellion on this issue by indicating a willingness to address this concern, alongside more modest changes to a Bill that is worth having but could be much better.
So there is much to commend in the Bill. However, I am concerned that it has lost some of its most important measures during its passage through Parliament so far. As drafted, the Bill will not provide a significantly better private rented sector. The most well-publicised reversal is the delay in abolishing Section 21 evictions, and I add my voice to the calls of other Peers for the Government to set out a series of tests for the courts, or a timeline, for abolition. Without this, I fear that this reform will be delayed indefinitely.
This Bill provides us with an opportunity to make significant reforms to one tenure, but the private rented sector houses only around 20% of the population. We need to think bigger to fix our housing crisis. Nothing short of a long-term strategy which considers all tenures as interconnected parts of a whole system will do. A few weeks ago, I was pleased to launch a report from Homes For All, which set out a vision for England’s housing system and the need for a long-term strategy—and I am grateful to the Minister for being there. I commend the report and its ambitious proposals to all noble Lords who have an interest in fixing the UK’s housing crisis. I am grateful to those noble Lords who have supported it, including the late and much mourned Lord Stunell.
A vision for better housing which delivers for everyone requires a set of values that we can all support. The Archbishops’ Commission on Housing, Church and Community set out five values that should underpin good housing. It said that housing should always be safe, secure, sociable, sustainable and satisfying. As it stands, the private rented sector is often unsafe, insecure, unsociable, unsustainable and unsatisfying—and it is frequently the most expensive tenure for tenants. I shall be assessing the quality of this Bill against the five values outlined by the commission.
Achieving these five goals may require a certain amount of sacrifice. To reverse pervasive issues of low quality and high costs, a new balance must be struck between the needs of landlords and renters. This might involve some sacrifices if we are to reform the tenure meaningfully. The needs of landlords and renters are often presented as being in opposition but, in reality, the vast majority of landlords demonstrate a duty of care in line with legal obligations, and the vast majority of tenants treat their homes with respect. We need both groups to come together to make this tenure work.
To turn to specifics, a sense of security is vital for renters. I would like to see the notice period for tenants extended from two to four months, which would provide more time for them to find a new home or for local authorities to offer homelessness prevention support. At the other end of the tenancy, there are questions to ask about the newly introduced six-month tenancy commitment for renters. If the Government will not commit to removing it altogether, will they set out the extenuating circumstances that would allow tenants to serve notice earlier, such as the death of a resident or a serious hazard in the property.
Judges should have more discretion to consider extenuating circumstances when assessing Section 8 evictions. Repeated non-payment of rent can be for a huge number of reasons, some of which will not persist beyond just a few months. Judges should be able to use their discretion about whether they issue an eviction notice on those grounds. We also know, and have heard already, that domestic abuse is often misreported as anti-social behaviour. Given those sensitivities, why has the threshold for a Section 8 eviction been lowered to
“capable of causing a nuisance”?
That framing is extremely broad and will inevitably capture behaviours that should not count as anti-social behaviour.
One other issue that I would like to raise affects providers of retirement housing for clergy, including the Church of England’s pensions board. I should declare I am part of the Church of England’s pension scheme, but I am unlikely to turn to it for housing in retirement. However, many members of the clergy enter retirement without owning a home. It is then that pensions boards or similar schemes are able to step in to provide affordable and assured housing for them in later life. Some changes will be needed to this Bill to ensure that the Church’s model of provision is still financially viable. I have set these out in a little more detail in a letter to the Minister, and I look forward to corresponding further on the matter.
Finally, the Bill presents us with the first opportunity in a generation to make our most expensive and insecure housing tenure fit for purpose. Will we take the opportunity or will we squander it? I hope that this House and the other place will work constructively to pass legislation that protects renters, reassures landlords and ensures that everyone has access to good housing that is safe, secure, sociable, sustainable and satisfying.
Now we have this Bill. I have philosophical concerns—that I think it is fundamentally unconservative, speaking as a Conservative politician—and I have practical concerns; namely, that it ties up and restricts the market still further and the practical effect will be to make things worse, not better. I regret that I must speak in these terms of a Bill that my own Government are bringing forward, but I think it is extremely problematic. If we want to help people—as has been said—into safe, secure, sound housing and reliable tenancies, we need to produce a better housing market and not distort it still further.
I have four specific concerns that I will briefly outline: first, the nature of the Government’s manifesto commitment and, secondly, its extent; thirdly, the restrictions that the Bill brings in on the use of property; and, fourthly, its developing complexity.
First, on the nature of the manifesto commitment that the Conservative Party and this Government made, I entirely accept that we committed to abolishing no-fault evictions—Section 21 evictions—but we also set in the manifesto a
“target of 300,000 homes a year by the mid-2020s”,
which has not been met, and promised to
“make the planning system simpler for the public and small builders”,
which also has not been met. We made an effort in the early years of this Government; it got blocked and, since then, we have given up the attempt.
These two things go together: one liberalises supply; the other constrains the market. I wish we had focused only on building houses and reforming the planning system, but at least together, there is some sort of balance. Now, we have dropped the commitment to build more houses and liberalise the system, but we are pushing though the provisions that tie up the market still further. This will only damage housing affordability further.
My second point concerns the extent of the manifesto commitment. As I said, we committed to abolish no-fault evictions. We did not commit to end fixed-term tenancies, and they are not the same thing. Section 21 is a way, among other things, of ensuring that landlords can reliably get possession, after the first 12 months in an AST, at two months’ notice. If we abolish Section 21, another way of providing some certainty for landlords that they could get their property back would be to leave open the option of agreeing another fixed-term tenancy, for another year or whatever. The Bill removes that option. It scraps fixed-term tenancies entirely and makes every tenancy rolling, bringing in the possibility that landlords will have to go to court much more often to recover their property. I repeat: one commitment is in the manifesto and another is not. That is why my honourable friend Anthony Mangnall MP tabled Amendment 10 in the Commons providing for the maintenance of fixed-term tenancies, and I am ready to table it again to ensure that we can have some debate on the subject and so that the Government can explain why they have expanded their commitment to take in fixed-term tenancies.
My third concern is philosophical. The Bill takes another step away from normally understood property rights. Even if both parties want to, they cannot agree a fixed-term tenancy; it is illegal. A landlord may no longer choose who they want to rent to. Landlords must accept pets. They cannot simply recover their own property but must persuade the courts—the state—that they have a justifiable reason for doing so. We are already too far down the road, as a Government and as a country, of accepting that people enjoy property rights only at state whim, and only in line with the purposes of the state. I am afraid that the Bill takes us a step further down that road.
My final concern is practical. Looking at the way the Bill has evolved in the Commons, I cannot avoid the impression that, in their heart, the Government know it is a bad Bill and are trying to mitigate it, under pressure. They have realised, for example, that the redress schemes, the decent homes standard and the PRS database, all of which may be good things in themselves, will reduce flexibility and push up costs. The Government have realised the risk that restrictions on long-term lets might bring in a shift to short-term ones, so they have brought in some rules to cover that situation too—though I note that these too will now require further mitigations to deal with special circumstances.
Of course, as has been noted, the Government have had to accept that the court system is not ready to deal with the abolition of Section 21 in full, and they have had to delay its introduction, so we are not even getting credit from our political opponents for the one thing that was supposed to be the purpose of the Bill in the first place. Everything that has happened in the Commons has brought in complexity, cost and delay to the system, and these are the very things that will drive more landlords out of the market, push up prices further and make the market even more dysfunctional than it is now.
To conclude, and I am sorry to conclude in this way —noble Lords will know that it is with great reluctance that I criticise the policy of my own Government—it is a poor Bill and I do not think it is getting any better as it proceeds through the Commons and through this House. It is inevitably going to make the private rented sector smaller and more expensive. It is pursued from the best of motives, but its consequences will be that housing supply shrinks and the cost of housing goes up. It will generate more social problems rather than mitigate them. I am sorry that the Government are pursuing it, but I hope that it will still be possible in Committee to improve on some of the fundamental points that I have mentioned, and in particular to retain fixed-term tenancies as an option. I hope some noble Lords will join me in that effort.
The Bill largely concentrates on the private rented sector, but it will also have an impact on social housing providers, particularly where they use assured tenancies. The Government responded to some of these points on Commons Report and introduced amendments, but these themselves are likely to have unintended consequences, which I hope the Minister will be ready to consider. I refer to the new rent-to-buy ground 1B, introduced in the Commons as Amendment 158, and ground 6. The noble Baroness, Lady Pinnock, has given the House the details of these and I will not repeat them, but this has been raised by the National Housing Federation and I am sure it would welcome a meeting with the Minister to discuss the technical detail.
Next, I would like to mention the new portal. The Government have recognised the need for local authorities to have information about PRS properties in their area, for landlords to be clear about their responsibilities, and for tenants to know where to go for help if their landlord fails to put right a problem. The TDS Charitable Foundation’s survey work raises serious concerns about the ability of tenants to enforce the new rights that the Bill will give them. It is developing a new “My Housing Issue” gateway or portal, to which the noble Lord, Lord Best, referred, which will act as a signposting service. I understand that it will identify for tenants the correct route to solve their problems, encourage an early resolution of disputes and provide relevant information about housing rights and options. I certainly encourage the Minister to look at this in relation to the new portal; it may be very helpful.
I now turn to my main concern: the way the new PRS ombudsman will be selected. The new ombudsman will play a vital role in delivering the Government’s objectives to improve experience in the sector for tenants and landlords alike. I declared my interest as chair of the board with responsibility for the Property Ombudsman. TPO deals with complaints and requests for assistance from private sector tenants of the 39,000 property agents who subscribe to this service. The new ombudsman will provide that service for PRS tenants whose landlords do not use an agent. This has been a huge gap in redress, as my ombudsman knows all too well from the thousands of requests for help that we have to refer elsewhere or to the courts.
We should not underestimate the scale of the new regulatory role proposed. The latest data from HMRC states that there are almost 2.4 million incorporated private landlords in England, with almost half owning only one property. Moreover, local authorities, which are responsible for investigating poor housing standards and taking enforcement action against rogue landlords, are overstretched, as we know. At the same time, many tenants struggle to enforce their rights through the courts, not least because, as the Law Society notes, 44% of people in England and Wales do not have access to housing legal aid providers in their local authority area.
The scale of, and challenges for, an ombudsman for this part of the private rented sector will be completely different from those presented, for example, in the social housing sector. Given the size of the task, it seems right that the Government have said they have yet to decide how the new position will be filled and supported. Clearly, this requires an open competition among the existing bodies in this field, to determine which might provide the best service.
However, the Minister made clear today that their preference is for the Housing Ombudsman, which covers the social rented sector, to have its remit extended to cover private sector landlords. I find that quite confusing because, although the decision about who should operate the service looks like a foregone conclusion, the Government have been at great pains to explain that no decisions have yet been made about whom to appoint to run the service. Indeed, the Housing Ombudsman has indicated that he is undertaking preparatory work, funded by the Government, to investigate how the PRS ombudsman could work and how it should be funded.
In a Written Question I put to the Minister some weeks ago, asking for the extent of the support provided to the Housing Ombudsman and the terms under which it was provided, the Government declined to provide that information. I can tell her that the gossip in the sector is that it is about half a million pounds. That does not bode very well for fair, open and transparent processes. Given what the Minister said about the Government’s preferred option, has she considered that TPO has uniquely detailed knowledge and experience in the private rented sector and is certainly well placed to be considered to deal with complaints for the landlord part of the sector?
This is my main point: in making important appointments for this role, it is imperative that the Government follow a clear and transparent procurement exercise, not least to ensure the best value for the taxpayer. Given that, can the Minister confirm that the Government will publish clear criteria setting out how they expect the new PRS ombudsman to operate and ensure that they fully consider all potential providers of the service? I reiterate that I broadly welcome the Bill as a chance to empower tenants to call out bad practice in the private rented sector, while supporting the vast majority of private landlords who do the right thing.
First, local housing authorities are given powers in some cases to impose a fine on a landlord of up to £30,000. Those are cases where the local authority is satisfied beyond reasonable doubt that the landlord has committed an offence under the Bill, and instead of prosecuting the landlord, the local housing authority can impose such a fine. The reality is that, because of financial constraints, the local housing authority will usually wish to impose the fine itself rather than pursue the matter by way of prosecution in the criminal courts.
I do not consider that it is appropriate for a local authority official to act as judge and jury in relation to a criminal offence, enabling the local housing authority to impose a fine of as much as £30,000 on small investors in the PRS. I have no objection to the court deciding on whatever fine it wishes, but it is not appropriate for a local authority employee to impose fines of this size. For them to do so will result in litigation as to whether the criminal standard of proof has been satisfied and whether the amount of the fine is appropriate. It will lead to a lack of consistency across the country in the amount of fine for any particular infringement. I suggest that, if an offence has been committed and the local housing authority is not willing to limit the fine to £5,000, it should be left to the court to decide whether an offence has been committed and what is the appropriate remedy. It must be remembered that the rental return on many of these rented properties, particularly those owned by a single investor, is relatively modest. Even a small fine will push the investment into an unprofitable one.
Secondly, the standard of proof that is required in the case of a fine by a local housing authority under the Bill is inconsistent. For example, in some places— I will not elaborate today—the local housing authority may impose a financial penalty of up to £5,000, whether or not an offence has been committed, provided the authority is satisfied beyond reasonable doubt of the matters constituting the offence. In other cases, one in particular, it can impose a penalty of up to £5,000 if satisfied on a balance of probabilities that the landlord has breached certain provisions in the Act. There is no obvious reason for such differing standards of proof for the same £5,000 level of fine.
Also, the standard of proof should always be beyond reasonable doubt. Anything less than that, which depends upon probabilities assessed by a local authority employee, will undoubtedly give rise to dispute and appeals.
Fourthly and finally, in relation to two offences under the Bill, the landlord can be liable only if his or her mental state is one of knowledge or recklessness as to the relevant facts. The mental state of recklessness in criminal law is an extremely difficult one and has given rise to case law. It is something less than intention but more blameworthy than carelessness. In broad terms, recklessness will arise if the accused consciously—that is, looking at the matter subjectively—takes an unjustified risk. Such difficult concepts should play no part in this legislation, which will mostly affect landlords who own one or at most relatively few homes. It certainly should not be left to a local authority which wishes to impose a fine of up to £30,000 to reach its own conclusion on the application of recklessness in criminal law. The only state of mind which should be capable of giving rise to an offence under the Bill is intention—actual knowledge or an actual intention of the landlord to do the matters comprising the ingredients of the offence. This is clear, easy to understand and fair. At the end of the day, that is the test of good legislation.
Due to the macroeconomic climate, landlords are being seriously squeezed. Some 1.7 million landlords have buy-to-let mortgages, and some face a tripling or quadrupling of their mortgage interest because of interest rate hikes. Over the last year, the number of landlords defaulting on their mortgages has doubled. Landlord profits are at their lowest for 14 years. According to recent research, approximately one-third of landlords plan to retire or exit the buy-to-let market altogether, and over a quarter are considering selling more than one rental property. There are some new entrants to the market, but these are not enough to meet private rental demand.
This crisis in the PRS has been building for years and can be dated back to the then Chancellor George Osborne’s decision in 2015 to end mortgage tax relief. As a result, the private rented sector, unlike any other business, is taxed on turnover rather than profit. Some saw this as the City’s attempt to destroy the PRS as a viable and rival form of investment. However, the PRS survived during buoyant times, but it is now in serious trouble. In parts of the country, investing in rental property just does not add up. Capital values are so high, and rentals so relatively low, that the return on capital, even without a mortgage, is less than 2%. The noble Lord, Lord Etherton, referred to most landlords owning only one or two properties: they are, in a way, small-scale investors, but the returns for many of them are very low. With tax and voids, a landlord may end up paying a tenant to rent from them in parts of the country. It is simply better to put the money in a bank. Even those with properties bought many years ago, with no mortgage, would be better off putting their money elsewhere.
One former Housing Minister told me that, if landlords sold off their properties, it would be good for the market and first-time buyers. Landlords generally do not want to sell off their properties, but some will have to in the current circumstances. Others will move their properties to Airbnb or similar ultra-short-let platforms, which make better returns for landlords but result in fewer long-term homes for residents and less student accommodation in cities and resorts. These ultra-short lets create a growing black hole of lost long-term rental property, including a growing black market in the rental sector. The headline in yesterday’s Evening Standard summed it up: “London’s Airbnb Wild West: capital ‘hollowed out’ by short-term lets eroding the private rental market”.
In some blocks of flats in the capital, 90% of the flats are Airbnb or similar ultra-short lets. Last year in London, between July and September alone, 455,000 stays were booked in short-term lets. It was found that more than a fifth had previously been long lets—so you can see the shift away from long lets to ultra-short-term lets. That means fewer homes available for London residents, and fewer B&B and hotel bookings. It reduces the supply of long-term lets, pushes up rents and forces tenants out to the suburbs and beyond.
The same is happening in many of our cities and resorts. If we want to provide more long-term rentals, Airbnb and other ultra-short let platforms need to be properly regulated and restricted. Incidentally, that is why I support the amendment to the Bill which provides for tenants to stay for at least six months initially. Purely short-term tenancies would be a disaster. Most banks require six-month minimum tenancies to lend in the first place. Long-term tenancies should be allowed when all parties agree—in that sense, I also agree with the noble Lord, Lord Frost. This can provide more security, not less, for both parties.
Regulation of the private rented sector is welcome to rein in poor landlords—of course it is. According to Foxtons, there are already over 150 pieces of legislation governing letting a property. When a landlord lets a property, they have to ensure there is an annual gas safety certificate, a portable electric appliance certificate and an energy performance certificate. In addition to the letting agent’s letting fees, often payable in advance, the landlord has to pay a tenancy paperwork charge, a professional cleaning charge, charges for tenant reference checks and tenant right-to-rent checks, and an annual TDS deposit check charge. Then there are insurance and service charges, which the landlord pays—plus they need to make good any damage or wear and tear to the flat not covered by the deposit or insurance. This can all come to several thousand pounds or more. The idea that this could happen every couple of months would simply mean landlords would further increase rents to cover this and repeated voids.
HMRC is currently piloting quarterly returns for landlords, who normally have just one or two flats as their pension, as I mentioned. This fails to take into account the nature of letting: many costs are up-front in the first few months, and then there can be a period of a couple of quarters of full rental, followed by a later period of voids and no rent. Landlords will potentially be changing tax brackets every quarter and chasing tax refunds at the end of the financial year.
While I am in favour of an ombudsman scheme and property portal, I am concerned that the fee for this would be yet another burden on landlords. Similarly, some local authorities are charging landlords to license their rental properties, which can result in landlords becoming local authority milch cows and increasing rents for tenants. In the light of all the reforms in the Bill to bring the PRS up to standard, which I welcome, selective licensing should be abolished.
With the right to request a pet, I hope that the Minister will reconfirm that, where these are banned under the lease or accepted at the discretion of the RTM or RMC, this will be maintained. Dogs can be a nuisance, particularly in blocks of flats, and even dangerous; we have seen a dramatic increase in dog attacks across the country.
On Section 21 no-fault evictions, I agree that these should go, but only when courts are ready. Landlords must have the ability to sell their property, move back into it or deal with significant rent arrears or anti-social behaviour in a timely manner. As the Law Society mentioned,
“without investment for housing, legal aid and the courts, the bill will not achieve its aims and may lead to an increase in backlogs and landlords and tenants alike will be unable to enforce their legal rights”.
I welcome that the Housing Minister in the other place said the Government were taking significant steps to ensure that the county court system would be ready to deal with the expected rise in possession-related caseload once Section 21 had been abolished.
His Majesty’s Government are investing £1.2 million in His Majesty’s Courts and Tribunals Service to deliver a better end-to-end online possession process. But I ask the Minister a question that a lot of noble Lords have asked: when will this system be ready and up and running? It is clearly of crucial importance.
There will be much to discuss as the Bill progresses. I suggest that we focus on the practical application of the Bill and avoid unintended consequences. Some have argued that, instead of sorting out the housing sector and focusing on providing more affordable homes, we should instead try to shore up renters at the expense of landlords. For example, there is the idea of a rent cap. That is fine, but will His Majesty’s Government or local authorities cap mortgages, service charges, and insurance and maintenance costs? If landlords default on their mortgages or are otherwise driven from the housing market, there will no security for tenants at all.
In the past, rises in capital values have enabled landlords to subsidise tenants, but this is not the case today. In Scotland, rent controls have not worked out well. Scotland has the shortest time for rental listings in the UK: properties are listed for just 15 days on average before being snapped up. There is an acute shortage of long-term rentals.
We need to make homes affordable again, by building and providing more homes, stemming the massive rise in ultra-short lets, and making home purchases attainable once more, especially for young people. I take the point made by the right reverend Prelate the Bishop of Chelmsford about the housing plight of young people. In its remit, the Bank of England should consider the state of the economy as a whole, not just the rate of inflation, and never forget the aspirations of British people to be part of our property-owning democracy.