General Election – Our view on housing policies

March 6, 2015

As we near the General Election many colleagues and customers have asked about the impact of various     parties policies may have upon the private rented sector. There is no easy answer especially with the outcome of polling day being so uncertain.

It looks unlikely any party will have the majority required under first past the post. As such, they may need to ‘negotiate’ with another party to form a coalition. Remember the Liberal Democrats promise to abolish tuition fees? This was ‘negotiated’ out as part of their deal to gain office for one term. The same may happen with housing policies, so instead of discussing parties, I will expand on the possible effect of the new policies proposed.

New Build: Parties have all promised to focus on new supply with targets ranging from ‘let local authorities decide’ to 300,000 new homes. There is no agreement on the number of affordable homes with only Conservatives promising 275,000 by 2020 and the Greens an optimistic 500,000 in the same time scale. The mechanisms by which this can be achieved are lacking detail and, with all things, will be determined by the economy and availability of funding. In our opinion, both elements could be boosted if local authorities revisited the requirement for social housing, the dreaded section 106 agreement, which is not fit for purpose and which prevents many new developments from breaking ground. In some cases, local authorities require a 30% social housing element which deters buyers, effect prices and makes lenders wary. 10% of something is better than 30% of nothing. Look around the Royal docks in Newham and you will see acres of land undeveloped in a city desperate for new homes.

Rent control caps appear near unworkable in a free market economy. Price interference has a history of damaging markets in the UK and further afield. It’s a vote winning headline, but the implications price control can have on other elements of the housing market are profound.

Rent controls affect every aspect of the private rented sector from Landlords, though lenders and more worryingly those who build properties. It’s not about individual tenants thinking rents will go down. It will dissuade landlords from buying off plan, a key issue to fund subsequent phases of large developments. It may well prevent new developments being built as investors will switch to lower risk ‘already let’ properties and risk adverse lenders will make such investments uneconomic.

Imagine rent caps in place. Then imagine the Bank of England raising interest rates as the result of an as yet unforeseen economic crisis. Add in Brussels plans for 2016 to regulate Buy to Let mortgages in addition to longer tenancies and rent controls become very risky indeed. The EU plan could mean homeowners who “let to buy”, couples renting out a spare property, people relocating for work, or those struggling to sell their property could be refused a mortgage. The effect of this could be to reduce housing stock for the PRS and actually drive rents up.

Changes to security of tenure. New three-year tenancy agreements that would start with a six-month probationary period allowing landlords to evict a tenant if they are in breach of their contract have been proposed. This would then be followed by a two-and-a half-year term in which tenants would be able, as they are now, to terminate contracts after the first six months with one month’s notice.

Landlords would only be able to terminate contracts with two month’s notice if a tenant fell into arrears or was guilty of anti-social behaviour; or if the landlord wanted to sell the property or needed it for their family. This is designed to prevent landlords from terminating tenancy agreements to put up rent. More canny agents will simply write in a fair mechanism for rent reviews.

In my days as a front line agent, few tenants wanted long tenancies as they sought flexibility. Those whom agreed usually insisted on a ‘break clause’. An interesting fact from ARLA is that most tenancies last for around 2 to 3 years anyway so again, a vote winning sound-bite or a practical benefit. You decide.

Ban letting agents from charging tenants fees. This has already taken effect in Scotland and rents were reported that have increased as a direct result. Shelter denied this, or rather denied that the increase was as a result of the ban on tenant fees. In the interests of balance, LSL recently reported that this increase has now stabalised. Interestingly, tenants are in many cases still charged fees but not contingent upon the securing one specific property. Generation Rent & Shelter along with some MP’s believe agents simply charge for a signature on a document. This is untrue.

With the increasing legislative burden on agents, there is much more to it from referencing, ensuring the tenant can afford the property and doesn’t fall into difficulty, immigration checks, anti-money laundering checks etc not to mention the ongoing review of documentation to ensure compliance with a myriad of laws and regulations. Opponents also forget that we offer tenants a service from accompanied viewings to inventories, numerous visits to the property, assistance with utilities, arranging works, individual clauses in tenancy agreements – the list goes on. A good agent is invaluable and either these costs will have to be met by the landlord which may increase rents, or service and diligence may well decline as some agents seek cheaper alternatives. One thing we object to is those calling for reform including deposits & the first months rent in the list of fees. This is wholly misleading. Rent is NOT a fee anymore than a deposit which is returned at the end of the tenancy.

Starter Homes initiative – they key to this will whether the initiative is embraced by lenders. Discounts are great, but with a minimum 5 year residency lenders will ask what happens if the borrower falls in to arrears? Crucially, a key part of the Starter Homes plan is that should buyers sell within five years, they would have to repay the 20% discount – an average of £43,000. As such, repossession will be near impossible and in these days of risk management, I can see most mainstream lenders politely declining the business. Undoubtedly specialist lenders will materialise, but as with all such elite groups, the cost of borrowing may increase as there will be less competition.

British Property Federation said it was sceptical as to whether the scheme could deliver the number of homes promise and perhaps unsurprisingly added that most developers would prefer to develop brownfield sites to sell at full market price.

Mansion Tax: There is little doubt that this is a tax on London and potentially extremely unfair. Many people in such properties have been resident a long time and have benefited from price rises. It doesn’t mean they have disposable income. It’s an easy win for the parties concerned as it affects so few.

Empty Homes: There is no doubt that empty homes provide a quick source of housing stock. All but the LibDems have plans to increase council tax on unoccupied properties and we broadly support the initiative depending upon the qualifying period before being deemed as ‘unoccupied’.

Licensing / register of landlords & agents: Both Labour & the Green Party want a national register or compulsory licensing. Frankly, more red tape will not help until existing red tape is policed and enforced. Further, the landlords who will comply are generally those who adhere to legislation. Rogue landlords with something to hide wont want to sign up and may well be driven further underground, especially those who don’t declare their rental income to HMRC.

Conclusion: Most of the policies proposed may seem like headline grabbing vote winning initiatives rather than effective and workable policies. I do not doubt the good intentions, but it is the effect which concerns me. Individual policies are not joined up with other elements.  At best, they will prove ineffective, at worst they may unleash a near ‘butterfly effect’ which defines chaos theory. These effects are unknown, but may be be extreme. You cannot impose regulation on one element of an industry when all others driven by supply and demand, especially when the element you wish to control is the end of the planning, building, funding and sale process.

The current Housing Minister has categorically refused to make Clients Money Protection insurance mandatory which leaves tenants and landlords at risk. All parties have indicated that they support this essential protection but none will make it compulsory. Make no mistake, unless your agent has CMP Insurance, your money is at risk. SAFEagent has been campaigning for this and thousands of agents have joined the initiative in support; another example of agents acting contrary to the claims from the critics. SAFEagent remains an excellent example of industry working together for the benefit of the consumer.

What remains lacking from all parties is an appetite to regulate the lettings industry. Most agents crave regulation. It’s so easy to complain about agents who are subject to more red tape than most business on the High Street, but these rules and regulations are simply not policed handing a commercial advantage to those intent on doing wrong. This regulation could include a cap on fees charged to tenants. Just a thought…

Eric Walker, MD

 

 

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